World Bank warns of Palestinian crisis over pay

Washington, May 9 :The Hamas-led Palestinian Authority could face a breakdown in law and order and basic services unless foreign donors step in to pay the salaries of civil servants, the World Bank warned.

The development agency said the Palestinian Authority's economy was in recession with public sector salaries unpaid for March and April and signs of food and gasoline shortages especially in Gaza, where the border with Israel has been sealed.

Western powers led by the United States and European Union have frozen direct aid to the Palestinian Authority to put pressure on Hamas, which won elections earlier this year, to renounce violence, recognize Israel and abide by interim peace deals.

The cut off in funding has led to an ''unprecedented liquidity crisis'' for the Hamas-led government, which has been unable to pay for the salaries of its 165,000 public employees.

The bank cautioned that if civil servants walked off the job over unpaid salaries it could paralyze the government, which would be unable to meet the US and EU conditions.

''If the Palestinian Authority remained unpaid/minimally paid for several months, it may cease to function,'' the bank said in a report ahead of a meeting of the Quartet of Middle East negotiators -- the United States, the European Union, Russia and the United Nations.

''A protracted period in which the PA is disabled might result in the unraveling of a dozen years of donor efforts to build the responsible, accountable institutions needed for a future Palestinian state -- or for continued governance ad interim,'' it added.

The World Bank, which has managed donor aid to the Palestinian Authority that helped pay for salaries, said failure to pay salaries of security personnel could lead to a breakdown in discipline, making it difficult for the government to operate.

It pointed to signs already of growing frustration among soldiers, including an incident on April 23 in which security forces threatened Hamas cadres guarding the Health Ministry.

''Destabilization of this kind, if protracted, could also lead to a deterioration in the bilateral security environment -- with adverse implications for the security of Israelis,'' the bank cautioned.

The bank said donors had explored ways to keep up payments to Palestinian civil servants by bypassing the government and depositing funds directly into employees' bank accounts.

It said commercial banks who conduct the transfer would need assurances from donors and the Israeli government that they would not be liable for prosecution or unofficial sanctions for dealing with the Palestinian Authority.

Reuters