Salam Fayyad
Salam Fayyad Flash 90

The Palestinian Authority faces a $400 million budget shortfall and risks "social upheaval," the World Bank and the International Monetary Fund warned on Wednesday, according to an AFP report.

The two financial institutions, in reports published ahead of a meeting of international donors in New York next Monday, urged new funding for the Ramallah-based government, which is struggling with a deep financial crisis.

In recent weeks, demonstrators have brought cities in the PA-assigned areas of Judea and Samaria to a standstill over the spiraling cost of living, and particularly steep petrol costs.

The demonstrations forced prime minister Salam Fayyad to slash VAT and fuel prices.

The World Bank report warns of "a time of deepening fiscal crisis for the Palestinian Authority," noting that the situation is likely to "worsen by the end of 2012," according to AFP.

Both institutions said the government faces a current budget gap of $400 million "if donor pledges are met," noting that promised funds, particularly from regional neighbours, have often not been forthcoming.

"If no additional donor funding is identified," the World Bank says, "the PA may be forced to finance the gap through accumulating additional arrears to the pension system and cutting some of its basic spending such as wages, which could have severe social impacts."

The IMF noted that growth has slowed and unemployment risen in both Judea and Samaria as well as Gaza.

In Judea and Samaria, the report said, growth fell to five percent from nine percent in 2011 and the first quarter of 2012, while unemployment jumped to 19 percent in the first half of 2012, up from 16 percent in the same period a year earlier.

In Gaza, the IMF report said, growth slowed to six percent in the first quarter of 2012 even as unemployment climbed to 30 percent from 28 percent over the same period last year.

"Looking ahead, with persisting restrictions, financing difficulties with aid shortfalls, and stalemate in the peace process, there is a high risk of a continued economic slowdown, a rise in unemployment, and social upheaval," the report said.

Both institutions pointed to continued Israeli restrictions on PA activity in Area C. The World Bank report said that to "reverse the downward trend in economic growth," the private PA sector "needs access to land in Area C.”

"However, restrictions put in place by the government of Israel continue to stand in the way of potential private investment and remain the major impediment to sustainable economic growth," the report claims.

Both institutions urged donors to pledge additional support, which the World Bank said would be "critical in the medium term to sustain... achievements and support the PA through its current crisis."

Fayyad has announced he is willing to resign if that is the “will of the people,” but, as usual, blamed Israel for the Palestinian Authority's financial troubles.

Due to the PA’s financial crisis, Prime Minister Binyamin Netanyahu ordered last week the transfer of a 250 million shekel advance to the PA from tax revenues collected by Israel.

The aid to the PA comes amid fears by Israeli military and government leaders that the social protests in the PA will lead to anarchy.