Palestinian Authority Faces Cash Crunch as Arab States Cut Aid

The United Nations is warning of a looming Palestinian cash crisis as some wealthy Arab states have cut financial aid to the PA.

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Arab states have cut financial aid to the Palestinian Authority so far this year, according to PA figures seen by Reuters, 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 contacted by Reuters 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, and leaving officials in the West Bank with a budget headache.

Some Palestinian officials speculate 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, towards reconciliation.

Palestinian Finance Ministry figures seen by Reuters showed the PA had received $583.5 million in budget support so far in 2010. Only 22 percent came from Arab donors, the rest coming from international donors including the EU and 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 since 2007. But in 2010, both have fallen well short of previous support.

This year Saudi Arabia had paid $30.6 million by August, compared to $241.1 million in 2009. The United Arab Emirates, which contributed $173.9 million in 2009, has yet to pay anything.

United Nations warns of salary crunch

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 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 support a Gazan economy that has withered under an embargo imposed by Israel since the Hamas group rose to power there.

Palestinian policymakers say donor support has been one of the main engines of strong economic growth in the West Bank, estimated at up to 8 percent this year.

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".

Palestinian PM Salam Fayyad and President Mahmoud Abbas at the opening of a medical center in August 2010 in Ramallah.Credit: Reuters

Most officials in Fayyad's government are reluctant to openly blame Arab states for the shortfall, concerned that speaking out will make them even less likely to pay.

European Union diplomats have expressed frustration at what they see as a failure by some Arab states to honor pledges made at a 2007 donors' conference in Paris.

"Europe and the United States have fully met our commitments, but certain Arab states are not doing likewise, which is a problem," a senior diplomat in a Western capital told Reuters. When asked why this might be, he said: "Ask them."



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