Palestinian Authority unable to pay salaries, even as it pursues statehood

While Palestinians prepare for an upgrade to non-member state status at the UN late this month, small businesses in the occupied West Bank are sliding towards the abyss due to a fiscal crisis that economists say threatens the very existence of the Palestinian Authority.

As a result of a dramatic drop off in foreign donor funding, the authority has been failing to pay on time in recent months its 170,000 employees, whose salaries directly support about a quarter of the West Bank and Gaza Strip population. And sometimes, as happened when October salaries were finally disbursed Sunday, the PA makes only partial salary payments.

Economic hardship in the Palestinian areas, where growth is subject to the vagaries of the ongoing conflict with Israel and the vicissitudes of Israeli strictures on movement of people and goods, is nothing new. But now the PA salaries, which previously formed the safety net, have become uncertain and economists warn the shortfalls could stoke social instability. 

''The salaries are the most important single factor deciding the level of poverty.They are like a monthly blood transfusion to our economic body,'' explains Hisham Awartani, an economist at An-Najah University in Nablus.

The outlook for PA wages in the coming months appears stormy at best. The PA faces a $260 million financing shortfall, a lot more than its monthly wage bill, according to the World Bank. With uncertainty about when and how much employees will be paid rippling through the economy, Palestinian economists, joined by the World Bank, fear social unrest, citing a week long outbreak of protests in September over the rising cost of living and a hike in fuel prices. The demonstrations forced the government to roll back the price increase.

And the already grave situation will become a lot worse if Israel, in retaliation for the UN move, suspends transfers of VAT and customs revenues it collects on behalf of the PA. Israeli foreign ministry spokesman Yigal Palmor says this is under consideration.

Woes felt on the street

The ripple effect of salary non-payment, combined with a slowdown in economic growth, is evident across the West Bank, including at Ali Bodie's butchery shop on the road from Bethlehem to Hebron.

''The salaries problem impacts me 100 percent,'' says Mr. Bodie, who wears a white skullcap and offers his visitor a watery cup of coffee ''There's a great drop in the number of customers, and people who do buy, buy half a chicken instead of a whole one,'' he says.

At a furniture store across the street, owner Khader Jadallah says PA employees are failing to meet their monthly installment payments.

''I'm thinking of closing,'' he says in his empty showroom. ''People aren't buying furniture, it's finished.'' A few stores away, mechanic Ali Abdul-Qadr Sidr says the salary disruptions are even causing people to delay changing their oil. ''I tell people they need an oil change but they say I can't, I have no money. So they delay for a month. They will destroy their cars by not changing the oil.''

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