Salam Fayyad, the Palestinian prime minister, has said his government is close to hitting a "brick wall" because it is not receiving enough aid to balance the budget.
The Palestinian Authority, or PA, has been forced to take loans because of the shortage of aid money, but that is not a sustainable solution, he told a donors' conference in Oslo, Norway, on Monday.
Blaming delinquent Arab donors, the International Monetary Fund said last week that the PA faces a serious cash crisis after receiving only half of the aid money it needs to function every month.
Many economic analysts say Arab donors are reluctant to pay up because of Palestinian infighting between the Fatah faction of Mahmoud Abbas, the Palestinian president, which controls the West Bank, and Hamas, which overran Gaza two years ago.
The budgetary aid received by Palestinians over the past five months totals $328 million, less than half of the $1.5bn needed to pay monthly expenditures, a senior IMF official said.
To offset the shortfall in donor funds, the PA has been forced to borrow from private banks, but it is close to reaching its borrowing limit, Oussama Kanaan, an IMF representative in the West Bank and Gaza Strip, said.
Fayyad said last week the PA faced a "suffocating financial crisis", but that he would still be able to pay public workers by June 7 thanks to the bank lending.
Kanaan said the PA could face a "serious liquidity crisis" unless donors increased their budget support to at least $120m per month.
Aid dropping off
Donor assistance surged in March to $178.7m, but dropped to only $25.7m in May, the IMF said.
"Donors have to act urgently to disperse the money, otherwise we'll have a big problem," Kanaan said.
Donor states have announced massive pledges for the Palestinians over the last two years in a public show of support for Abbas in his power struggle with Hamas, which won a 2006 Palestinian election.
These included $4.5bn in pledges at a conference in the Red Sea resort of Sharm el-Sheikh, Egypt, in March to help rebuild the Gaza Strip after an Israeli offensive, and to help fund Abbas's government in the West Bank.