Reduced donor aid, war, suspension of revenue payments and ongoing restrictions by the Government of Israel have had a severe impact on the Palestinian economy. The World Bank economic report to the Ad Hoc Liaison committee (AHLC), a forum of donors to the Palestinian Authority, examines current economic trends and recommends measures and reforms to stop further deterioration.
“The persistence of the current volatile reality increases anxiety and uncertainty, overshadowing the ability of Palestinians to perceive a brighter future. Economic development measures could serve to build confidence towards a diplomatic horizon that is desperately needed on both sides,” said Steen Lau Jorgensen, World Bank Country Director for West Bank and Gaza.
Real GDP per capita has been shrinking since 2013 due to the weak economy in the Palestinian territories. Unemployment remains high, particularly amongst Gaza’s youth where it exceeds 60 percent, and 25 percent of Palestinians currently live in poverty. The report highlights the stagnation in reconstruction in Gaza. Donors at the Cairo Conference pledged US$3.5 billion but only 35 percent has been disbursed, US$881 million less than what was supposed to be disbursed so far. In addition, only 1.6 million tons, 6.7 percent of the total needed, of construction material entered Gaza since the 2014 summer war. It will take years to address the massive reconstruction and repair needs if the longstanding restrictions on the import of building material and the slow pace of disbursement of pledges remain in place.
Recent statements by the Israeli authorities on the importance of Palestinian economic progress is a welcome signal. The report which will be presented in New York this week underscores the potential of the Palestinian economy if existing agreements are implemented and restrictions are lifted. Specific actions that would demonstrate Israeli willingness to help improve the economic condition for Palestinians include: access to Area C and to external markets, predictability of Israeli transfer of revenues it collects on behalf of the Palestinian Authority (PA), and movement of goods from and to Gaza.
According to the report, the Palestinian Authority can address fiscal challenges in areas under their control. The reduction of the wage bill, which could lead to large savings of up to 5 percentage points of GDP, is a top priority. In addition, the PA should put more effort into improving revenue collection, and pressing forward on the reforms in health and electricity sectors. “Addressing some inefficiencies in the public health spending, for example, could generate savings that could be used to reduce the deficit or to invest in the quality of public health services,” explained Jorgensen.
The lack of political horizon should not lead the parties to complacency, the report concludes, especially that several actions can be taken on economic development that are conducive to reaching a peaceful resolution.