The International Monetary Fund (IMF) on Monday denied a Palestinian Authority request for a $100 million bridging loan via Israel.
Palestinian Authority Prime Minister Salam Fayyad approached Bank of Israel Governor Stanley Fischer in search of Israeli assistance with obtaining the loan earlier this year.
Israeli assistance in seeking the loan – approved by Prime Minister Binyamin Netanyahu – is necessary as the PA is not a state and cannot apply for a loan on its own behalf.
Instead, Fischer applied for the loan intending to forward the money to the PA, who would, in turn, repay the debt directly to the IMF.
However, the IMF rejected Fischer's request on the Ramallah-based PA's behalf, saying it did not want to set a problematic precedent for loans by proxy, due to the PA's near insolvency.
At present, the PA does not have sufficient funds to pay government employee salaries this month. Nor can the PA pay its debt to private companies with which it has contracted services.
"It is the worst financial crisis experienced by the Palestinian Authority since its founding,” PA labor minister Ahmed Majdalani told AFP, adding, “What is available to the Palestinian Authority at the moment in terms of funds is not enough to pay government employee salaries this month, with Ramadan approaching.”
“It is not sufficient to pay the bills that the Palestinian Authority owes to private companies,” he claimed.
While peace talks between Israel and the PA have been stalled for over two years due to growing list of preconditions emanating from Ramallah, the Netanyahu government believes it has a vested interest in preserving the PA.
"Netanyahu is interested in preventing a situation whereby the PA collapses financially, which is liable to have a very negative impact on the West Bank security situation," a senior Israeli told reporters on Monday.
If the PA – largely underwritten by the United States, European Union, and Arab nations – were to collapse, governance of its enclaves in Judea and Samaria would likely fall to the Hamas terror organization.
The PA’s liquidity problems began as early as September 2011, when President Mahmoud Abbas defied US stipulations on aid by announcing a unilateral bid for statehood at the United Nations in direct contravention of the 1993 Oslo Accords, possibly not expecting the US to abide by its stipulations.
In addition, Arab nations strugging with the Arab Spring and a global economic downturn, and the European Union which is struggling with Europe's sovereign debt cris, have been unable to provide monetary support for the PA.
Analysts say the IMF's refusal of the bridge loan via Israel is a clear sign of how desperate Ramallah's financial straits have become.