The Palestinian territories may soon be experiencing an economic crisis that is, at least in part, directly tied to their diplomatic initiative scheduled for the United Nations in September. The cash-strapped Palestinian Authority is facing a massive budget shortfall and has reached a ceiling in its borrowing from local banks and the private sector, with the situation becoming increasingly acute.

In an attempt to bypass the moribund peace process with Israel, the Palestinian leadership is intent on taking their appeal for statehood directly to the international community, a move that is being openly opposed by the United States.

Although many analysts have predicted very little political change on the ground for the day after, the toll of the initiative is already apparent economically as money in the Palestinian territories is beginning to dry up.

Indeed, the US Congress has threatened to cut off aid, which reached $550 million in the fiscal year 2011, if the Palestinians continue with their plans. On July 7, the House passed a resolution opposing the statehood initiative by a 407-6 margin. House leaders followed up the resolution with a letter sent directly to Palestinian Authority President Mahmoud Abbas to “warn of the severe consequences” of continuing the initiative. Other countries have failed to meet their pledges of economic funding this year as well.

The Palestinian Authority, which is heavily dependent on foreign aid, is the largest employer in the occupied Palestinian territories, paying the salaries of approximately 150,000 civil servants and military personnel. In a country of less than four million, the affects of this could be staggering.

In fact, with the Palestinian Authority already facing a budget shortfall of $500 million, they were only able to pay their employees half salaries in the month of June, with the situation likely to continue or get worse in the run-up to September.

Reda Eisawi, 52, is and engineering assistant with the government and a father of four. Since his salary of $600 a month was cut in half, he has began walking to work from his home in the Jelazon refugee camp in order to save the two dollars for the bus, an hour and a half trek in the height of summer.

“My life is so hard at this point,” he says. “I don’t know how I am going to manage, let alone pay for bread for my children.”

Even some local grocery stores and markets, which are used to lending to costumers on credit, have begun refusing to do so because they do not know when the money will flow once again.

Over the weekend, the head of the Civil Servants Union, Bassam Zakarna, warned that government employees could go on strike if the status of their salaries remains unclear. The deadline given to the Palestinian Authority was July 26.

In turn, the scent of impending disaster has caused bank liquidity to dry up, and lending to be put on hold in anticipation of what may happen.

“The banks were putting higher restrictions on loans to government employees every week,” says Hakim Suleiman, the Director of Sales and Marketing for Peugeot automobiles in Palestine. “Now it appears they have frozen lending to government employees until they see what happens in September.”

For consumer driven industries like automotive, this is the worst-case scenario.

“Even the private sector, which is still getting loans, has become a little weary. It’s in people’s mindsets. They are starting to slowdown to see what happens,” says Suleiman. “Couple that with Ramadan, which is right around the corner, and you have a recipe for a panic in the market.”

The situation is not unprecedented in Palestine, with a similar situation occurring in 2006 after Hamas—designated as a terrorist organization by the United States—won a democratic victory in the Palestinian elections. Israel and the United States immediately instituted a financial boycott of the entire Palestinian Authority.

When the US-backed Fateh party eventually split in a bloody civil conflict that left Palestine politically divided between the West Bank and Gaza, the United States renewed its support for Mahmoud Abbass’ government.

This time around, however, many Palestinians look at the situation quite differently.

“This time it’s about who we are,” says Nassar Abu Jabal, 31, a Geographic Information System specialist at the Ministry of Local Government.

“The world, the United States and Israel are saying to us either you are going to forgo your rights for a state, a government, or you are not going to get paid. You will go hungry.”

Although he does not have a family of his own, Abu Jabal currently supports his younger brother whom is studying abroad in Algeria. The impact of the wage cut will have a tremendous effect on his own finances as his monthly salary of approximately $1,500 gets slashed to $750.

“For me, a single guy, I have to pay close attention to my expenses and all my plans. I can’t do a lot of things,” he says disparagingly. “A half salary just covers my most basic needs.”

The West Bank has been undergoing an economic boom over the past few years with growth rates reaching around 8 percent according to the World Bank.

However, the current situation reveals just how fragile the economic situation can be in the occupied territories. Moreover, there appears to be no quick fix. The Palestinian Authority holds a debt of close to $1 billion to the local banks as well as millions more to the private sector and appears unable to pay it off, with the cost continuing to run.

How this will play out on a political level is anyone’s guess. If the Palestinian Authority is unable to pay the salaries of their employees, large-scale discontent could erupt, possibly engulfing the entire West Bank and Gaza.

As the US Congress seeks to punish the Palestinians for their decision to pursue UN recognition of their statehood in September, it could have the unintended consequence of sending the whole area into political and economic turmoil, which may possibly even lead to a renewed uprising.

Some believe, however, that the United States will never let that happen.

“Do you think that the United States will let Mahmoud Abbas and the Palestinian Authority close? Definitely not,” says Naji Merdawi, the General Manager of the Jordan Commerce Bank in Ramallah. “You watch, they will give them just enough to survive.”

Palestinian territories may soon be experiencing an economic crisis that is, at least in part, directly tied to their diplomatic initiative scheduled for the United Nations in September. The cash-strapped Palestinian Authority is facing a massive budget shortfall and has reached a ceiling in its borrowing from local banks, with the situation becoming increasingly acute.

In an attempt to bypass the moribund peace process with Israel, the Palestinian leadership is intent on taking their appeal for statehood directly to the international community, a move that is being openly opposed by the United States.

Although many analysts have predicted very little political change on the ground for the day after, the toll of the initiative is already apparent economically as money in the Palestinian territories is beginning to dry up.

Indeed, the US Congress has threatened to cut off aid, which reached $550 million in the fiscal year 2011, if the Palestinians continue with their plans. On July 7, the House passed a resolution opposing the statehood initiative by a 407-6 margin. House leaders followed up the resolution with a letter sent directly to Palestinian Authority President Mahmoud Abbas to “warn of the severe consequences” of continuing the initiative. Other countries have failed to meet their pledges of economic funding this year as well.

The Palestinian Authority, which is heavily dependent on foreign aid, is the largest employer in the occupied Palestinian territories, paying the salaries of approximately 150,000 civil servants and military personnel. In a country of less than four million, the affects of this could be staggering.

In fact, with the Palestinian Authority already facing a budget shortfall of $500 million, they were only able to pay their employees half salaries in the month of June, with the situation likely to continue or get worse in the run-up to September.

Reda Eisawi, 52, is and engineering assistant with the government and a father of four. Since his salary of $600 a month was cut in half, he has began walking to work from his home in the Jelazon refugee camp in order to save the two dollars for the bus, an hour and a half trek in the height of summer.

“My life is so hard at this point,” he says. “I don’t know how I am going to manage, let alone pay for bread for my children.”

Even some local grocery stores and markets, which are used to lending to costumers on credit, have begun refusing to do so because they do not know when the money will flow once again.

Over the weekend, the head of the Civil Servants Union, Bassam Zakarna, warned that government employees could go on strike if the status of their salaries remains unclear. The deadline given to the Palestinian Authority was July 26.

In turn, the scent of impending disaster has caused bank liquidity to dry up, and lending to be put on hold in anticipation of what may happen.

The situation is not unprecedented in Palestine, with a similar situation occurring in 2006 after Hamas—designated as a terrorist organization by the United States—won a democratic victory in the Palestinian elections. Israel and the United States immediately instituted a financial boycott of the entire Palestinian Authority.

When the US-backed Fateh party eventually split in a bloody civil conflict that left Palestine politically divided between the West Bank and Gaza, the United States renewed its support for Mahmoud Abbas’ government.

This time around, however, many Palestinians look at the situation quite differently.

“This time it’s about who we are,” says Nassar Abu Jabal, 31, a Geographic Information System specialist at the Ministry of Local Government.

“The world, the United States and Israel are saying to us either you are going to forgo your rights for a state, a government, or you are not going to get paid. You will go hungry.”

Although he does not have a family of his own, Abu Jabal currently supports his younger brother whom is studying abroad in Algeria. The impact of the wage cut will have a tremendous effect on his own finances as his monthly salary of approximately $1,500 gets slashed to $750.

“For me, a single guy, I have to pay close attention to my expenses and all my plans. I can’t do a lot of things,” he says disparagingly. “A half salary just covers my most basic needs.”

The West Bank has been undergoing an economic boom over the past few years with growth rates reaching around 8 percent according to the World Bank. However, the current situation reveals just how fragile the economic situation can be in the occupied territories. Moreover, there appears to be no quick fix.

The Palestinian Authority holds a debt of close to $1 billion to the local banks as well as millions more to the private sector and appears unable to pay it off, with the cost continuing to run.

How this will play out on a political level is anyone’s guess. If the Palestinian Authority is unable to pay the salaries of their employees, large-scale discontent could erupt, possibly engulfing the entire West Bank and Gaza.

As the US Congress seeks to punish the Palestinians for their decision to pursue UN recognition of their statehood in September, it could have the unintended consequence of sending the whole area into political and economic turmoil, which may possibly even lead to a renewed uprising.

Some believe, however, that the United States will never let that happen.

“Do you think that the United States will let Mahmoud Abbas and the Palestinian Authority close? Definitely not,” says Naji Merdawi, the General Manager of the Jordan Commerce Bank in Ramallah. “You watch, they will give them just enough to survive.”