Mahmoud Abbas and U.A.E. President Sheikh Khalifa bin Zayed Al Nahyan
Mahmoud Abbas with the U.A.E. president in Abu Dhabi on May 2, 2010. Photo by Getty Images
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Arab states have cut financial aid to the Palestinian Authority so far this year and the United Nations has warned of a looming Palestinian cash crisis.

"The Arabs are not paying. We urge them to meet their financial pledges," said Saleh Rafat, a member of the Palestine Liberation Organization's executive committee and one of the few Palestinian officials willing to speak out on the matter.

Arab government officials declined to comment on the issue.

The failure of some wealthy Arab states to pay up is frustrating Western governments, which are big contributors to the Palestinian territories. The situation is also leaving officials in the West Bank with a budget headache.

Some Palestinian officials speculate that Arab states might be withholding the cash to try to persuade the Palestinian factions Fatah (which controls the West Bank ) and Hamas (which controls Gaza ) toward reconciliation.

The Ma'an news agency quoted a PA official who denied reports indicating the authority is facing a major cash crisis. PA spokesman Ghassan Al-Khatib said workers will find money in the bank at the end of the month, but conceded that the government was facing a "very severe financial crisis, but one that is being managed," Ma'an reported.

Palestinian Finance Ministry figures showed the PA had so far received $583.5 million in budget support in 2010. Only 22% came from Arab donors, the rest came from international donors including the European Union and the United States.

In the last three years, the most Arab states have paid in any one year was $525.9 million, contributed in 2008, the figures show. Gulf oil exporters Saudi Arabia and the United Arab Emirates have been the main Arab contributors to the PA since 2007. But this year, both have fallen well short of previous support.

This year Saudi Arabia had reportedly paid $30.6 million by August, compared to $241.1 million in 2009. The UAE, which contributed $173.9 million in 2009, has yet to contribute anything.

A UN report this week said the Palestinian Authority "will face a serious liquidity crisis in September and will have difficulty paying August salaries" due to the aid shortfall. PA officials, however, said August wages were secured.

Aid is crucial in helping pay the wages of 148,000 PA employees, including 67,000 in the Gaza Strip, whose salaries help support the Gazan economy that has withered since Hamas rose to power there in 2007.

Palestinian policymakers say donor support has been one of the main engines of strong economic growth in the West Bank, a figure estimated as having reached 8% this year.

Palestinian Prime Minister Salam Fayyad, midway through a two-year plan to build the institutions of a future Palestinian state, warned recently of "serious financial difficulty" and said the PA faced "a significant shortfall in external assistance."

Ma'an also reported that the EU-denied aid to the Palestinians is linked to negotiations with Israel, quoting the head of operations at the Office of the EU Representative in Jerusalem, Roy Dickenson. However he categorically rejected accusations that donor countries were withholding assistance as the international community pushes for a return to direct peace talks.