The Palestinians face a budget deficit of more than a billion dollars and are considering forcing bureaucrats to take early retirement, according to Palestinian prime minister Salam Fayyad.
At a roundtable with journalists on Sunday evening, Fayyad said his government in the West Bank continues to face enormous shortfalls.
"Without measures to reduce costs and increase revenues we face a budget deficit in 2012 of $1.1 billion," (866 million euros), Fayyad said.
Last year, Fayyad repeatedly warned that his government faces a financial crisis because foreign aid pledges have not been delivered on time -- or in full.
He said he was being forced to consider tough measures, including forcing tens of thousands of government workers to take early retirement, in a bid to keep the government afloat.
Another measure under consideration is hiking income tax.
"We are trying with these measures to save up to $350 million so that the budget deficit does not exceed $750 million as part of our ongoing bid to reduce reliance on foreign aid and avoid the constant threats to cut aid," he said.
"Palestinian law allows us to impose early retirement, although we are not required to exercise that right," he said.
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Fayyad said there are currently around 153,000 people employed by the government as civil servants or in security roles, and that 36,000 have been asked to take early retirement in recent years.
And he said an increase in income tax was also being considered "in order to achieve social justice."
Bassam Zakarneh, head of the Palestinian civil servants' union, said he was deeply concerned by the early retirement plan.
"A draft decision has been issued by the prime minister, which calls for letting go all civil sector employees who have served for 15 years and all security sector employees who have served 20 years," he told AFP.
"If approved, this decision will affect 26,500 employees, which we consider particularly serious because 80 percent of those people will receive only half their salaries in pension, and 65 percent of them currently have outstanding banks loans they are paying off."
Fayyad's plans for 2012 budgetary measures come as he himself faces an uncertain future at the head of the Ramallah-based government.
Representatives from the rival movements Fatah and Hamas are currently in the process of trying to form an interim government of independents -- as called for by a reconciliation deal the sides signed last year.
Hamas has insisted that the caretaker government, which is supposed to pave the way for elections by May, not be headed by Fayyad, and he has said he has no objection to stepping aside with the formation of a new government.
But he said Sunday it was his duty to draw up his plans for a budget and continue with his responsibilities until a caretaker government is formed.