MoneyNati Shohat/Flash 90

The Palestinian Authority faces a financing gap that could top $1.8 billion, the World Bank warned on Wednesday, according to AFP.

In its latest report on the PA economy, the World Bank says that the PA economy has been in deep crisis since February, when the Israeli Cabinet decided to implement the policy of offsetting the PA’s payments to terrorists from the tax money it collects.

The move caused PA chairman Mahmoud Abbas to impose austerity measures, cutting almost half the salaries of its employees, the World Bank said.

The cuts hit hard on the PA territories, already suffering unemployment of around 26 percent in the second quarter of 2019, it added.

Immediately after Israel’s decision to offset the money paid to terrorists from the PA tax funds, the PA announced it would not take the partial sum of the funds from Israel.

Abbas later reiterated that he would not accept partial payment of tax transfers owed by Israel and also stressed that he would not end the financial support for the families of terrorists imprisoned or killed by Israel.

The PA chairman has in the past called the PA's continued payments to terrorists a "red line" that would not be halted under any circumstances.

Last month, the PA accepted a partial payment of just over half a billion dollars from Israel. However, that part-payment of arrears has not fixed the liquidity crisis, the World Bank’s report said.

"The Palestinian Authority faces a financing gap that could exceed $1.8 billion for 2019, driven by declining aid flows and the unresolved transfer of taxes and import duties collect by Israel on behalf of the PA," it wrote.

"The outlook for the Palestinian territories is worrisome," Kanthan Shankar, World Bank country director for the “West Bank” and Gaza, said in a statement accompanying the report.

"The severe liquidity squeeze has started to affect the PA's ability to fulfill its responsibilities of paying its civil servants and providing public services."

The bank's report will be presented to the international donor group for Palestinians, known as the Ad Hoc Liaison Committee, at its meeting next week in New York.

The PA spends six percent of its annual budget to pay $4.5 million a month to jailed terrorists and another $6.5 million to their families, yet continues to ask for foreign donations.