Palestine Economy More Vulnerable

An International Monetary Fund staff team led by Karen Ongley visited Beit ul-Moqaddas (Jerusalem) and Ramallah July 8-19 to assess economic developments in the West Bank and Gaza, IMF.org reported. 

At the end of the visit, Ongley issued the following statement:

“Despite still solid growth in the West Bank, the sharp decline in activity in Gaza weighed on the Palestinian economy. In the first quarter of 2018, real growth in the West Bank was close to 5%. However, the 6% decline in Gaza brought the overall growth rate down to 2%. 

With economic and financial buffers having been steadily eroded in Gaza, its economy was more vulnerable to the increasingly tense political and security situation, and cuts in donor support and transfers from the Palestinian Authority budget.

“Continued consolidation efforts by the ministry of finance and planning helped to manage rising fiscal pressures. Strong growth in domestic revenues—particularly customs, VAT and income taxes—helped to offset weak clearance revenues and the unwinding of one-off factors in 2016. Together with spending cuts, this kept the overall fiscal deficit in 2017 to around 8% of GDP, broadly unchanged from 2016. However, these actions did not prevent the PA from having to resort to running arrears.

“With pressures on the economy continuing to mount, the outlook has become more fragile and uncertain. If things continue as they are, overall growth in 2018 could slow further to 1.5%, weighed down by activity in Gaza declining by 4%. More broadly, Gaza is unlikely to register positive growth over the medium term without a profound and lasting change in circumstances. An added concern is the substantial loss of clearance revenues posed by recently approved Israeli legislation, which would seriously compromise fiscal sustainability and act as a further brake on growth.

“Given this mix of factors, lifting the growth trajectory on a permanent basis requires a comprehensive and coordinated strategy, anchored around four key elements. 

1. A medium-term plan to gradually reduce the budget deficit, mindful of the impact on growth.

2. A mix of revenue and expenditure measures by the PA, supported by reforms to strengthen public financial management. 

3. Faster and tangible progress toward reducing revenue leakages, where transparent and clearly understood mechanisms that rely on a regular exchange of the necessary information are put in place and adhered to by the Israeli and Palestinian authorities. 

4. An actively engaged donor community that helps bridge the large financing gaps and assists in building necessary institutions, and abets an ongoing dialogue between the two sides.

 WB Increases Yearly Allocation

The Gaza economy, strangled by years of blockades, shrank by 6% in the first quarter, according to the fund. Growth in the West Bank was close to 5%. About 30% of Palestinians are unemployed and half of Gaza’s population is jobless, the World Bank said.

Against this “alarming” economic background, the World Bank increased its yearly allocation to Palestinians to $90 million from $55 million, it said on July 24.

“In Gaza, the magnitude of the challenges has left the territory on the verge of economic and social collapse, with a serious decline in living conditions,” the WB report said.

The IMF called for a medium-term plan to gradually reduce the budget deficit as part of a comprehensive strategy to lift the territories’ growth permanently. It also urged the Palestinian Authority to undertake a mix of revenue and expenditure measures, while implementing reforms to manage public finances.

 Unemployment and Poverty

The economy of the occupied Palestinian territory could easily produce twice the gross domestic product it generates now, while unemployment and poverty could recede significantly, according to a United Nations report, UN.org reported.

“Surveying a number of studies, the report reveals the channels through which occupation deprives the Palestinian people of their human right to development and hollows out the Palestinian economy,” the UN Conference on Trade and Development said in its 2016 report on its assistance to the Palestinian people.

“Chief among these are the confiscation of Palestinian land, water and other natural resources; loss of policy space; restrictions on the movement of people and goods; destruction of assets and the productive base; expansion of Zionist settlements; fragmentation of domestic markets; separation from international markets and forced dependence on the Israeli economy,” it added.

In its executive summary, the report goes on to note that occupation imposes a heavy cost on the economy of the occupied territory, which might otherwise reach twice its current size. Yet, to date, attempts to estimate the economic cost of occupation remain partial and ad hoc. Also, there is a need to establish a systematic, comprehensive and sustainable framework within the United Nations system to report to the General Assembly, as it has requested in past resolutions.

“The report concludes that examination of these costs and of other obstacles to trade and development is essential to place the Palestinian economy on the path to sustainable development and to achieve a just settlement of the Palestinian-Israeli conflict, as well as lasting peace in the Middle East,” UNCTAD said, while also flagging that despite limited resources, it continues to deliver technical cooperation, training and advisory services to the Palestinian people.

The report’s findings include that a continuous process of de-agriculturalization and de-industrialization has deformed the structure of the Palestinian economy. From 1975-2014, the share of the tradable goods sector made up of agriculture and industry in GDP dropped by half, from 37% to 18%, while its contribution to employment decreased from 47% to 23%.