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26th Nov 2022

EU meeting: Financial crisis hampers Palestinian state-building

  • Typical West Bank street: Arab and Western donors are not making good on aid pledges as their own economies suffer (Photo: michaelramallah)

The global economic slowdown has created a $1 billion hole in the budget of the Palestinian Authority (PA), setting back the prospect of a two-state solution, aid donors said after a meeting in the EU capital on Wednesday (21 March).

The event - a regular Spring meeting of the so-called Ad-Hoc Liaison Committee on Palestine - in its concluding document used forceful language to describe the problem.

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It said the PA in early 2012 "experienced a severe fiscal crisis, which threatens to become protracted given the recent and projected declines in donor assistance" and that the situation could soon be "totally unmanageable."

It urged Arab and Western aid-giving countries to "ensure the contribution of $1 billion in assistance" in 2012.

It called on Israel to "ensure monthly transfers to the PA in a predictable manner," referring to threats to withhold Palestinian tax income after Palestine's unilateral bid for UN recognition last year. It also said Israel's restrictions on free movement of Palestinian goods and people is holding back its economy.

Comments by PA Prime Minister Salam Fayyad following the meeting underlined how things have changed over the past 12 months.

"The viability of the Palestinian Authority before we even become a state is really at stake," he told AFP. Coming out of the same event in Brussels in Spring 2011, which at the time noted that PA institutions had become strong enough for it to function as a normal country, Fayyad said: "This ... amounts effectively to a birth certificate for the reality of Palestinian statehood."

The effectiveness of the PA is a double-edged sword for Israel.

On the one hand, having a decent police force and job prospects for people in the West Bank reduces the risk of extremist violence. On the other hand, having a "birth certificate" for statehood bolsters its campaign for UN recognition without Israeli approval. Having money pour into Palestinian coffers also raises fears it could be used for armed resistance.

For his part, Norwegian Prime Minister Jonas Gahr Stohre, who chaired Wednesday's event, said PA institutions still meet the statehood grade and that donors are still helping with various projects - the EU earlier this week earmarked €35 million for waste-water plants and a Gaza border crossing.

But he underlined that more money needs to go directly to the PA: "We need to put an emphasis on budget support because if that [the PA] fails, everything else fails."

He noted the meeting took place in a "very difficult" atmosphere because Israeli-Palestinian peace talks have "stalled" and prospects for restarting them "do not look very optimistic." But he said the ad-hoc committee is in itself an engine of reconciliation: "It is probably the only forum where Israelis and Palestinians are participating together."

Aid issues aside, Palestinians are preparing to hold elections in May or June in the occupied territories and among exiles in Egypt, Jordan, Lebanon and Syria.

A senior Palestinian politician based in Beirut, Souheil Al-Natour, last month told EUobserver that once the vote takes place, they will restart their UN-recognition campaign.

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