Israeli daily Yedioth Ahronoth this weekend assessed that the Palestinian Authority (PA) faces what the outlet described as an “economic meltdown,” days before the two dominant Palestinian factions – Hamas, which controls the Gaza Strip, and Fatah, which controls Palestinian portions of the West Bank – announced that they were on track to form a new unity government per an agreement announced in April.
The PA deficit stood at $1.3 billion at the end of 2013 and is projected to reach $1.6 billion by the end of 2014. The effects of the crisis will be felt by businesses in the West Bank that will have to make do with late or even partial paychecks.
The worry comes mostly from the decline in the quality of living (income per person fell by 2 percent last year) and a possible rise in unemployment in part due to Israel’s frustration at a unity deal signed between Fatah and Hamas in Gaza on April 23.
The surprise declaration, which had come as Western diplomats scrambled to extend a U.S.-backed peace push, had earned immediate rebukes from U.S. lawmakers, who emphasized that black-letter U.S. law required a suspension in assistance to any Palestinian government that includes Hamas. Yedioth for its part cited broader dynamics in the post-Arab Spring Middle East, under which “governments shifted their emphasis” from the Israeli-Palestinian conflict and started “putting money into domestic issues” instead.
The Palestinian economy is almost entirely floated by foreign aid, and the prospect of a broad contraction in assistance has generated analyst concerns that the creation of a Palestinian unity government will shortly be followed by widespread, economically driven political instability across the West Bank. Palestinian sources have been expansive in noting that Hamas has “displayed a large degree of flexibility” in forming the new government, fueling suspicions that the group is seeking to reverse a year-long downward spiral by reviving its infrastructure in the until-now Fatah-controlled territory.
The PA has recently agreed to allow Hamas to resume distributing a long-banned pro-Hamas paper in the West Bank. Secretary of State John Kerry is set to meet with PA President Mahmoud Abbas in London later this week, where it is expected that Abbas will emphasize that no actual, open Hamas operative will sit in the new Palestinian cabinet. The move may be seen as too clever by half. U.S. legislation conditioning aid includes language prohibiting assistance specifically to any government “that results from an agreement with Hamas and over which Hamas exercises undue influence”.
None of the funds appropriated in titles III through VI of this Act may be obligated for salaries of personnel of the Palestinian Authority located in Gaza or may be obligated or expended for assistance to Hamas or any entity effectively controlled by Hamas, any power-sharing government of which Hamas is a member, or that results from an agreement with Hamas and over which Hamas exercises undue influence.
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