Palestinian cash crisis getting worse: minister

By the Associated Press | July 26, 2012 | 3:39 PM EDT

RAMALLAH, West Bank (AP) — The cash-strapped Palestinian self-rule government is finding it harder each month to stay afloat, its finance minister said in an interview Thursday.

The Palestinian Authority is struggling with its worst financial crisis in years, in part because key donor countries, including the U.S. and some Arab states, have so far not sent aid they promised for 2012.

"Each month is becoming more and more difficult," Finance Minister Nabeel Kassis, a German-educated nuclear physicist, told The Associated Press at his Ramallah office. "We are tightening the belt, we are having only one meal a day, so to speak, and after a while we will become just too weak to continue."

The Palestinian government had hoped to close a projected $1.1 billion deficit in the 2012 budget of about $4 billion with the help of foreign aid, but is expected to fall short by some $250 million. It has tried to reduce the deficit, among other things by raising income taxes for high earners and cutting back on subsidies.

The Palestinian Authority was set up nearly two decades ago, as part of interim peace agreements that were to lead to the establishment of a Palestinian state by 1999. Israeli-Palestinian talks on the terms of a Palestinian state in the West Bank, Gaza and east Jerusalem — territories occupied by Israel in 1967 — have faltered. The last talks were held in 2008, and there's little chance of a new round because the sides disagree sharply on the framework for negotiations.

In a further complication, the Palestinians have had two governments since 2007 — the internationally backed Palestinian Authority, which administers just over one-third of the West Bank, and the Islamic militant Hamas, which has ruled Gaza since a violent takeover five years ago.

The survival of the Palestinian Authority is seen as key to any future partition deal with Israel.

The past four years have seen high economic growth in the Palestinian territories, as much as 9 percent a year, following a long period of strife-driven downturn. The upswing prompted hopes that the Palestinian government could gradually become self-sufficient and wean itself off foreign aid.

However, the World Bank noted in a report released Wednesday that the growth is not sustainable because it's largely driven by aid. Services, real estate and other non-tradable sectors have increased, but manufacturing and agriculture have declined.

"The growth you see is artificial," said John Nasir, the lead author of the World Bank report.

The World Bank and the International Monetary Fund have long maintained that economic growth in the West Bank and Gaza cannot be sustained without the lifting of Israeli restrictions on Palestinian movement and foreign trade. While the World Bank and the International Monetary Fund agree that the Palestinians have made considerable progress in building the institutions of a future state, Nasir concluded that "the economy is currently not strong enough to support such a state."

Kassis said the international community needs to push harder to end Israel's occupation.

Palestinians are grateful for foreign aid, but it must not be seen as a substitute for political pressure on Israel, he said. "It seems to me that they (influential donor countries) think that by paying from time to time some donor assistance, they think they are off the hook as far as fighting the occupation is concerned," he said. "No, they are not ... Once you end occupation, then you don't need to commit that much money. Then we will be able to stand on our own two feet, at least as any other country with a similar economic situation can do."

The Israeli government has eased some restrictions in recent years, including moving several West Bank roadblocks, but other key obstacles to trade and movement remain in place. Israel blames the Palestinians for the current diplomatic deadlock, saying it is willing to resume negotiations on the terms of a Palestinian state at any time.

The Palestinians say there's no point negotiating as long as expanding Israeli settlements gobble up more and more occupied land.