PA Finance Minister Nabil Kassis
PA Finance Minister Nabil KassisReuters

A European minister blamed Israel for the Palestinian Authority’s financial crisis on Sunday, as its finance minister warned that efforts to create a Palestinian state could collapse unless emergency funds are found to bail out its nascent government.

The PA faces a $400 million shortfall this year and has already been hit by protests over the spiraling cost of living and spending cuts by Chairman Mahmoud Abbas's administration.

“The two state solution is in jeopardy if the PA is not able to continue to function and prepare for the two state solution," PA finance minister Nabil Kassis was quoted by AFP as having said after a meeting of donor nations at the UN headquarters.

"This could be very soon," Kassis told reporters, calling for urgent action by donors who have not yet kept finance promises.

Without giving a timeframe for how long the Palestinian Authority can survive without help, he said, "This should come sooner than later, late would be too late."

The minister said there were $300 million dollars of pledges unpaid, some of which have been blocked by the U.S. Congress since it cannot legally authorize aid to the PA because of its unilateral quest for recognition as a state, which is against the Oslo Accords.

The current financial crisis in the PA government has been described as its worst since the 1994 establishment of the entity. The crisis has rendered the PA unable to pay employees their salaries or pay off debts it owes to private businesses.

PA Prime Minister Fayyad warned several months ago that the Palestinian Authority may soon fail financially and cease to exist. He also recently chose to blame Israel for the Palestinian Authority's financial troubles.

Norway's Foreign Minister Espen Barth Eide seemed to back Fayyad on this when he said on Sunday, according to AFP, that the crisis was caused by Israel's restrictions on the economy in the PA-assigned areas of Judea and Samaria, as well slower growth and smaller donor payments.

In response, an Israeli official told AFP that Israel has paid more than $110 million in advanced fees on VAT returns in the past two months. Israel is "very concerned" about the crisis, said Irit Ben-Abba of the Israeli foreign ministry. The PA owes the Israel Electric Company alone 700m. shekels.

The Norwegian minister said, however, that Israel should ease restrictions on access to water, land, raw materials and export markets. The PA economic crisis is "dire and getting worse," he said, according to AFP.

Widespread corruption, inflated salaries, payment to imprisoned terrorists, boycott of Israeli products and prohibition against working for Israelis, are the main reasons for the crisis, but remained unaddressed.

The World Bank and International Monetary Fund have estimated a $400 million cash shortage which could get worse by the end of the year.

The World Bank has predicted the Palestinian Authority may be forced to extend arrears already owed in pensions and cut basic spending such as wages "which could have severe social impacts."