Saudi Arabia will begin talks this month with the Palestinian Authority over financial aid of at least $1.2 billion to plug its widening budget deficit, a senior Palestinian diplomat said on Thursday.
Israel on Wednesday halted tax payments to the cash-strapped Palestinian Authority over Hamas's shock election victory, prompting the Palestinians to turn to Saudi Arabia and Qatar for extra cash to cushion the economic shock.
‘We expect the Saudi government to continue to stand by the Palestinian people as it has always done in the past, before there was an(Palestinian) authority,’ the diplomat told Reuters.
Palestinian media on Thursday reported that Saudi Arabia and Qatar had decided to provide the Palestinian Authority with $33 million in emergency aid in a response to Israel's decision to freeze tax revenues.
‘Talks are expected to start this month in Riyadh and will not only cover the budget deficit but also examine ways to support the Palestinian people after the recent developments in the Palestinian territories,’ the Riyadh-based diplomat said.
He said the budget deficit ‘up to now stands at $1.2 billion.’
Saudi Arabia is largely seen as the biggest financial backer of the Palestinian Authority. Saudi citizens and charitable foundations donate some $150 million each year to support social and economic projects in the Palestinian territories.
King Abdullah had given instructions to cover the authority's budget deficit after he met visiting President Mahmoud Abbas last month.
‘There have been no contacts since then,’ the diplomat said.
Saudi officials have said their country's funding for the Palestinian Authority would continue in accordance with international norms.
They had also urged Hamas to moderate its stance towards Israel and asked the international community to accept the election results and put pressure on Israel to make peace.
It was not clear if a Hamas delegation expected to tour Arab countries looking for support would visit Saudi Arabia.
World Bank: Palestinian fiscal problems are 'unsustainable'
The Palestinian Authority's budget position has become increasingly unsustainable because of ‘uncontained’ spending, particularly due to sharp increases in salaries and hiring, the World Bank said on Wednesday.
In an update of the PA's fiscal position released on Wednesday, the World Bank also said it had withheld a December payment from a multi-donor reform fund because the Palestinians had not fulfilled reform goals.
Unemployment in the Palestinian territories stands at 22 percent and half the Palestinian population lives in poverty. In Gaza, many Palestinians live on an average of $2 a day.
Israel halts tax payments to Palestinians
Israel halted monthly tax payments on Wednesday to the cash-strapped PA one week after the election victory of Hamas, but the militant group said it would seek financial support from the Arab world.
The customs revenue collected by Israel on behalf of the Palestinians is the main source of funding for their budget and is used to pay an estimated 140,000 government workers.
Palestinian Economy Minister Mazen Sonnoqrot decried what he called Israel's ‘illegal decision,’ saying it amounted to ‘collective punishment’ and estimated that as many as 1 million Palestinians would be affected. ‘This may cause chaos,’ he said.
Top Hamas leader Ismail Haniyeh, in a Reuters interview, called it ‘an attack on Palestinian rights.’
U.S., EU threaten to cut funding
The United States and the European Union have also threatened to cut off future funding if Hamas does not reject violence and recognise Israel.
Hamas has urged foreign donors to maintain aid but says it could still find alternative sources of funding in the Arab world. It dispatched a delegation on a tour of Arab countries to urge them to keep the money flowing.
‘The tour will aim to clarify Hamas' position based on its election agenda and to press Arab countries to continue with financial aid to the Palestinian people,’ said Sami Abu Zuhri, a Hamas leader in Gaza.
In a bid to reassure anxious donors, the Palestinian Authority proposed bringing in an outside auditor or a foreign government to monitor the use of aid money.
Sonnoqrot said talks were also under way with the World Bank and Saudi Arabia about covering the authority's payroll.
Egypt predicts Iran will fill PA cash gap
Egypt predicted on Wednesday that Iran would step in to fill the finance gap if the United States and Europe stop their aid to the Palestinian Authority.
‘Iran will give them the money, I think,’ intelligence chief Omar Suleiman told reporters after talks between Egyptian President Hosni Mubarak and PA Chairman Mahmoud Abbas.
Suleiman was answering a question on what would happen if the Palestinians lose financial support from the West.
Egyptian Foreign Minister Ahmed Aboul Gheit told a news conference with Foreign Minister Tzipi Livni: ‘We ask Israel to free all Palestinian tax money and we do not support the punishment of the Palestinian people.’
Suleiman agreed. ‘I think it (suspending aid) will be a punishment for the people, which we don't want,’ he said.