World Economy

Palestinian Economic Outlook Bleak

Palestinian Economic Outlook BleakPalestinian Economic Outlook Bleak

Increased donor aid “will be critical” for the West Bank and Gaza in the year ahead, the International Monetary Fund has said.

The fund said that 2015 “was another difficult year for the Palestinian economy”, which struggled with slow growth, weak investment, stubbornly high unemployment, sluggish recovery from the 2014 conflict and the “dire” humanitarian situation, Yahoo reported.

A “sharp drop” in donor aid also took its toll, contributing to higher public debt, including arrears, as government efforts to alleviate social hardship in Gaza necessitated higher-than-budgeted spending on fuel in particular.

While the fund said the authority’s government has managed well in the face of challenging circumstances, reducing the overall deficit for the third consecutive year and preparing a “prudent” budget for 2016, if donor aid remains at the same level as 2015, there will be a large funding gap of over $500 million.

“To prevent arrears accumulation, the authorities are advised to take measures to narrow the gap, such as containing the increase in the wage bill to 2%. However, as measures alone will not close the gap, increased donor aid will be critical in the year ahead,” the IMF said.

It also recommended reforms to strengthen institutions and a more strategic approach to aid management, better aligned with budget priorities, to provide a stronger foundation for growth and donor engagement.

 Israeli Restrictions

The situation in Palestine means the IMF’s outlook for the country’s economy is clouded by uncertainty. The fund said that tensions with Israel and Israeli restrictions persist, but that recent violence does not escalate dramatically, growth is expected to reach 3.3% in 2016.

In the medium term it will “hover at 3.5%”, which the fund said will lead to stagnant per capita incomes and rising unemployment.

“Real GDP in Gaza will not likely return to pre-conflict levels before 2018,” it added.

Escalations in the violence, further shortfalls in donor aid or revenue or further spending pressures all threaten to diminish growth further.

The news follows warnings by the Middle East Quartet, which comprises Russia, the US, the European Union and the United Nations, that the “status quo” for Israel and Palestine is not sustainable and that a lack of significant steps to stabilize the situation and reverse negative trends is detrimental to both sides.

Last week, the UN appealed for half a billion dollars to support 1.6 million Palestinians living in the occupied territory.