Palestinian money woes 'deepen'

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The Palestinian territories saw their financial situation worsen in 2006, according to findings from the International Monetary Fund (IMF).

After Hamas gained power in January 2006, the government had "deepening" fiscal difficulties, said the IMF.

In 2006, resources to fund the budget were more a third lower than a year earlier, while the overall deficit hit close to $1bn (£507m) said the reports.

The government used a disproportionate share of funds for energy, it added.

Lower revenue

By the end of last year, some 75% of households in the Gaza Strip were deemed poor, compared with 52% in March of the same year.

In order to redress the situation, "strong and politically difficult measures will be needed to address underlying problems and reduce the fiscal gap", said the report that overviewed the West Bank and Gaza Strip's fiscal performance last year.

The IMF recommends that a new government should reduce the wage bill, improve the collection of utility bills and completely end subsidies for petrol products.

In addition, the report says a recovery of private economic activity "would greatly ease the adjustment process" by broadening the tax base, creating job opportunities and absorbing government workers.

It found that the number of government employees increased as did their wages over the period, further adding to governmental costs.

Unsustainable policies included a "rapidly expanding wage bill".

Resources to fund budget expenditures reached $1.4bn, compared with $2.2bn in 2005.

Gross domestic product on a per capita basis fell by more than 10% in 2006 "to almost 40% below its pre-intifada levels in 1999," said the IMF.

The main reason for the shortfall in resources was a result of lower revenues, with a proportion being withheld by Israel, said the study.

The report also found that the Palestinian territories had been crippled by restrictions on movement and access, making it harder for the government to access revenues.

Despite the fall in internal revenues, this was partly offset by a strong rise in external financing - with $290m coming from Arab donors and $170m from European donors.