World Bank: Palestinian fiscal crisis is deepening

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By AMY TEIBEL, Associated Press

JERUSALEM (AP) — The World Bank warned Wednesday of a deepening fiscal crisis in the Palestinian territories and appealed to donors to act urgently to prop up the Western-backed Palestinian Authority.

The bank said the finances of the Palestinian Authority, which governs Palestinian areas of the West Bank, have been hurt by reduced donor funding; higher-than-expected spending on pensions and loans; and a revenue shortfall sparked by an economic slowdown, primarily in the Hamas-run Gaza Strip.

In a new report, the bank concluded that sustainable Palestinian economic growth requires strong private sector investment. But it warned that such development is hampered badly because Israel heavily restricts Palestinian access to 60 percent of the West Bank.

Much of the West Bank's farmland and land reserves are located in that territory, which remains under full Israeli control.

"Donors do need to act urgently in the face of a serious fiscal crisis facing the PA in the short term," said Mariam Sherman, World Bank Country director for the West Bank and Gaza.

"But even with this financial support, sustainable economic growth cannot be achieved without a removal of the barriers preventing private sector development," she added.

State Department spokeswoman Victoria Nuland, speaking to reporters in Washington, said that the United States had seen the report and would urge donors to help. "I would expect that in our bilateral interactions with some of the traditional donor countries, we will be encouraging them to give as generously as they can because the situation is very, very difficult," she said.

But donors, including the U.S. and some Arab states, have not met their funding pledges to the Palestinian Authority, which relies on that money to pay salaries to 150,000 civil servants who gobble up half of the government's nearly $4 billion budget. But even if they do, the pledges will still fall $400 million short of what the PA would need to close its budget gap, the World Bank said.

Economists say the cash crisis is the worst in the Palestinian Authority's 18-year existence and threatens to set off a chain reaction of business failures, layoffs and economic downturn. Some warn that the Palestinian Authority, key to negotiating and implementing any future peace deal with Israel, will not survive without a major infusion of cash.

A report released Wednesday by the International Monetary Fund echoed the bank's findings, citing a slowdown in growth and rise in unemployment in both Gaza and the West Bank. The report said growth declined to 5 percent in 2011 and the first quarter of 2012, from 9 percent in previous years, while unemployment rose to 19 percent in the first half of 2012 from 16 percent in the same period last year.

In a separate report, the Israeli government claimed the Palestinian crisis was caused by a donor shortfall and overspending. It said the Palestinians owe $160 million to the Israel Electric Corp.

Israel said the economic slowdown in the West Bank posed a major challenge to Palestinian stability, but said it has taken a number of steps to try to help the Palestinians.

It said that it has expanded by 40 percent the number of Palestinians allowed to work in Israel since early 2011, sent advance tax transfers to the Palestinians to facilitate the payment of salaries to civil servants, taken steps to ease movement and facilitate trade in the West Bank and approved dozens of development projects in the sections of the West Bank under Israeli control.

The Israeli report was prepared for the international donor nations that support the Palestinian Authority.

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