The Palestinian Authority (PA) is suffering an intensifying financial crisis that is threatening its stability and strengthening the rival Islamist Hamas. Palestinian security officials warn that if the international community fails to pay its pledges to the PA, it will not be able to pay salaries in the coming months.

In June, the PA paid the 149,000 teachers, policemen and civil servants 60 percent of their salaries on their regular payday, and made up the rest just one day before the month-long Ramadan fast began on July 21. During Ramadan, expenses for many families increase, as they host iftar, or break-fast meals for friends and relatives.

The PA needs  $160 million every month to be able to pay salaries. Most of that money is expected to come from the Gulf countries, with the largest donor being Saudi Arabia.  When donor pledges are not met, the PA borrows from local Palestinian banks. But it’s credit line has now run out and the PA’s estimated deficit is already $1.3 billion dollars.

The PA is run by President Mahmoud Abbas, of the Fatah movement. Many in the West Bank say Fatah is being seen as responsible for the financial crisis.

“The PA’s financial crisis has weakened Fatah’s security forces and certainly strengthens Hamas status in the West Bank,” Yazeed Khader, a Hamas leader in the West Bank told The Media Line.

Fatah and Hamas have been bitter rivals since a 2007 coup in Gaza, when Hamas took over control of Gaza. Repeated attempts at Palestinian reconciliation have failed and the area slated for the future Palestinian state remains divided, with Fatah in control of the West Bank, and Hamas in control of Gaza. Both Israel and the US see Hamas as a terrorist organization and will not have any dealings with it.

The tens of thousands of policemen security officials belong to Fatah, and they are growing increasingly frustrated.

“I pay for health insurance out of my salary, but when I take my children to the doctor there is no medicine and I have to go buy the medicine in a private pharmacy,” a senior security official told The Media Line.

Without international intervention, the crisis may grow more acute in August, when Palestinians celebrate the holiday marking the end of Ramadan.  People give each other gifts of money, and children get new clothes and toys. Expenses triple over those of a regular month, say Palestinians in the West Bank.

The PA is turning to the Gulf countries to pay their pledges. Saudi Arabia has transferred $100 million to the PA this week, but there are no indications that Kuwait, Oman, Qatar, Bahrain, and UAE will do so as well.

The public sector is the largest employer of Palestinians, and the financial crisis is taking a toll.  The latest poll conducted by the Palestinian Center for Policy and Survey Research (PSR) in the West Bank and the Gaza Strip between 21-23 June 2012, shows clear improvement in the standing and popularity of Hamas and Hamas leader Ismail Haniyeh, especially in the Gaza Strip, and a decline in the popularity of Fatah and President Abbas.

Asked who they would chooseif new presidential elections were held today,  Abbas would receive the 49% of the vote and Haniyeh 44%. Just three months ago, Abbas received the support of 54% and Haniyeh 42%.

Analysts say Abbas’s support will continue to decline unless salaries are paid in full, on time, each month.

“Any financial, administrative, political weakness of the PA will strengthen Hamas indirectly,” Major General Adnan Damiri the Spokesperson of the PA security services tells TML on 19 July.

The US prefers to donate large infrastructure projects through the Agency of International Development (AID). These projects boast large signs saying “donated by US AID.” Until now, the EU countries have paid large chunks of the monthly salaries but as the financial crisis in parts of Europe grows, there are increasing calls to limit donations to the PA.

The PA is trying to cut its expenses and raise tax and customs collections; but finance experts warned that there is a limit.

“The economy, poverty and the high percentage of unemployment make it difficult for the PA to impose more taxes on its citizens,” Nasr Abdul Karim, a professor of Finance and Management Science at Bir Zeit University told The Media Line.

PA President Mahmoud Abbas office has reduced its expenses and the PA no longer pays bonuses or university and school fees for all civil servants.

PA Prime Minister Salam Fayyad has asked the PA security commanders to cut their monthly expenses for fuel consumption, uniforms, food supplies, travel expenses, and office expenses in half, which many security officials say is impossible.

What is especially frustrating for many security officials is that Hamas has been able to pay its employees on time, as most of its cash is smuggled through tunnels that run underground from Egypt to Gaza. Even cash-strapped Iran has not stopped its payments to Hamas.

Israelsays the 28,000 Palestinian security officials are doing a good job of stopping potential attacks on Israel. But if salaries are not paid, frustration will increase, and terror attacks could return.

“If a security official is worried whether he will get his salary, and whether his transportation costs will be paid this month, how can he carry out his job professionally,” asked one senior Palestinian security official.