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Last Updated: Thursday, 16 November 2006, 11:19 GMT
Foreign aid reaching the Palestinians
By Martin Patience
BBC News, Jerusalem

Striking Palestinian government workers protest over  non-payment of salaries in Jenin  (September 2006)
Palestinian government workers protest over non-payment of wages

Since Hamas formed the Palestinian government in March 2006, the United States, the European Union and Israel have imposed an aid and financial boycott of the administration because of its refusal to recognise Israel's right to exist.

The boycott has had a crushing effect on the Palestinian economy.

In the past six months, the estimated 160,000 government employees have only received 40% of their salaries, according to a report by the International Monetary Fund.

PA BUDGET
April 2006 - September 2006: $0.5bn
April 2005 - September 2005: $1.2bn
Source: IMF

The Palestinian Authority's (PA) revenue has dropped by almost 60% to $500m (265m) compared with the same period in 2005, the IMF said.

One of the main reasons for the decline is that Israel has withheld $360m of tax revenues from the PA. These taxes are levied on imports to Gaza and the West Bank, and are collected by the Israeli port and airport authorities on behalf of the PA.

However, foreign aid - despite the economic boycott - is still reaching both the PA and Palestinians.

FOREIGN AID

According to the IMF, more foreign aid has been received by the PA in the past six months than in the same period last year.

FOREIGN AID
April 2006 - September 2006: $420m
April 2005 - September 2005: $230m
Source: IMF

The bulk of this aid has come from Arab donors who have contributed $300m in the past six months.

But most of this money is not going directly to the Hamas-led administration.

BYPASSING HAMAS

After the economic boycott was imposed by Western governments, Arab banks refused to transfer funds to Hamas because of fears they would be hit by US sanctions that could seize their assets in America.

Israel, the EU, and the US consider Hamas a terrorist group.

Instead, donors are circumventing the Hamas-led administration and depositing funds in the bank account of the Palestinian Authority President Mahmoud Abbas.

Mr Abbas is the head of the Fatah organisation, which recognises Israel, and is not subject to the economic boycott.

FINANCIAL MECHANISMS
Money Paid to the President's Office: $262m
Money dispersed by TIM: $91m
Source: IMF

This summer, the EU also started making payments to the Palestinians through a scheme named Tim - the temporary international mechanism.

Again, this bypasses the Hamas-led administration and deposits money into the accounts of individual Palestinians meaning that some salaries - particularly of key workers, such as doctors and nurses - can be paid.

In May, the United Nations and other non-governmental organisations launched an emergency appeal for the Palestinians which aims to raise $384m. These funds are to be spent on hospitals and schools.

HAMAS FUNDS

Hamas members have brought sums of cash into Gaza donated from the Arab and Muslim world.

There are no figures available for how much money Hamas has received and where this money is being spent.

But in June, the Palestinian foreign minister and Hamas member Mahmoud Zahar was stopped at the border carrying a reported $20m in suitcases.

DECLINE OF PA REVENUES

One of the main factors in the PA's funding crisis is the collapse in tax revenues. Israel is withholding import taxes and the depressed economy means that fewer and fewer Palestinians are making incomes that are taxable.

PA TAX REVENUES
April 2006 - September 2006: $100 -110m
April 2005 - September 2005: $630m
Source: IMF

Also, the Israeli government no longer hands over the custom taxes it collects on behalf of the Palestinians, estimated at $360m in the past six months.

PROSPECTS

If the Palestinians do form a national unity government then the economic boycott may be lifted.

But nobody is sure whether the proposed unity government will meet the requirements of the Middle East Quartet - that it recognise Israel, renounce violence, and accept all existing agreements with Israel.

Even if this happens, the financial situation could still be grim. It is unclear whether or not the PA would be able to meet its monthly wage bill for 160,000 employees.

The economy, heavily dependent on aid, is unlikely to grow until it gets an injection of foreign capital.

But investors are unlikely to pump money into the occupied territories until the security situation improves.

And the Palestinian private sector, particularly in Gaza, continues to suffer from frequent closures of Israeli-controlled crossings severely affecting business.


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