West Bank and Gaza: Fiscal Developments in 2006
Prepared by the International Monetary Fund
August 10, 2006
During the first quarter of 2006, the fiscal position of the Palestinian Authority (PA) was shored up by a relatively generous level of donor support, which somewhat compensated for the suspended payments of indirect taxes collected by the Government of Israel (GoI) on behalf of the PA—in response to the victory of Hamas in the January legislative elections. The situation deteriorated quickly following the transfer of powers to the Hamas government at end-March 2006. Not only did key donors withdraw their support to the PA, but domestic banks reduced unsecured overdrafts and refused to operate the PA’s Single Treasury Account. As a result, government wages were not paid and other expenditures were dramatically compressed. At the end of 2005, the deficit for 2006 was projected at about US$1 billion; however, no clear deficit projection now emerges from the currently complicated fiscal situation.