Halt in aid would devastate PA economy

World Bank: Three-quarters of population could be living in poverty by 2008.

palestinian boy poor 298 (photo credit: AP [file])
palestinian boy poor 298
(photo credit: AP [file])
The Palestinian economy will be devastated and plunge into a deep depression if Israel and the international community follow through on threats to cut off financial assistance once Hamas assumes power, the World Bank warned Thursday. In the worst case, personal incomes would drop by 30 percent this and three-quarters of the population could be living in poverty by 2008, the report said. It also warned that the Palestinian Authority, the biggest employer in the West Bank and Gaza, could be pushed to the brink of collapse. "Suspending revenue transfers, constraining Palestinian movement and access and reducing aid flows would cause severe economic damage if the available tools were employed with sufficient vigor," the report says. The report underscored the dilemma that the international community faces in dealing with the incoming Hamas government. Israel and the West want to isolate Hamas, which they have labeled a terrorist group, without harming the general Palestinian population. The Palestinians depend heavily on international assistance, receiving about $1.3 billion (€1.08 billion) last year. Western donors, who provide most of the aid, have threatened to scale back this money if Hamas does not renounce violence. Hamas has refused to moderate its views, and instead has turned to the Arab and Islamic world for financial assistance. Hamas, which won legislative elections in January, is completing formation of a government that is expected to take office by the end of the month. In its first move against Hamas, Israel last month halted transfers of about $55 million (€46 million) in taxes it collects for the Palestinians each month. The tax transfers are essential for the Palestinian Authority's operating budget. The report warned that a halt in these transfers "is incompatible with continuity in essential government operations." Without this month's transfer, the Palestinian Authority paid the salaries of its 140,000 workers on Wednesday - two weeks late - only after receiving emergency assistance from European and Arab donors. If Israel continues to withhold the tax funds, and imposes the other restrictions, the Palestinian economy will contract 24 percent this year, and unemployment will jump to 36 percent, up from 23 percent in 2005, the report warned. The number of people in poverty, those living on less than $2 (€2) a day, would rise to 62 percent this year, from 44 percent in 2005. It said the situation would be even worse if international donors scale back assistance. In the worst case, it said the economy could contract by 27 percent and personal incomes drop by 30 percent this year - levels comparable to a deep depression, the report said. It said unemployment would reach 40 percent this year and 47 percent in 2008, up from 23 percent last year. The poverty rate would rise to 74 percent in 2008. Israel, the US and Europe say they don't want money to reach Hamas but support continued humanitarian assistance to the Palestinians. "If money to the budget of the PA is cut off, it's incumbent on all of us to make a maximum effort to beef up direct humanitarian aid to alleviate hardship," Foreign Ministry spokesman Mark Regev said. The World Bank report was issued in preparation for a meeting of donors at the end of April. At that time, officials are expected to issue policy recommendations to the donors. Former World Bank President James Wolfensohn, who is now an international Mideast envoy, said international aid must continue to reach millions of poor Palestinians. "If you have a million Palestinian kids in the streets how can you have peace?" he told Congress on Wednesday. "Kids won't have schools and there will be chaos in the streets." Wolfensohn said it could months to devise a new method of delivering assistance to the Palestinians. Palestinian officials were not immediately available for comment. But in a sign of the uncertainty caused by the Hamas victory, officials announced that a major investors' conference scheduled next month has been canceled, and a follow-up meeting in the fall has been postponed. The conference, sponsored by the government and major Palestinian companies, had aimed to attract foreign investors to the Palestinian areas.