Sunday, September 25, 2011

Palestinians pay economic price for UN push‏

Uncertainty generated by Palestine’s campaign for statehood at the UN has led to the postponement of at least one foreign investment deal and a bank merger, according to the government’s leading monetary official.

As Mahmoud Abbas addressed the UN General Assembly in New York, Jihad Wazir, the governor of the Palestinian Monetary Authority, told the Financial Times that there had been a marked slowdown in economic activity in the West Bank.

“It’s not so much the vote itself, but concerns about the Israeli response,” Mr Wazir said. “Businesses have stopped hiring and at least one bank merger and a significant investment from the United Arab Emirates have been postponed.”

He added: “We were set to go ahead [with the UAE deal], but the investors said, ‘Let’s see what happens after the vote’.” The West Bank economy grew at 8 per cent in 2010, according to the International Monetary Fund, but a combination of slowing global growth and regional instability resulting from the Arab spring saw growth fall to 4 per cent in the first half of this year.

But Mr Wazir now estimates growth for the year could be between 3 and 3.5 per cent.

Israel collects $1.2bn in taxes each year on behalf of the Palestinian Authority, but this week, Yuval Steinitz, Israel’s finance minister, threatened to withhold a portion of the money.

“Maybe we will tell the Palestinians: ‘OK, collect your own tax. Why should we do it for you?’” he said in an interview with Bloomberg. “It will be very difficult for us to continue to collaborate with a hostile Palestinian entity.”

In May, Israel withheld $105m in customs duties and other levies over concerns the money might end up in the hands of Hamas.

“The taxes collected by Israel account for 40 per cent of our budget,” Mr Wazir said. “Any disruption to those receipts and we would be back to severe financial difficulties.”

Separately, individual members of the US Congress have called on President Barack Obama to reduce $500m in annual foreign aid to the Palestinians over the UN push.

The Palestinian Authority was only able to pay 50 per cent of salaries to government workers in July, after a shortfall in aid from international donors.

The funding situation should be stable for the time being, Mr Wazir said, with Saudi Arabia committed to transferring $200m to a World Bank trust fund and a Kuwaiti transfer of $50m already in place.

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