The Palestinian Authority (PA) is undertaking a major effort to wean itself from foreign assistance, a move that will strengthen plans to declare statehood by this summer, Prime Minister Salam Fayyad told The Media Line.

“The current expenditure has been reduced from $1.8 billion in 2008 to $1.1 billion in 2010 and we will gradually wean ourselves from [foreign] aid by 2013,” Fayyad said. “It is an important benchmark for reducing reliance on the need for external assistance,” he added.

The U.S. and Europe have showered the PA with foreign assistance to help ensure stability in the West Bank, encourage peace talks with Israel and buttress Fayyad and President Mahmoud Abbas in the their struggle against Hamas. The aid has enabled the West Bank’s economy to grow smartly, spurring a construction boom and lifting stock prices.

Fayyad is meanwhile spearheading an effort to declare unilateral independence as the talks with Israel have faltered. The PA has pursued a two-pronged strategy of cleaning up government at home and building official institution while seeking recognition from foreign countries, or at least an upgrade in the status for its overseas representatives

“We are well on our way to reducing aid dependency,” Fayyad said. “We’ll be ready for statehood by summer. That’s our goal.”

He spoke at a conference in the West Bank town of Ramallah on State Building for a Future Palestinian State. Organized by the Norwegian Peace-Building Resource Center and the Palestinian Government Media Center, the seminar drew representatives from the Palestinian government, civil society and renowned state building experts.

In June, donor countries are expected to meet in Paris to discuss future funding to the PA. It pledged $7.7 billion at a first conference in 2007, funds used mainly to pay for the PA budget and some humanitarian projects.

Fayyad, a former World Bank economist, said that when he first took office in 2007 foreign aid totaled about $2 billion. At a Palestinian economic conference last year, the PA had announced it had engaged in tax reforms that allowed it to pay for a greater chunk of its $3.13 billion annual budget.

The 2010 budget deficit was about $1.21 billion, about 16% of gross domestic product, down from $1.45 billion, or 22%, in 2009.

“It is expected that donors will undertake the financing of the deficit,” according to the Palestine Investment Guide.

The Palestinian prime minister said that “unproductive spending” has been reduced. He said the Palestinian economy would flourish beyond tourism, to industries such as stone cutting, pharmaceuticals and high technology. Other industries, he added, would be left up to the private sector to develop since they were freer of restrictions.

Norway’s representative to the Palestinian Authority, Tor Wennesland, said that the PA’s reduction of foreign aid was “remarkable.”

“It means the management on the PA side is good and not just of the donors like the International Monetary Fund and the World Bank,” Wennesland told The Media Line.

Asked his projections on the feasibility of a Palestinian state being declared this year, Wennesland said that in terms of their economy, it hasn’t been managed this well since Israel and Palestinians were at their peak in peace talks in the mid 1990s.

“What we will see is a narrative of comparison in September that will tell its own story in areas of finance, security and the level of welfare,” he said. “The Palestinians will fare well, on the level of states that exist already.”