Palestine 2017 Growth Down to 3 Percent

The International Monetary Fund estimated that 2017 economic growth in Palestine slowed to close to 3%, despite authorities citing higher growth, it announced Tuesday.

“At this rate, growth will not generate enough jobs or meaningfully improve living standards for the Palestinian people. The continued deterioration of the socio-economic environment is a major concern, and there is a growing risk that humanitarian conditions may be nearing a breaking point,” said Karen Ongley of the IMF after visiting Beit ul-Moqaddas  (East Jerusalem) and Ramallah earlier in the month, IMF.org reported.

Yet, fiscal performance in 2017 was better than expected as authorities contained the overall deficit to an estimated 7.8% of GDP and the recurrent deficit to around 5.5% of GDP, the IMF statement said.

“The Palestinian Authority also kept overall spending in check. The authorities continued efforts to pay down the stock of arrears, but low external budget support and the PA refraining from net new bank financing, saw the recurrence of arrears,” Ongley said.

She continued, “The resilience of the Palestinian economy in the face of long-standing political and security constraints is now being tested. It is laboring under the weight of geographic fragmentation, a difficult business environment, the steady erosion of productive capital, and restrictions on movement and access. In these circumstances, we are likely to see growth continue to stagnate at around 2% of GDP in the years ahead.”

The West Bank’s outlook has become “even more vulnerable” due to geopolitical uncertainties, the risk of further decline in donor support, and unrest triggered by the dearth of economic opportunity.

“While a breakthrough in the peace process would be the real economic game changer, the prospect of reunification could provide a modest boost to growth over the medium term. However, managing the fiscal impact of the PA resuming control of government operations in Gaza will not be easy, as the costs will outweigh the near-term revenue gains,” Ongley said.

The IMF welcomes authorities considering reform options to manage costs of reunification and stressed the need to undertake measure that optimize revenue intake.

A healthy financial sector will require active oversight of the banking sector, with close scrutiny of capital buffers, loan provisioning, delinquent loans, and credit exposures, the IMF said.

“Efforts to safeguard financial stability and promote access to finance will complement fiscal and structural reforms. An important challenge is to strike the right balance between financial inclusion and stability of the banking system. This calls for close monitoring of still rapid credit growth, adequate loan provisioning, maintaining sufficient capital buffers, and keeping credit to the government within the regulatory limit,” it said.