The Palestinian economic crisis is shaping up to be more alarming than projected, and is liable to provoke a humanitarian crisis, increased violence and the collapse of the Palestinian Authority, the World Bank said in a report The Associated Press obtained Monday.
Western powers and Israel have cut off hundreds of millions of dollars in aid and transfer payments to the Palestinian government to pressure the Islamic Hamas group, which rose to power in January parliamentary elections, to renounce violence and recognize Israel.
Additionally, banks in the West Bank and Gaza Strip, afraid of running afoul of US anti-terror laws, have stopped dealing with the Palestinian government, hindering its ability to receive money from Arab states.
In March, the World Bank had predicted that by the end of 2006, average personal income would sink by 30 percent, unemployment would jump from a pre-election level of 23 percent to about 40 percent, and the proportion of people living in poverty would climb from 44 percent in 2005 to 67 percent.
In a report released ahead of a meeting of Mideast negotiators and major donors on Wednesday, the bank concluded that "these projections now appear too rosy." Revised projections will be issued next month, it said.
Donor assistance has dropped more sharply than anticipated, and Israeli restrictions on the movement of Palestinian people and goods have been tightened, the World Bank said. Further pressure has come from banks that have withheld services to the Palestinian government, including The Arab Bank, which has informed the Palestinian Authority that it will no longer host its Central Treasury Account, the report said.
In light of evolving developments, 2006 is shaping up to be "the worst year in the West Bank and Gaza's dismal recent economic history," it added.
The interrupted cash flows have implications for the economy, security and governance, the World Bank said.
The Palestinian Authority has been unable for the past two months to pay government employees who provide for nearly one-third of the Palestinian population. Should this situation persist, a humanitarian crisis is liable to erupt, violence is liable to grow as discipline among unpaid security personnel breaks down, and the government could cease to function, the World Bank cautioned.
European donors have been exploring payment mechanisms that would bypass the Hamas-led government, and sustain people's incomes and basic public services.
The World Bank argued against setting up a new mechanism to handle salary payments, saying that could take too much time, and proposed operating through its existing emergency program.