The Palestinian Authority can only pay employees half their salaries this month because of a shortfall in foreign aid which it needs for its financial survival, the prime minister said on Sunday.
Salam Fayyad appealed to donors to meet their financial pledges. His administration relies on budget support to pay salaries to 150,000 Palestinians in the West Bank and the Gaza Strip and monthly allowances to another 75,000 people.
Fayyad identified a shortfall in funding from states in the region, an apparent reference to Arab countries, but would not say which governments he was talking about.
"What we intend to do is to pay half (salaries) ... in the hope that we can complete the payment of this obligation when enough resources are made available allowing us to do that," he said. "This will happen when enough foreign assistance arrives."
"The drop off has been in contributions from the region," he added during a news conference at his office in Ramallah.
So far in 2011, the PA had received US$331 million of $970 million pledged by international donors. The PA faced a funding shortfall of $30 million a month and could no longer resort to borrowing from banks to cover the gap, Fayyad said.
It is the second time in two months that the Palestinian Authority, which exercises limited self-rule in parts of the Israeli-occupied West Bank, has faced difficulty in paying salaries.
In May, the PA was unable to pay wages when Israel temporarily withheld tax revenues it collects on the PA's behalf, citing concern the funds would reach the Islamist group Hamas following a unity agreement with President Mahmoud Abbas.
It was the first time the PA, which is headed by Abbas, had failed to pay salaries on time since 2007.
Fayyad said Arab states had contributed $79 million of the funds received in 2011, the transfers coming from the United Arab Emirates, Oman and Algeria.
He detailed contributions for 2011 which showed that Saudi Arabia, which paid $146 million last year and $241 million in 2009, had yet to pay anything this year.
Arab states were blamed for a PA financial crisis last year, though the Palestinian government never failed to pay salaries and a $100 million contribution from Saudi Arabia in October helped it meet commitments.