Budgetary problems, a drop in international aid and an economic slowdown in the West Bank are hampering the efforts of the Palestinian Authority to build the institutions of an independent state, according to a new report by the World Bank.

According to the bank's data, the gross national product in the West Bank grew at a rate of 5.8 percent during the first three quarters of 2011, compared to a rate a 7.5% during the same period in 2010. The bank predicted a further drop in growth, to 5%, in 2012. According to the data, the economic slowdown in the West Bank began in 2008.

Meanwhile, the report noted a 25.8% growth rate in the Gaza Strip's GNP during the same period in 2011, compared to 16.8% in 2010. The report attributed the unusually high growth rate to a real-estate boom, the removal of certain restrictions on the movement of goods in and out of Gaza by Israel, the booming informal economy, based on the smuggling goods through tunnels, and international aid money.

It noted, however, that the outlook for continued growth in Gaza is uncertain, and that the economic situation for most of Gaza's residents continued to be negative.

The World Bank publishes a bi-annual report on the state of the Palestinian economy ahead of a meeting of donor countries. The next meeting is scheduled to take place next week in Brussels, Belgium.

This year, the PA is slated to receive economic aid from donor countries to the tune of $600 million, down from $1 billion last year and $1.8 billion in 2008.

The drop in aid, combined with the economic slowdown and Israeli restrictions on the Palestinian economy, have led to budgetary shortfalls which are expected to reach $1.1 billion in 2012, according to the report. The bank also notes that the PA's budgetary problems could become more severe if aid from donor countries continues to decline.

The report acknowledged efforts by the PA to deal with its budgetary shortfalls, including through increased tax collection and spending cuts. However, it also noted that the number of people employed by the PA continued to expand, with close to 90,000 people employed by the public sector in the West Bank, compared to 65,000 in Gaza.