The World Bank says the Palestinian economy will continue below potential

A new World Bank report says the Palestinian economy is expected to continue operating below its potential and grow at 3 percent.

Given the trends in population growth, per capita income is expected to stagnate, damaging living standards, the Washington-based lender said.

In addition, a combination of financial constraints and Israeli-imposed restrictions hinders access to health care, particularly adversely affecting people in Gaza.

The Palestinian Economic Monitor report will be presented to the Ad Hoc Contact Group, a policy-level meeting on development assistance to the Palestinian people, in New York on Wednesday.

The report highlights the economic challenges facing the Occupied Palestinian Territories and describes the constraints affecting health services.

„Over the past five years, the Palestinian economy has essentially stagnated, and progress is not expected unless policies change,” said Stephen Emblad, the World Bank’s country director for the West Bank and Gaza.

„The Palestinian territories have been in a de facto customs union with Israel for 30 years, but contrary to what was expected when the agreements were signed, the gap between the two economies continues to widen, with per capita income in Israel nearly 14 to 15. times higher than in the Palestinian territories.

„Poverty rates remain stubbornly high, as approximately one in four Palestinians live below the poverty line. Our report reminds all parties of the critical urgency to act to stimulate personal growth and put fiscal conditions on a sound footing,” Mr Emblad said.

Growth in the Palestinian economy will continue to slow this year, weighed down by a lack of reforms, a financial crisis and a worsening political and security situation, the International Monetary Fund said last month.

High unemployment and poverty add to the larger economic weaknesses of the occupied West Bank and Gaza, which are largely dependent on foreign aid and subsidies, the fund said.

After a post-pandemic recovery in 2021, GDP growth is expected to halve to 3.9 percent in 2022 and further slow to 3 percent in 2023, the IMF said.

Palestine’s economy was driven by a recovery in private consumption as authorities eased operating restrictions related to the coronavirus pandemic, the World Bank said in a report in May.

The Palestinian economy is at high risk under a multi-layered system of Israeli restrictions on movement and trade in the West Bank, the blockade of Gaza, internal division between the West Bank and Gaza, severe fiscal restrictions and an unfinished reform plan. The World Bank reports that foreign aid to the Palestinian Authority and foreign aid has been declining over the years.

Public revenue has increased significantly in 2023, however, expenditure has also continued to rise, mainly driven by a rising public wage bill.

„Taking into account the partial implementation of recent agreements between the government and unions and Israeli deductions and donor contributions from revenues of about $256 million on behalf of the Palestinian Authority, the deficit is expected to reach $493 million by 2023, or 2.5 percent of GDP,” the World Bank said.

„If the labor agreements are fully implemented, the deficit will increase further and reach 2.7 percent of GDP.”

Financing options are increasingly limited, and the funding shortfall is expected to continue to be financed by private suppliers, public pension funds and public employees (who are already receiving only 80 percent to 85 percent of wages from late 2021). ), the report outlined.

A relentless accumulation of excess arrears – over a long period of time – can affect market liquidity and ultimately paralyze economic activity, with devastating effects on poverty levels and social stability.

Reform efforts by the Palestinian Authority, greater financial support from donors and cooperation from the government of Israel are essential to achieving growth and financial sustainability, Lender suggests.

The World Bank recommended that revenues collected from Israeli businesses operating in Area C and value-added tax on Israel-Gaza trade be transferred to the PA, and that the e-VAT permit system be fully implemented through legislation mandating its use.

The Israeli occupation, the fragmentation of the Palestinian territories and the broader financial environment have significantly affected the Palestinian health system, the report said.

Updated: September 17, 2023, 8:00 PM