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Written by: Staff

JERUSALEM, Mar 16: A sharp cut in funding to the Palestinians after Hamas forms a government could push the West Bank and Gaza into deep economic depression and double the unemployment rate by 2008, a new World Bank report showed.

Personal incomes among Palestinians could decline by as much as 30 per cent this year under the most severe scenario envisioned by the World Bank, which sent a report to donor nations weighing an aid cut-off to a Hamas-led administration.

The unemployment rate in Palestinian territories would jump from an estimated 23.4 per cent in 2005 to as much as 47 per cent in 2008. The percentage of those below the poverty level would rise from 44 per cent to as much as 74 per cent, the report said.

Palestinians depend on foreign aid totalling more than $1 billion a year. It is unclear how much of that money will be withheld by donors once Hamas, which calls for the destruction of Israel, completes forming a government later this month.

The Quartet of West Asia mediators -- the United States, the European Union, the United Nations and Russia -- has threatened to cut aid unless Hamas changes policies to recognise Israel, renounce violence and accept interim peace accords.

Hamas's leaders have played down the economic threat, vowing to replace Western funds with aid from Iran and other Islamic states.

Under the World Bank's most dire forecast, Israel would continue to withhold tax revenues from the Palestinian Authority, while tightening restrictions on Palestinian trade and on the number of permits it gives Palestinian labourers.

This scenario also assumes that foreign donors will sharply reduce the budget support they provide to the Palestinian Authority.

Under this projection, support for the Authority's budget could drop from 350 million dollars in 2005 to 300 million dollars in 2006. In 2007 and 2008, budget support for the Authority could drop to 200 million dollars.

While humanitarian assistance for the Palestinians could increase by 20 per cent to 600 million dollars in 2006 and rise to 650 million dollars in 2007, the World Bank said developmental aid could drop from 450 million dollars in 2005 to 200 million dollars in 2006 before tapering off at 100 million dollars in 2008.


The report said Israel's decision to withhold tax revenues could make it nearly impossible for the Palestinian Authority to maintain ''essential government operations''.

The Authority was two weeks late paying February salaries to an estimated 140,000 workers and security personnel, in large part because Israel kept back the tax funds.

The Palestinian Finance Ministry said yesterday it does not know where it will get the money for the next payroll, due early next month.

The tax revenues, collected by Israel on behalf of the Palestinians, are worth 50 million dollars to 55 million dollars a month.

As many as one in four Palestinians is dependent on wages from the Palestinian Authority, prompting warnings from international West Asia envoy James Wolfensohn that violence could break out if salaries were not paid.

Since a Palestinian revolt erupted in 2000, Hamas has masterminded nearly 60 suicide bombings against Israelis. But it has largely abided by a truce declared last year.

A proposal being discussed by Israel and donor nations would funnel most future international aid to the Palestinians through the World Bank or another international organisation.

US officials have rebuffed a European proposal to transfer that money directly through the office of Palestinian President Mahmoud Abbas, Western diplomatic sources said.


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