Fayyad said that despite the shortfall, the underlying fiscal position today is better than it was two years ago [Reuters]

The Palestinian Authority (PA) may not be able to pay employees their salaries for the next two months because of a shortfall in foreign aid, Salam Fayyad, the prime minister, has said.

Fayyad told a news conference on Tuesday in Ramallah, West Bank that there was a "shortage of external financing" though he added that "our underlying fiscal position today is better than it was two or three years ago".

"We have been reducing our fiscal deficit," he said.

Fayyad said the PA may be forced to halve salaries in order to pay.

"What we intend to do is to pay half (salaries) ... in the hope that we can complete the payment of this obligation when enough resources are made available," he said.

"This will happen when enough foreign assistance arrives."

The PA has so far received $331m of $970m pledged by international donors in 2011. The
UAE, Oman and Algeria are among countries that have made donations.

The PA relies on budget support to pay salaries to 150,000 Palestinians in the West Bank and the Gaza Strip and monthly allowances to another 75,000 people.

"Just within the last couple of days, Saudi Arabia said that they will be sending $30m in response to the most recent appeals," he said.

Fayyad detailed contributions for 2011 which showed that Saudi Arabia, which paid $146m last year and $241m in 2009 had yet to pay anything this year.

In May, the PA was unable to pay wages when Israel temporarily withheld tax revenues it collects on the authority's behalf, citing concern the funds would reach Hamas following a unity agreement with Mahmoud Abbas, the Palestinian president.

That agreement, however, has reportedly stalled over the PA's desire to keep Fayyad in his post, which Hamas opposes. Hamas wants one of its own members from Gaza, the enclave it controls, to hold the position.

Arab states were blamed for a PA financial crisis last year, though the Palestinian government never failed to pay salaries and a $100m contribution from Saudi Arabia in October helped it meet commitments.