World Bank Warns Gaza Banks May Collapse

RAMALLAH, West Bank — The World Bank and International Monetary Fund warned Saturday that Gaza's severe cash shortage may cause local banks to collapse.

It was the most serious warning yet regarding the consequences of Israel's continued refusal to allow new money infusions into banks in the Palestinian territory.

Israel has not allowed money to enter Gaza since October, barring Palestinian banks from transferring cash to their Gaza branches. It is part of a larger blockade imposed on Gaza in response to Palestinian rocket attacks from the territory controlled by the Islamic militant group Hamas.

"The liquidity crisis could lead to the collapse of the commercial banking system in Gaza," the World Bank said in a statement. The International Monetary Fund offered a similar prediction.

The cash shortage means around 77,000 Palestinian civil servants will not be able to withdraw their salaries before a Muslim holiday early next week. The cash shortage also forced the United Nations in November to halt cash payments to thousands of Gaza's poorest residents.

Gaza banks closed on Thursday _ payday for civil servants _ because of cash shortages. Bank officials have not said if they will open Monday, their next working day.

Monetary officials estimate Gaza banks hold less than a quarter of the cash needed to pay wages. The Israeli shekel is Gaza's main currency.

Jihad al-Wazir, head of the Palestinian Monetary Authority in the West Bank, said Gaza's banks have around 47 million shekels (about $12 million) between them. They need 220 million shekels ($54 million) to pay salaries, he said.

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Al-Wazir said salaries may be paid in a mix of currencies to bypass the shekel shortage.

President Mahmoud Abbas, Israel's partner in peace talks, lost control of Gaza to Hamas in June 2007. Based in the West Bank, he still claims authority over Gaza and has continued to pay tens of thousands of civil servants there each month through the banking system.

The cash crunch appears to be hitting Abbas much harder than Hamas, because the militant group pays 20,000 of its own employees with cash it smuggles into Gaza from Egypt. Their employees received December salaries.

Israel imposed the blockade on Gaza after Hamas took power last year, only allowing in humanitarian aid, fuel and some commercial goods.

The blockade tightened in early November after an Israel incursion into Gaza set off Palestinian rocket fire at nearby Jewish communities.

Israel says despite the blockade, it wont allow a humanitarian crisis to develop. However, Israel's Defense Ministry, which signs off on goods entering Gaza, says cash supplies are not vital humanitarian aid.

Ministry officials were not immediately available for comment Saturday. But they have repeatedly said the cash will start flowing when the rocket fire stops.

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With reporting by Mohammed Daraghmeh in Ramallah