Top Palestinian officials are urgently appealing for financial support from Islamic donor states and the Islamic Development Bank to help the beleaguered Palestinian Authority stay afloat.
Palestinian Monetary Authority (PMA) governor George Abed warned in an interview with Emerging Markets that the government is facing economic ruin: “On current trends, the government’s fiscal position is unsustainable,” he said, calling for greater financial support this year to prevent “a likely further decline in GDP”.
“The government is expected to get $500-700 million in aid in 2007; however, the gap between revenues and expenses has widened to between $700-800 million in recent years,” he said. His urgent appeal comes amid renewed Israeli air strikes against Hamas militants in Gaza, and Israeli threats to target senior Hamas politicians, leaving a truce between the two sides in grave doubt.
Palestinian state finances continue to suffer under sanctions on bank transfers to the Hamas-led Palestinian Authority imposed since February 2006. Abed said this has “led to the non-payment of salaries, and involved Israel withholding a substantial amount of tax revenue income”. This includes customs duties and VAT worth about $700 million, “or nearly two-thirds of all of the Palestinian Authority’s domestic revenue”, Abed says.
Bank of Israel governor Stanley Fischer told Emerging Markets that with no capital controls, Israel’s sanctions cannot affect the banking sector: “The Bank of Israel has no direct control over Palestinian financial institutions or the budget – bank inspection is done by the Palestinian Monetary Authority.”
But Abed maintained that although the “banks in Palestine and Israel maintain a business relationship... the climate for private investment is distorted by restrictions placed by Israel. The difficulty of moving people and goods even within the West Bank is a major obstacle, and this climate is likely to remain as Israeli restrictions are not likely to ease.”
Infrastructure across the PA remains in disrepair. Particularly urgent is the renovation of a sewerage plant that collapsed in North Gaza in March, killing a number of Palestinians and destroying many homes, said Mohammad Shtayyeh, head of the Palestine Economic Council for Development and Reconstruction (Pecdar). “The whole reconstruction project will cost $45 million, and $32 million has been committed so far,” Shtayyeh told Emerging Markets. “We have asked the Islamic Development Bank to contribute to the remaining sum.”
Shtayyeh said Pecdar is finding sufficient funds to keep afloat, but the list of Palestinian reconstruction needs remains long. “Foremost is the need to reconstruct areas destroyed by Israelis, particularly housing. Next is reconstructing water networks, since there are still 184 Palestinian villages without drinking water,” he said.
Established by the PLO in 1993, Pecdar is a public institution separate from the Palestinian Authority. It is therefore exempt from US sanctions on the Hamas-led government, allowing Pecdar to gain access to donor funding, Shtayyeh said.