Finance Minister Salam Fayyad on Tuesday said the Palestinians had so far got only $25 million of the $660 million pledged for the whole year and it had been impossible to present the annual budget as a result of the delay.
"I do not expect it to continue, but until it improves materially and significantly, our ability to meet obligations will continue to be severely tested," Fayyad said.
"In the last four months our situation was difficult. We could not pay salaries to employees. Even paying salaries has become a real challenge for us," he said.
The minister said the only money the aid-dependent Palestinian Authority had received so far this year was $20 million from the US and $5 million from Belgium.
The Palestinian economy collapsed during the past four years of fighting with Israel.
But prospects for the economy have brightened alongside those for peace since Mahmud Abbas, a former businessman who opposes violent struggle, succeeded Yasir Arafat as Palestinian president.
"In the last four months our situation was difficult. We could not pay salaries to employees"
Palestinian finance minister
Last month, US congressional aides said President George Bush was considering a proposal to boost US aid to Palestinians this year by $200 million to help Abbas prepare for Israel's planned Gaza withdrawal.
Palestinians estimate aid requirements at up to $1.4 billion, and the World Bank has said donors could give that much if conditions of reform and ending violence were met.
Fayyad, tipped to keep his job when a new cabinet is announced in coming weeks, is credited with making a start on financial reform and says annual internal revenues have risen to $70 million from $45 million since 2002 when he took office.
The finance chief said Israel should remove checkpoints in the occupied West Bank that strangle the Palestinian economy. Israel says the roadblocks stop bombers, but Palestinians call them collective punishment.
"This is a basic need. What's the point having money if you cannot move?" Fayyad said.
Between 1999 and 2003, Palestinian annual per capita income is estimated to have dropped by about one third to a little over $1,100. In the same period, unemployment rates rose from 10% to 26 %, according to the World Bank.