Palestinian financial institutions are ready for statehood, an International Monetary Fund report praising Palestinian fiscal reform said Tuesday.

"The PA is now able to conduct the sound economic policies expected of a future well-functioning Palestinian state,'' the report said.

Acting Prime Minister in Ramallah, Salam Fayyad, has embarked on a program of institutional reform since his appointment in 2007, building the confidence of the international community and preparing for the establishment of a Palestinian state, to be announced in September 2011, according to his latest plan.

The document was released ahead of a meeting of donor countries to discuss aid to the Palestinian Authority.

The Palestine Monetary Authority now fulfills the core functions of a central bank in terms of supervision and regulation, the report said.

It lauded increased fiscal transparency and discipline of Palestinian institutions.

Reforms and prudent fiscal policy reduced dependence of the Palestinian budget on foreign aid, to US$ 1.2 billion in 2010 from US$1,.8 billion in 2008, the report said, with less than US$1billion aid projected for 2011.

The IMF report warned that Palestinian economic recovery depends on Israel further lifting the blockade on the Gaza Strip and movement restrictions in West Bank, noting that Palestinian economic growth of 9.3% in 2010 largely came after Israel lifted some restrictions on imports into Gaza Strip.