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Analysis: Financial Crisis May Destroy PA

The PA‘s growth has been fueled by handouts, but the World Bank reports that dry financial wells may cause an “acute fiscal crisis.”
By Tzvi Ben Gedalyahu
First Publish: 9/12/2011, 12:04 PM

PA Security Forces
PA Security Forces
Flash 90

The Palestinian Authority’s growth has been fueled by handouts, but the World Bank reports that dry financial wells may cause an “acute fiscal crisis.”

The latest report, which contradicts previous glowing accounts of how the Palestinian Authority (PA) can maintain itself as stable country, warns of an economic slowdown in the PA, primarily due to the lack of donor countries fulfilling their pledges to fork over billions of dollars to Ramallah.

The World Bank also cited Israel’s security checkpoints as a reason for the PA’s financial problems, but unlike previous reports, the security measures were mentioned as a secondary problem.

Foreign donors, particularly the European Union, have pumped hundreds of millions of dollars to pay Arabs to take over land that had been under Israeli control until the mid-90s. Thousands of Arabs living in Judea and Samaria have received new vehicles to help them criss-cross the country, often skirting Israeli checkpoints that are designed to halt illegal smuggling of poultry, eggs and vegetables as well as to stop terrorists.

The World Bank noted that contributions to the PA from Arab countries in the first half of this year were only one-third of the amount in 2010 and slightly more than 15 percent of the $62 million donated in 2009.

The World Bank does not mention the new financial crisis that is spreading over Europe, threatening to bankrupt Greece and other countries.

Slow growth and the possibility of a recession in Europe could further hamper the ability of the European Union to financial the PA, which has been reliant on it for paying salaries to its inflated work force.

A fiscal crisis could undermine the "promise of...institution-building measures,” according to the World Bank.

"Ultimately, in order for the Palestinian Authority to sustain the reform momentum and its achievements in institution-building, remaining Israeli restrictions must be lifted," the report said. However, the major roadblock is the PA itself, by virtue of the four-year-old split between Ramallah, headed by Fatah leader and PA Chairman Mahmoud Abbas, and Gaza, ruled by its de facto Prime Minister Ismail Haniyeh of Hamas.