UN warns of dire economic future for Palestinians [World Bank: economy to slump in 2023]

Adla Massoud

The National  /  May 2, 2023

Tor Wennesland says Palestinian Authority’s fiscal situation has not improved.

Worsening violence, a lack of reform and the absence of a peace process are all undermining the Palestinian economy, a UN report warned on Tuesday.

It also noted that without an “immediate” strategic shift, there could be a “serious reversal” in the Palestinian state-building project.

Report author Tor Wennesland, UN Special Co-ordinator for the Middle East Peace Process, said the negative trends not only contribute to a “pervasive sense of pessimism regarding a political solution to the conflict and negatively impact the Palestinian economy, but they also undermine efforts to strengthen the PA [Palestinian Authority] and create space for the Palestinian economy to grow”.

Mr Wennesland warned that with declining donor support, the ability of UN agencies to keep pace with growing needs is under threat.

“Given current demographic trends, needs are expected to increase exponentially in the medium term, making immediate investment in basic service delivery necessary,” he said.

Pressures on the Palestinian economy resulting from Israeli restrictions need to be relieved and both sides need to engage in “real efforts to address imbalances in their economic and administrative relationship”, he added.

Healso called on Israel to further ease restrictions on the movement of goods in and out of Gaza to maximise the positive effect on the Palestinian economy.

The report noted that despite limited implementation of reform measures, the fiscal situation of the Palestinian Authority has not improved. It called for increased revenue collection and more efficient public spending.

Palestinian Prime Minister Mohammad Shtayyeh told his cabinet on Tuesday that the government would pursue reforms but did not offer specifics.

He said Israel’s policy of withholding some tax income and a dip in foreign donations have added to the budget deficit.

Israel routinely withholds tax revenue from the PA, claiming it is in response to payments made to families of Palestinians killed by Israeli forces or during attacks on Israelis.

As part of past peace accords, Israel collects taxes and customs revenue on the PA’s behalf.

Mr Wennesland’s report coincided with another report by the World Bank that warned the Palestinian economy would slump this year amid increased tension in its territories and the effects of Russia’s ongoing invasion of Ukraine.


Palestine’s economy to slump in 2023 amid geopolitical uncertainty, World Bank says

Fareed Rahman

The National  /  May 2, 2023

Its economy grew 4 per cent last year amid easing of Covid-19 restrictions.

Palestine’s economic growth is expected to slump this year amid increased tension in its territories and effects from Russia’s invasion of Ukraine, the World Bank has said.

Palestine’s economy, largely dependent on foreign aid and grants, grew 4 per cent last year, driven by the recovery in private consumption as authorities eased coronavirus pandemic-related movement restrictions.

“Despite signs of recovery in 2022, growth remains sensitive to the escalation of tensions in the Palestinian territories and the ongoing restrictions on mobility, access and trade,” said Stefan Emblad, World Bank country director for the West Bank and Gaza.

“Raising living standards, improving the sustainability of fiscal accounts and reducing unemployment in a meaningful manner will all require significantly higher growth rates. Exogenous sources of risks, such as in the areas of food and energy prices, mean the overall economic outlook remains bleak.”

Tension rose in Palestine last month after Israeli security forces stormed Al-Aqsa Mosque compound in Jerusalem, attacked worshippers and fired stun grenades at Palestinian youths.

Russia’s invasion of Ukraine has also disrupted global supply chains, leading to higher commodity prices and inflation in many countries.

From January to April last year, the food component of the Consumer Price Index (CPI) rose to one of its highest points in at least six years, the World Bank said.

“The effects of such price shocks disproportionately harm the poorest households, which spend the largest share of their income on food,” the report said.

“Moreover, the official CPI likely understates the effective inflation experienced by many Palestinian households, as its weights are most representative of the wealthiest 40 per cent of the population.”

Fiscal balances improved in Palestine last year, led by a 19 per cent increase in local tax collection and a 20 per cent rise in clearance revenue, as well as steady public spending, the World Bank said.

Total fiscal deficit decreased by more than 60 per cent. Factoring in donor contributions and the government of Israel’s deduction from clearance revenue, the Palestinian financing gap fared better than initial forecasts, closing the year at $351 million, or the equivalent of 1.8 per cent of the gross domestic product, down from 5.7 per cent in 2021.

“While the Palestinian Authority [PA] continues to try to cover the fiscal gap, the large and growing stock of arrears to the private sector, the pension fund and public employees pose risks to long-term macroeconomic stability,” the World Bank said.

“The exposure of the banking sector to the public sector remains high, which requires continued monitoring by the authorities.”

The PA should also focus on reforms to increase revenue, strengthen debt management and improve fiscal sustainability, the Washington-based lender said.

Reform efforts should continue to tackle the size of the wage bill and generous public pension system, as well as increase the efficiency of public expenditure, notably by better targeting transfers to the poorest and most vulnerable, it added.

“Adequate and predictable donor budget” will support the reform process and help in macro-economic stabilization in Palestine.

Fareed Rahman is a senior business reporter at The National