GAZA CITY, 3 February 2006 — The Palestinian Authority will delay paying the January salaries of 137,000 government employees for at least two weeks as a World Bank report said the Authority’s financial situation was becoming increasingly untenable as a result of ballooning public spending.
The Palestinian Authority needs $116 million to cover the monthly payroll. After the election victory of Hamas last week, Israel said it was suspending its monthly tax transfers to the Palestinian Authority, worth about $45 million, pending further review.
The Palestinian Authority will have to withhold the salaries, which were due yesterday, for at least two weeks while it tries to find alternative funding, said an official involved in negotiations with donor countries. The official spoke on condition of anonymity because the talks on getting alternative funding were continuing.
The United States and other foreign donors also threatened to withdraw aid to the Palestinian Authority if Hamas took power without renouncing violence and recognizing Israel. The Palestinian budget was already in trouble before the election because European donors stopped forwarding salary money in December after the government gave raises of up to 40 percent to its employees and added people to its already bloated payroll.
The Palestinian Authority is perpetually in a financial crisis and has had to delay paying salaries in the past. But permanent aid cuts would force the government to lay off thousands of workers and could plunge Palestinian areas, already beset by violence and disorder, deeper into chaos.
Mohammed Ishtayeh, a Palestinian Cabinet minister, said the government was in talks with Israel to try to persuade it to unfreeze the millions of dollars in tax rebates and customs payments it is withholding.
They are also hoping to receive aid from Arab countries and persuade the World Bank to release $60 million in frozen aid. The World Bank withheld the aid in December because the Palestinians did not follow through on fiscal reform promises, the bank said.
“We are working on more than one level to provide salaries this month,” Ishtayeh said.
The pressing need to ensure continued cash flow was highlighted in the World Bank report which said the Palestinian Authority’s financial situation was becoming increasingly untenable as a result of ballooning public spending. The Washington-based institution said the budget deficit reached $800 million in 2005, threatening to destabilize government operations. Nearly half the deficit was financed by donors, according to the report.
The Palestinian Authority accused Israel of practicing collective punishment in blocking funds owed to the Palestinians. Outgoing Prime Minister Ahmed Qorei said he was hopeful of finding alternative funding to meet the budget shortfall.
“For Israel to freeze this money, is a form of collective punishment. We hope that Israel will release this money because it’s our right,” Qorei told reporters at the start of a Cabinet meeting.
Western donors, led by the US and EU, funnel about $900 million to the Palestinians each year, most of it designated for reconstruction projects in the impoverished Gaza Strip and West Bank.
The Palestinian economy is in tatters, with unemployment at 23 percent and some 43 percent of the population living in poverty.
— Additional input from agencies
