The Palestinian economy is expected to continue to operate below its potential, according to a new World Bank report on Monday. Growth is expected to hover around 3%, and considering population growth, the GDP will not increase - which will negatively affect the standard of living.
The Palestinian Economic Surveillance Report, entitled "A Race Against Time," will be presented to the Ad Hoc Liaison Committee (AHLC) to hold a policy meeting in the area of assistance for the development of the Palestinian people, in New York on Wednesday.
"During the last 5 years, the Palestinian economy has practically stagnated and is not expected to improve unless the policies on the ground change."
Stephan Embald, World Bank regional director for the West Bank and Gaza
The report highlights the economic challenges faced by the Palestinian territories and describes the constraints affecting health services.
"During the last 5 years, the Palestinian economy has practically stagnated and is not expected to improve unless the policies on the ground change," Stephan Embald, the World Bank's regional director for the West Bank and Gaza said.
In 2023 so far, the income of the Palestinian public has increased considerably, but expenses have also increased.
Considering the partial implementation of the latest salary agreements between the Palestinian Authority (PA) and the labor unions, the deficit is expected to reach $493 million in 2023, or 2.5% of GDP. This is minus the revenue from the collection of Palestinian taxes by Israel in the amount of approx. -$256 million, as well as international contributions. If the labor agreements are fully implemented, the deficit will increase even more and reach 2.7% of GDP.
Running out of options
The main concern in this regard is that the financing options are getting smaller, and the deficit is expected to continue to be financed by arrears of payments to private suppliers, and funds from the public pension fund and public employees (who have already received only 80-85% of their salary since the end of 2021). A continued accumulation of additional arrears will affect - in the long term - market liquidity and may ultimately stifle economic activity, with devastating effects on the level of poverty as well as social stability.
The World Bank report states that the PA's reform efforts are necessary, but not sufficient to achieve necessary growth and economic sustainability. Mobilizing additional support from the donor countries is also important, and cooperation on the part of the Israeli government is essential.