Palestinian flag - Reuters - March 18, 2011
A boy waves a Palestinian national flag in East Jerusalem on March 18, 2011 Photo by Reuters
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An International Monetary Fund report released on Tuesday says the Palestinian Authority's financial institutions are ready for statehood now that it has carried out a series of economic reforms.

The report credited reforms and a prudent fiscal policy with enabling the Palestine Monetary Authority to fulfill core functions of a central bank.

"A strong banking system is vital for a future Palestinian state to sustain itself," it said.

The report said the reforms allowed the Palestinian Authority to reduce its dependence on foreign aid for its regular budget, from $1.8 billion in 2008 to $1.2 billion in 2010, and less than $1b projected for 2011.

It found that Palestinians are now able to conduct the sound economic policies expected of a future well-functioning Palestinian state.

The report comes at a significant time, with Palestinians having launched a diplomatic campaign working towards gaining recognition of an independent Palestinian state.

The Palestinians have warned that if peace talks with Israel do not resume, they will ask the United Nations general assembly in September to recognize their sovereign state.