The International Monetary Fund (IMF) estimates that the Palestinian Authority (PA) had a fiscal deficit of almost $1 billion in 2006. This was mainly because Israel withheld Palestinian revenues after Hamas won the Palestinian elections in January 2005. Other reasons were a decline in domestic tax revenues as the economy contracted and unsustainable increases in the PA's wage bill in 2005.
The UK and other members of the international community suspended direct aid to the PA after the formation of the Hamas Government in March 2006, when that Government failed to meet the quartet principles. However, this was offset by increased funding through other channels such as the temporary international mechanism (TIM).
The Palestinian Finance Minister, Salam Fayyad, estimates a financial gap of $1.6 billion for 2007. The UK is keen to resume direct funding to the PA as soon as the quartet principles are met, and continues to call on the Israeli Government to release the withheld customs revenues.