The financial crisis currently facing the Palestinian Authority is not just economic; it is also a symptom of the deep political problems facing the leadership in Ramallah. The PA has based its appeal to the Palestinian public on a strategy that combines working with Gulf Arab states, Israel, and the West to produce improvements in the quality of life for Palestinians under occupation, while at the same time pursuing independence through international diplomacy. Now a lack of funding has limited the PA’s ability to meet its payroll, undermining the credibility and authority of its approach and its leaders.
The situation became especially perilous in late July, when promised donations failed to materialize, including $330 million that Gulf Arab states had pledged to provide every six months. This shortfall was caused by a combination of donor fatigue, impatience with the lack of progress on Fatah-Hamas unity, and a long-standing tradition of Arab states not meeting their pledges to the PA. Previously, in May, Israel also temporarily failed to deliver the Palestinian tax revenues it controls. As a result of the shortfall, the PA was forced to announce that government salaries -- on which more than a million Palestinians in the West Bank and Gaza are dependent -- would be cut in half for August.
The PA’s financial woes undermine the achievements made by the state- and institution-building program initiated by Prime Minister Salam Fayyad in August 2009. Public anger at the proposed wage cuts was palpable: civil servants, doctors, and teachers threatened a mass strike. The government, meanwhile, mandated a reduction in the price of bread, the staple food for most Palestinians -- a further reflection of the financial hardships that the crisis is causing to ordinary people.
Undelivered pledges from Arab states are at the core of the immediate crisis. (Fayyad has refused to publicly identify which states reneged, but the group certainly includes Saudi Arabia.) This has been a perennial problem for many years, since Arab states have often tied