Palestinians turn to Arab donors to close debt

International aid has helped cover about one-third of a $1 billion deficit.

palestinians 88 (photo credit: )
palestinians 88
(photo credit: )
After a disagreement with European donors, the Palestinian Authority has turned to Arab countries for help in ending a "suffocating financial crisis," a top Palestinian official said Monday, after the West froze its funding. PA Chairman Mahmoud Abbas has been on a diplomatic tour of Gulf Arab states in recent days. He visited Qatar on Monday. "We are in desperate need of Arab aid," said Salam Fayyad, who recently stepped down as finance minister in order to run for parliament. Fayyad is expected to return to the finance post after the January 25 election. Fayad said international aid has helped cover about one-third of a $1 billion deficit in the 2005 operating budget, and the Palestinians are searching for more help in covering the remainder. The Palestinians are heavily dependent on foreign aid from Western donors and Arab states. But with the exception of Saudi Arabia, Arab countries have largely failed to keep their financial pledges to the Palestinians. Arab donors sent the Palestinians only about one-third of the $650 million in promised assistance last year, officials say. Following a conference in London last month, Western donors decided to withhold millions dollars in aid after the Palestinians failed to carry out previously promised economic reforms. Donors were upset with the Palestinian decision last summer to raise salaries and add more people to the public payroll. Since then, about $60 million in money earmarked for Palestinian salaries has been frozen, said Nigel Roberts, the World Bank's director for the West Bank and Gaza Strip. "The Palestinian Authority's commitment to maintain a salary containment plan was breached in a major way in the second half of the year," he said. The spending levels are "completely unsustainable over time," he said. "Basically, the Palestinian Authority has put itself in a position where every month it will face the same crisis," Roberts said. The Palestinian Authority has had similar cash crunches in the past, always managing to scrape together money to pay salaries to its workers. Fayyad said he expects the government to weather the latest crunch. "But there is no doubt that the Palestinian Authority is going through a suffocating financial crisis," he said. "There is a lack of foreign aid, and it will be difficult to continue in this way, so we need to reorganize." He said the Palestinians will have to reduce their dependence on foreign aid, but he gave no details on the reorganization. Palestinian analyst Khalil Shikaki said the Palestinian Authority's main base of support is its status as the biggest employer in the West Bank and Gaza. If it fails to pay salaries, the authority would be in danger of collapse, he said.