IMF Warns of ‘Deepening’ Palestinian Fiscal Crisis

The International Monetary Fund warned today that the Palestinian economy is facing “serious risks” and urged the government to implement a contingency plan to cover its “financing gap.”

Donor aid has been lower than needed to finance the Palestinian Authority’s budget, and there is a projected financing gap of $400 million for 2012, the IMF said in a report today. The financing difficulties in 2011 and this year have led to a “substantial rise” in domestic payment arrears and debt to commercial banks, it said.

“Given the high risk of continued aid shortfalls, it is important for the PA to promptly implement a contingency plan to cover the financing gap,” the IMF said in the 40-page report.

Hundreds of people demonstrated in West Bank cities this month to protest economic conditions, with some demanding the resignation of Palestinian Authority Prime Minister Salam Fayyad. On Sept. 11, Fayyad said his government would take steps to cut the price of fuel and other goods and to pay the salaries of civil servants, which had been delayed.

The IMF report was prepared before a Sept. 23 meeting of the Ad Hoc Liaison Committee, a forum that coordinates donations to the Palestinian Authority.

To contact the reporters on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net;

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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