Palestinians face serious shortfall in donor aid

* Aid running at less than 55 percent of amount needed

* Palestinian Authority borrows $350 million from banks

* PA now close to borrowing limit



(Adds Fayyad, paragraphs 4 and 5, edits)

JERUSALEM, June 1 (Reuters) - The Western-backed government of Palestinian President Mahmoud Abbas has so far received only a fraction of the $1.5 billion in donor assistance needed to meet its budget in 2009, the IMF said on Monday.

The budgetary aid received by Palestinians over the past five months totals $328 million, less than 55 percent of the amount needed to pay monthly expenditures, a senior International Monetary Fund (IMF) official told reporters.

To offset the shortfall in donor funds, Abbas's Palestinian Authority has been forced to borrow from private banks, but the authority is close to reaching its borrowing limit, said Oussama Kanaan, IMF representative in the West Bank and Gaza Strip. Kanaan did not give a figure.

But Palestinian Prime Minister Salam Fayyad, in a statement following Monday's cabinet meeting in the West Bank city of Ramallah, said that his government had taken out $350 million worth of bank loans to meet its obligations.

He said the Palestinian Authority faced a "suffocating financial crisis," but that he would still be able to pay public workers by June 7 thanks to the bank lending.

Kanaan said the Palestinian Authority could face a "serious liquidity crisis" unless donors increased their budget support to at least $120 million per month.

Donor assistance surged in March to $178.7 million, but dropped to only $25.7 million in May, the IMF said.

"Donors have to act urgently to disperse the money, otherwise we'll have a big problem," said Kanaan.

Donor states have announced massive pledges for the Palestinians over the last two years in a public show of support for Abbas in his power struggle with Hamas, which won a 2006 Palestinian election.

These included $4.5 billion in pledges at a conference in the Red Sea resort of Sharm el-Sheikh in March to help rebuild the Hamas-ruled Gaza Strip after an Israeli offensive, and to help fund Abbas's government, which holds sway in the Israeli-occupied West Bank.

But Western diplomats involved in the process said many of the pledges -- made at five donor and investment conferences since December 2007 -- were counted more than once, had yet to materialise or were too vague and conditional to rely on.

Fayyad urged Arab and foreign donors to "quickly meet their obligations".

International donors will discuss financial aid to the Palestinians during their next meeting on June 8 to be held in Oslo, Norway. (Reporting by Ivan Karakashian in Jerusalem and Mohammed Assadi in Ramallah, writing by Ivan Karakashian, editing by Mark Trevelyan)