Palestinian Authority faces cash crunch

Abbas has been on a diplomatic tour of Gulf Arab states in recent days. He visited Qatar on Monday.
 
Salam Fayyad, who recently stepped down as finance minister in order to run for parliament, said the PA was in a difficult economic situation. 

“We are in desperate need of Arab aid,” he said.

Fayad, who is expected to return to the finance post after the 25 January election, said international aid had helped to cover about one-third of a $1 billion deficit in the 2005 operating budget, and the Palestinians were searching for more help in covering the remainder.
 
The Palestinians are heavily dependent on foreign aid from Western donors and Arab states. But with the exception of
Saudi Arabia, Arab countries have largely failed to keep their financial pledges to the Palestinians.
 
Aid shortfall

Arab donors sent the Palestinians only about one-third of the $650 million in promised assistance last year, officials say.
 
After a conference in London last month, Western donors decided to withhold millions of dollars in aid after the Palestinians failed to carry out previously promised economic reforms.

Abbas is currently on a tour of the oil-rich Gulf Arab states

Donors were upset with the Palestinian decision last summer to raise salaries and add more people to the public payroll.
 
Since then, about $60 million in money reserved for Palestinian salaries has been frozen, said Nigel Roberts, the World Bank’s director for the West Bank and Gaza Strip

“The Palestinian Authority’s commitment to maintain a salary containment plan was breached in a major way in the second half of the year,” he said.

The spending levels are “completely unsustainable over time”, he said.

“Basically, the Palestinian Authority has put itself in a position where every month it will face the same crisis,” Roberts said.

The PA has had similar cash crunches in the past, always managing to scrape together money to pay salaries to its workers.
 
Suffocating crisis

Fayyad said he expected the government to withstand the latest crisis.

Salam Fayyad (R): PA needs to cut its dependence on foreign aid

“But there is no doubt that the Palestinian Authority is going through a suffocating financial crisis,” he said.
 
“There is a lack of foreign aid, and it will be difficult to continue in this way, so we need to reorganise.”

He said the Palestinians would have to reduce their dependence on foreign aid, but he gave no details on the reorganisation.

Palestinian analyst Khalil Shikaki has said the PA’s main base of support is its status as the biggest employer in the West Bank and Gaza.

If it fails to pay salaries, it will be in danger of collapse, he said.