A new report from the World Bank has warned that the Palestinian Authority’s (PA) budget has become dangerously untenable, blaming “uncontained” government spending on a deficit that topped US$800 million in 2005.
The report cautioned that the prospects for economic recovery are limited as previous promises by Palestinian officials to implement reforms are not being fulfilled.
Palestine’s population of 3.6 million has a total GDP of US$3.3 billion, yet its GDP per capita (US$934) has decreased by 38% since 1999. According to the report, there is a 48% poverty rate and crippling 27% unemployment.
As a result of slow economic reforms, the World Bank said it had suspended a US$60 million payment from a multi-donor reform fund in December.
“Unless addressed promptly, deficits of this magnitude will compromise the proposals of rapid recovery by destabilising the PA’s operations, and by reducing the public and private resources otherwise available for productive investment,” said the bank.
As Hamas prepares to take the reigns following its parliamentary election victory, the report is the latest in a series of blows to the economic confidence of the Arab state. Last week, there was embarrassment among PA officials when it was revealed that over US$700 million of funds from the Authority’s treasury have been stolen or wasted by officials in the last few years.
An internal investigation cited 50 cases of “financial and administrative corruption”, including a fictitious pipe factory through which more than US$6 million was defrauded. A number of West Bank land deals similarly existed only on paper, and millions were funneled into personal accounts in Palestine and abroad.
So far 25 officials have been arrested, and 10 have fled the country. The Authority is seeking their extradition.
In addition, both the US and the European Union have threatened to cut off funding if the new ruling party does not renounce violence and recognise Israel. This foreign aid is vital, and currently worth US$469 per person in Palestine.
Israel also briefly suspended the payment of taxes and customs duties to PA. Under the terms of the Oslo Accords, the two nations are obliged to pay each other for certain services, promoting a degree of economic cooperation.
However, a payment of US$55 million was withheld, after a spokesman for acting prime minister Ehud Olmert labelled Hamas a “terrorist group”. After international pressure Olmert approved the transfer.
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