JERUSALEM,
November 9, 2021– The World Bank Monday said in a report that the Palestinian
economy experiences growth, but prospects remain uncertain.
The
World Bank pointed that the Palestinian economy is showing signs of recovery
largely due to improved activity in the West Bank. However, Gaza still suffers
from a particularly difficult economic situation with very high unemployment
and deteriorating social conditions. In the current economic context, the
outlook is uncertain as sustainable sources of growth remain limited.
The
Palestinian Economic Monitoring Report to the Ad Hoc Liaison Committee (AHLC)
will be presented on November 17, 2021, in Oslo Norway, during a policy-level
meeting for development assistance to the Palestinian people. The report highlights
the critical challenges facing the Palestinian economy in general and more
specifically Gaza’s economic performance and development needs.
“The
current consumption-led growth in the West Bank reflects a rebound from a low
base in 2020, exacerbated by the COVID-19 crisis. The economy still suffers
from restrictions on movement, access, and trade-- the biggest impediment to
investment and access to markets. It also lacks growth drivers for sustained
positive impacts on the economy and quality of life. The way ahead is still
uncertain and depends on coordinated actions by all parties in revitalizing the
economy and providing job opportunities for the young population,” said Kanthan Shankar, World Bank Country Director for West Bank
and Gaza.
Business activity has
gradually rebounded as a result of a decline in new COVID cases, the progress
of the vaccination campaign, and ease of lockdowns. The improved economic
performance was fully driven by the West Bank while Gaza’s economy remained
almost stagnant impacted by the 11-day conflict in May. Growth reached 5.4
percent in the first half of 2021 and is expected to reach 6 percent this year.
However, growth in 2022 is expected to slow to around 3 percent as the low base
effect weakens and as sources of growth remain limited.
The Palestinian
Authority’s (PA) fiscal situation remains very challenging. Despite an increase
in fiscal revenues, public spending grew at the same rate and aid reached a
record low. Additional deductions by the Government of Israel (GoI) from the monthly taxes it collects on behalf of the PA
(clearance revenues) added to the fiscal stress. After accounting for the
advance payment given to the PA on clearance revenues by the GoI, and donor financing, the PA’s deficit is expected to
reach US$1.36 billion in 2021. The PA may encounter difficulties in meeting its
recurrent commitments toward the end of the year. No longer able to borrow from
domestic banks, the PA may be forced to accumulate further arrears to the
private sector, pulling away more liquidity from the market.
The projected gap
remains very large. In the immediate term, the report calls on donors to help
reduce the budget deficit and the GoI to address some
of the fiscal leakages that remain outstanding. For example, the “Israeli Civil
Administration” collects tax revenues from businesses operating in Area C and
the GoI collects exit fees at Allenby Bridge, but
there has not been systematic transfer of these revenues to the PA as requested
by the signed agreements. Releasing some of these funds would provide much
needed quick financing in these difficult times. Beyond the immediate
priorities, efforts should be exerted by the PA to place the fiscal stance on a
more sustainable path through widening the tax base, better management of the
generous public pension system and health referrals and improving of the
regulatory environment to be more favorable for investment and private sector
growth.
The report also
examines the accumulated effects of years of blockade on Gaza’s economy, which
is currently a fraction of its estimated potential. Gaza’s contribution to the
overall Palestinian economy was cut by half over the past three decades,
narrowing to just 18 percent currently. Gaza has also undergone
deindustrialization and its economy has become highly dependent on external
transfers. Moreover, Gaza’s economic decline has had a severe impact on living
standards with an unemployment rate of 45 percent and poverty reaching 59
percent as a result of the 11-day conflict and worsening COVID-19 conditions.
Gaza’s citizens suffer from poor electricity and water-sewerage availability,
conflict-related psychological trauma, and limited movement.
“The dire living
conditions and the high dependency on social assistance of the people of Gaza
is of particular concern. Concerted efforts by all sides are needed to address
the needs identified in the Gaza Rapid Damage and Needs Assessment (2021) led
by the World Bank, EU, and UN to support reconstruction, and reverse the
declining trajectory of Gaza development and quality of life,” added Shankar.
Priority
actions require increasing electricity supply and upgrading infrastructure and
networks to enable economic growth and improve public services. This includes
bringing natural gas to Gaza to unlock the renewable energy potential. With
only one percent of the population having access to improved drinking water and
limited wastewater treatment, there is an urgency to restore universal access
to an improved water supply and to treat 95 percent of wastewater produced in
Gaza. Efforts to restore connectivity of Gaza to the West Bank economy and
external markets are critical, including issuing business permits to Gazan traders and easing the restrictions on dual-use
inputs to production. It is also necessary to allow universal access to digital
connectivity that will help connecting people and the economy to regional and
global markets. It is then critical to introduce at least 3G mobile broadband
in Gaza within a clear timeframe and ease restrictions on the entry of ICT
equipment.
K.F.