The economic situation in the West Bank and Gaza is deteriorating, hobbled by decreased international aid and Israeli restrictions on movement, the International Monetary Fund said in a report released late Thursday.

The annual report found that unemployment among Palestinians had increased to nearly a quarter of the labor force by the end of 2012. Also, the Palestinian gross domestic product had slowed from 11-percent growth in 2011 to 6% in 2012 and was expected to slow further to 5% in 2013, as Israeli clamps on import and export continue to hamper the economy.

“The fragile regional economic and political environment [continues] to further dampen the West Bank and Gaza’s] export and foreign investment prospects,” the bulletin stated.

The communiqué also found that the PA was facing a deep liquidity crisis, wrought by heavy borrowing in the wake of lower-than-expected international aid. The budget shortfalls were affecting Palestinian administrative operations and could lead to unrest if donors did not step up, the IMF said.

“The much higher than projected overall budget deficit of $1.7 billion (17.1 percent of GDP), combined with shortfalls in donor aid and the suspension of transfers of clearance revenues in December, has led to arrears build up and borrowing from domestic banks,” according to the document. “It is especially important that the PA’s efforts at containing fiscal spending be complemented by the prompt disbursement of additional donor aid to avoid an excessive fiscal tightening, a further buildup of arrears and debt to commercial banks, and spending cuts that would trigger more social unrest.”