Cash-Strapped Palestinians Withhold Paychecks

Faced with a deepening budget crisis since Hamas’ election victory, the Palestinian Authority on Thursday put off paying the January salaries of 137,000 government employees for at least two weeks as it struggled to find new sources of funding.

The delay in salaries, which were due Thursday, could foreshadow a far more serious problem. Foreign nations have threatened to freeze aid to the government if Hamas, a militant Islamist group, takes over from the Fatah party without renouncing violence or recognizing Israel.

The Palestinian Authority needs $116 million to cover the monthly payroll. It was already in danger of falling short on payday before Israel announced Wednesday that it would hold up $45 million in January tax and customs revenue it was to transfer to the authority.

The Palestinian government is withholding the salaries while it seeks alternative funding, a top government official said, speaking on condition of anonymity because of ongoing funding negotiations.

The U.S. and European threats to cut off aid further pressure a budget in constant crisis. European donors and the World Bank stopped forwarding salary money in December after the Palestinian Authority gave raises of up to 40% to its employees and added to the already bloated payroll ahead of the Jan. 25 elections.

Permanent aid cuts would force the government to lay off as many as 30,000 people and could plunge Palestinian areas, already beset by violence and disorder, into chaos.

Mohammed Ishtayeh, a Palestinian Cabinet minister, said the government was trying to persuade Israel to release the tax money. It was also hoping to receive aid from Saudi Arabia and Qatar and to persuade the World Bank to release $60 million in frozen aid.

Western donors, led by the U.S. and the European Union, give about $900 million to the Palestinians each year, most of it designated for reconstruction projects in the impoverished Gaza Strip and West Bank.

The Palestinian economy is in tatters after five years of violence with Israel. Unemployment is 23%, about 43% of the population lives in poverty, and government salaries support many extended families.

“Palestinian Authority salaries are one of the major engines of the economy,” said Mahmoud abu Rub, an economics professor at An Najah National University in the West Bank city of Nablus.