Financial Crisis in the West Bank

The authority, established under the 1993 Oslo Accords that were to lead to a permanent peace agreement, was supposed to be that vehicle. But it is in danger of being so weakened that it would be unable to carry out those responsibilities. Its financial woes [4] are not new. A World Bank report in September [5] said a “persistent shortfall in donor funding has exacerbated the P.A.’s increasingly difficult fiscal situation, leaving a financing gap of almost $400 million.” And, in an interview with The Associated Press on Sunday [3], the Palestinian prime minister, Salam Fayyad, the official in charge of the government bureaucracy, said the problems are worsening and the authority is on the “verge of being completely incapacitated.”

There are many causes. After Mahmoud Abbas, the Palestinian president, won an upgrade for the status of Palestine as a nonmember observer state at the United Nations General Assembly last fall [6], Israel retaliated by withholding the $100 million in monthly tax revenues it collects on behalf of the Palestinians. Congress, meanwhile, has been withholding more than $450 million in American aid. Last year, Mr. Fayyad said he hoped to improve the authority’s financial condition by cutting spending and raising taxes on wealthier Palestinians. The tax plan ran into strong protest and the West Bank’s modest economic growth has slowed.

In the recent interview Mr. Fayyad put most of the blame for the authority’s financial distress on Arab donors who are “not fulfilling their pledge of support” made in Arab League resolutions to make up the money Israel is withholding. This should come as little surprise. Arab leaders have often promised political and economic support for the Palestinians and failed to deliver. Arab foreign ministers are expected to meet Sunday in Cairo to discuss Palestinian issues, including the promised aid. They should affirm their commitment to assist the Palestinian Authority and get the funds flowing.

There are many threats to a two-state solution, including an Israeli government that could become even more hard-line after the Jan. 22 election. But, as the World Bank has said, Mr. Fayyad has made progress in building a functioning government. Israel, the Palestinians, Arab states and the international community all have a stake in making sure that is preserved and strengthened.