Page last updated at 14:20 GMT, Wednesday, 1 February 2006

Funding crisis looms for Palestinians

By Robert Plummer
BBC News business reporter

The new Hamas-led Palestinian government may be facing the potential loss of international financial help, but a more immediate cash crisis is likely to come from closer to home.

Men outside currency exchange bureau in Gaza City
The Palestinian Authority's cashflow could be sharply curtailed

The salaries of some 140,000 Palestinian Authority employees largely depend on regular money transfers from the Israeli government which are now in jeopardy.

The $50m or so that the authority receives each month from Israel helps to pay security officers, teachers and medical staff who, between them, support up to one-fifth of the Palestinian territories' 3.8 million people.

This money is not aid, but income. It is customs duty and value-added tax, collected by Israel on behalf of the Palestinians, which is normally handed over automatically on the first of each month.

Israel's acting Prime Minister Ehud Olmert has now ordered a freeze on these payments, saying he will not allow "a situation in which money transferred by the government of Israel will somehow end up in the control of murderous elements".

Mohammad Mustafa, an economic adviser to Palestinian President Mahmoud Abbas, told BBC News that the authority would be unable to pay January's wage bill of $115m-$120m unless the money was released.

He said: "People are used to receiving their salaries on time and unless we do that, there will be a real crisis."

Mr Mustafa called on Israel to transfer the money, saying that Hamas had yet to form a government and the original, pre-election cabinet was still in place.

"This is Palestinian money and it's badly needed and nothing's changed as far as we're concerned."

Budget deficit

With other forms of taxation raising some $400m, the Palestinian Authority's core income is normally about $1bn a year, with foreign aid from the US and EU amounting to another $1bn.

The EU as a whole has given about $600m to the Palestinians every year since 2003. Nearly half of that comes from member states, not from Brussels.

Arab donors, including Saudi Arabia and Kuwait, also contribute regular sums.

Some foreign money goes towards the Palestinian Authority's payroll, but most is earmarked for particular aid and infrastructure projects and is handled by UN relief agencies or non-governmental organisations.

Jobless protesters in Gaza City, 2 January 2006
Protests against unemployment are frequent in the Gaza Strip

Continuation of that aid is now in doubt, with both Brussels and Washington calling on Hamas to renounce violence and recognise Israel's right to exist before they provide further funding.

However, even when the money comes in as planned, it is not enough. Well before Hamas' stunning election victory over the late Yasser Arafat's Fatah party, the authority was already running a monthly deficit of more than $50m and has repeatedly borrowed from banks to cover the shortfall.

All this merely serves to exacerbate the harshness of life for the Palestinian population, half of whom are below the poverty line. Palestinian officials say unemployment in the Gaza Strip is running at more than 50%.

Such levels of hardship were, of course, a major factor in Hamas' electoral success.

For the international community, it remains an Islamic militant group, officially classified as a terrorist organisation for the dozens of suicide attacks that it has launched on Israelis.

But at home, Hamas has been winning increasing support for its charitable activities. These include the funding of schools and medical centres, as well as the distribution of food to those most in need.


Hamas has been paying for these services out of its own funds, but where does the money come from? The answer is considerably less straightforward than in the case of the Palestinian Authority.

In 2003, US intelligence sources estimated Hamas' annual budget at $50m. Some of it is believed to come from Palestinian expatriates, who contribute to fund-raising drives carried out through charitable foundations and associations.

A veiled Palestinian woman walks by a wall painted with the symbol of Hamas
Hamas has a high public profile in the Palestinian territories

Hamas' links to the worldwide Islamic Brotherhood are also apparently lucrative, with other branches of the movement in Egypt, Jordan and Saudi Arabia thought to be sources of funding.

Hamas has always denied persistent reports that it receives financial assistance from the Iranian authorities.

It is also unclear whether the group receives money from the Syrian government, although some of its top leaders live in exile in Syria and Lebanon.

Whatever the provenance of its funding, it is clear that Hamas does not have deep enough pockets to make up for the loss of international assistance to the Palestinian Authority.

Hamas leaders have said they are looking to Arab and Muslim countries to step in and make up for any shortfall in aid.

But so far, Egypt appears to be falling behind the US and EU's attempt to use the threat of a funding crisis as a way of persuading Hamas to moderate its stance on Israel.

Egypt's intelligence chief Omar Suleiman told journalists in Cairo on Wednesday: "Nobody will talk to [Hamas] before they stop violence, recognise Israel and accept agreements including the road map [peace plan]."

It is not clear at present what countries not bound by peace treaties with Israel will do.

Mr Mustafa, for his part, told the BBC that the Palestinian people should not be penalised for the outcome of the election.

Victory for Hamas did not mean that Palestinians supported violence against Israel, he said.

"I understand why [the international community] need to reflect the new arrangement.

But according to opinion polls, 80% of Palestinians support a peaceful solution. The Palestinian people voted for change on domestic issues. They have not voted against the peace process."

Israel and the Palestinians



Palestinian women sit on a roof top of the home of a Palestinian family in Beit Lahia in the northern Gaza Strip on 20 November 2006. Human shields
Palestinians adopt a new tactic to deter Israeli attacks, but this is a high-risk strategy




Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Sign in

BBC navigation

Copyright © 2019 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific