World Bank: Palestinians Face $400 Million Budget Gap

The Palestinian Authority in the West Bank faces a $400 million budget shortfall, even if current donor pledges are met, the World Bank warned in a report on Wednesday, calling new funding "critical."

The 21-page report, prepared ahead of a meeting of international donors in New York next Monday, also accuses Israel of stifling Palestinian growth by impeding development in the West Bank's Area C, which is under full Israeli control.

The report warns of "a time of deepening fiscal crisis for the Palestinian Authority," and comes after cost-of-living protests in the West Bank that forced prime minister Salam Fayyad to slash VAT and fuel prices.

The PA's fiscal situation will "likely worsen by the end of 2012," the report says, noting a budgetary gap of approximately $400 million -- "if donor pledges are met."

"If no additional donor funding is identified," it says, "the PA may be forced to finance the gap through accumulating additional arrears to the pension system and cutting some of its basic spending such as wages, which could have severe social impacts."

The report stresses that to "reverse the downward trend in economic growth," the private Palestinian sector "needs access to land in Area C."

"Area C's significance, as the only contiguous land in the West Bank connecting 227 separate geographical areas (A and B), is the key to economic cohesion," says the report.

It is "the most resource abundant space in the West Bank," the report says, "holding the majority of the territory’s water, agricultural lands, natural resources, and land reserves that provide an economic foundation for growth in key sectors of the economy."

"However, restrictions put in place by the government of Israel continue to stand in the way of potential private investment and remain the major impediment to sustainable economic growth," the report says.

Area C of the West Bank falls under full Israeli administrative and military control.

The World Bank made a plea for additional donor support, which "will be critical in the medium term to sustain... achievements and support the PA through its current crisis."

The Palestinian government has warned for months of a major budget shortfall, created in part by the failure of donors to deliver on pledged funds.