Report, Worldbank, 8 May 2006
The Quartet has stated that the Hamas movement must meet a number of basic political conditions, and has connected Hamas' response to levels and forms of future donor assistance to the Palestinian Authority (PA). The Government of Israel (GOI) has also indicated that it is not prepared to conduct political relations with Hamas unless it modifies its basic stance towards the State of Israel.
The Evolving Economic Situation
In mid-March, the World Bank modeled the impacts of a possible combination of actions by GOI and the donor community -- see below. Readers are referred to Scenario 4, which assumed for 2006 the following: continued GOI withholding of Palestinian tax revenues collected on the PA's behalf; border trade restrictions comparable to those enacted in 2005; a 50 percent reduction in the average 2005 level of daily labor flows into Israel from Gaza and the West Bank; and a reduction in donor disbursements of US$200 million, or 15 percent, as compared with last year.
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The Current Fiscal Emergency and its Possible Impacts
The PA's liquidity crisis is unprecedented. In 2005, the PA was able to access a total of US$2.15 billion for the Budget, or some US$180 million per month; in the first quarter of 2006, Budget resources declined to approximately US$130 million per month. For April, resources may not exceed US$50-55 million. This contraction has been caused by a combination of factors, the most important of which is Israel's withholding of Palestinian revenues. The OECD donors' suspension of budget-related disbursements, the failure of the Arab League states to come forward with promised levels of support and the reluctance of commercial banks to lend to/bank for the new government are also significant.
If today's strictures remain or intensify, the PA may be looking at no more than US$25 million in domestic revenues per month, and no banking system with which to distribute them. Under such circumstances, with current monthly wage bills running at c. US$95 million, those Palestinians employed by the PA or dependent on PA salaries (estimated at 30 percent of the population) will suffer major income reductions--while the PA is unlikely to be able to provide basic services or maintain law and order.
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