The International Monetary Fund urged Israel Thursday to ease financial restrictions on Palestinians, and warned that the Palestinian economy was not viable without that move and progress in peace talks.

In a report published ahead of a September 23 meeting in New York of donors to the Palestinians, the IMF said the Palestinian Authority faced a budget deficit of $300 million (225 million euros) by the end of 2013.

"The PA's finances are not viable over the medium term if the current model of financing large deficits with unpredictable aid flows is maintained," the report said.

It predicted that Palestinian GDP growth would slow from 11 percent in 2011 and 5.9 percent in 2012 to 4.5 percent by the end of this year.

The IMF said the West Bank and Gaza Strip's economic prospects were "dim under (the) status quo," and that resuscitating finances required the removal of "obstacles to economic growth."

These included, notably, "a broad-based and sustained easing of Israeli restrictions, not linked to specific projects and underpinned by clear progress in the peace process."

The IMF said in July that Israel's tight restrictions hinder the growth of the Palestinian private sector, holding back the economy.

International experts have been working on a plan to boost the stagnant Palestinian economy. They hope that, hand in hand with movement in the peace process, the scheme could produce tangible economic benefits on the ground to alleviate dire unemployment and poverty.

US Secretary of State John Kerry unveiled the broad contours of a scheme to attract some $4 billion in private-sector investment over the next three years at a World Economic Forum in Jordan in late May.

But similarly ambitious US-led plans by past administrations have faltered, and a blanket of secrecy has been thrown up as Quartet special envoy Tony Blair and his team hammer out the details with the aid of international experts.

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