Development of Area C is necessary for sustainable Palestinian economic growth, the World Bank said in a report it published Wednesday calling for donor countries to pledge $400 million to fix a shortfall in the PA’s 2012 budget when the Ad Hoc Liaison Committee meets in New York on September 23.

“Donors do need to act urgently in the face of a serious fiscal crisis facing the PA in the short term,” World Bank Country Director for the West Bank and Gaza Mariam Sherman said.

“But even with this financial support, sustainable economic growth cannot be achieved without a removal of the barriers preventing private sector development, particularly in Area C,” she said.

According to the report, the Palestinian Authority is projected to have a $1.5 billion deficit by the end of 2012, for which only $1.1 b. has been raised from donor countries.

The nations who gather Sunday for the New York donor conference will be asked to make up the additional $400 m. sum, the report said.

If the money is not found, the PA will face a severe budget crisis, the report warned.

“The PA’s local debt is almost at the limit that the banking sector can sustain and therefore it is unlikely that the banks will be providing additional financing,” the report said.

“It is also doubtful that private suppliers will be providing further credit given the current high level of arrears,” the report said.

“If no additional donor funding is identified, the PA may be forced to finance the gap though accumulating additional arrears to the pension system and cutting some of its basic spending such as wages, which could have severe social impact,” the report warned.

It explained that the PA’s recurrent deficit for the first half of 2012 was 32 percent beyond what had been anticipated.

Total expenditures and net lending were 4.5% above budget while revenues were 7% below their target, the report said.

It warned that Palestinian budget woes would continue unless it could increase private sector investment through the development of Palestinian holdings in Area C in the West Bank, which is under Israeli military control.

The document noted that Israel had taken some steps to help Palestinian development of Area C.

The World Bank report said that, according to the Foreign Affairs Ministry, 119 Palestinian infrastructure projects for Area C were approved in 2011.

It added that according to the ministry, eight master plans for the development of Area C were being examined.

Separately, the report also said that Israel and the PA had reached an understanding to expand trade between them and streamline clearance revenue procedures, starting in 2013.

Still, the report said that restrictions on Palestinian movement and access remained a major impediment to Palestinian economic growth. It also called on Israel to remove obstacles to the Palestinian development of Area C.

Overall, it said, “the continued geographical fragmentation of Area C poses a binding constraint to real economic growth, essential to support the future Palestinian state.”

Israel: PA monetary problems connected to world economic crisis

Foreign Ministry spokesman Yigal Palmor had not yet seen the report, but had heard that it chastised Israel for not doing enough to protect Palestinian freedom of movement or development in Area C.

He noted that the world economic situation was deteriorating, and it was important to see the Palestinian’s monetary situation within the larger global context.

“It is normal for the Palestinian economy to be weak because it is not disconnected from the global economy. Maybe before asking Israel to do more they [the World Bank] should take stock of the deteriorating economic situation in Israel and Europe and the rest of the world,” he said.

He noted that Arab countries such as Qatar and Saudi Arabia could also save the day by “writing checks” to the PA, and not just issuing “empty statements.” Palmor said that Israel has lifted road-blocks, checkpoints and issued additional permits for Palestinians to work in Israel.

Earlier this month Israel gave the PA an advance transfer of NIS 250 m. in tax funds.

An Israeli official added that a final status agreement would vastly improve the Palestinian economy and pave the way for increased private investment in the Palestinian territories. The official called on the PA to return to the negotiating table to conclude such an agreement with Israel.

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