Palestine fiscal crisis deepening, says World Bank

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Palestinians wave their national flag during a protest against the Paris Protocol and the Oslo Agreement, both key accords which govern economic ties between Palestinians and Israelis, in the West Bank city of Ramallah on 11 September 2012. Photo – Abbas Momani/AFP

The World Bank warned on Wednesday aid-dependent Palestinian economy is on the verge of a collapse unless foreign funding increases and Israel eases its restrictions in the occupied West Bank.

“Donors do need to act urgently in the face of a serious fiscal crisis facing the PA (Palestinian Authority) in the short term,” Mariam Sherman, the World Bank’s country director for the West Bank and Gaza Strip, said in a statement.

The World Bank forecasted a $1.5 billion deficit in the PA budget in 2012 in a report issued ahead of a conference on Palestinian aid in New York next week. It said only $1.14 billion in donor funding to cover the gap had been received.

The Palestinian Authority (PA), which exercises limited self-rule in the West Bank, receives most of its aid from the United States, the European Union and Arab nations. But over the past several years there has been a shortfall in aid coming from Arab states resulting in the PA being unable to pay salaries to its 153,000 civil servants on time, on several occasions this year. Israel also frequently freezes the payment of taxation money collected on behalf of the PA, adding insult to the already bleeding economy.

The Palestinian Authority hiked taxes in early September, enforcing economic accords with Israel that peg Palestinian sales tax to high Israeli rates. The move sparked heavy demonstrations in West Bank cities and calls for the government to resign.

As a result, Palestinian Prime Minister Salam Fayyad last week was forced to announce the withdrawal of hike in fuel prices and VAT.

The WB report highlighted the fact that the presence of Israeli settlements, which control some 42% of West Bank territory, was stifling the potential for Palestinian economic growth. To build their economy, the World Bank said, the “Palestinians need access to Area C, the territory covering 60% of the West Bank where Israel maintains full control under interim peace accords and most settlements are located. Area C includes most of, but not all, the settlements.

“The continuous growth in the size of land that is allocated for settlement activity within the West Bank has fragmented the territory into smaller and more disconnected enclaves,” the report underlined.

All Jewish settlements established by Israel in the occupied West Bank are deemed illegal by the UN under the international laws. Israel disputes this and has sanctioned 120 official settlements since capturing the West Bank in a 1967 Middle East war.

In the report, the World Bank forecast that Gross Domestic Product growth in the West Bank and the Gaza Strip would slow to 5.6% in 2012 from 5.9 percent last year.


Sherman said that even if donor countries met their aid pledges, “sustainable economic growth cannot be achieved without the removal of the barriers preventing private sector development, particularly in Area C”.

The World Bank said the PA had made “credible efforts”, towards tackling its crisis and building its institutions but Israeli measures “remain the major impediment.”

Sherman cited difficulties in obtaining Israeli entry permits to the West Bank for foreign investors, a ban on the import of “dual use” items that Israel fears could be used in weaponry and limits on access to natural resources.

“The most important message of this report is that economic cohesion is not achievable when the areas in which people have to operate and go about their business are crisscrossed by impediments,” Sherman said.

The report said Israel has recently shown a willingness to consider the relaxation of specific restrictions in Area C, and had, according to its Foreign Ministry, approved 119 Palestinian infrastructure projects in 2011.

Israel insists it has greatly eased the movement of people and goods in the West Bank, as a result of improved security conditions. It maintains a blockade of the Gaza Strip, whose rulers oppose the existence of the Zionist state.

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