São Paulo – The West Bank and Gaza Strip must only make investments this year if donations so allow, cannot increase government spending, must lower their deficit to 10.4% of the Gross Domestic Product (GDP) and fight the high unemployment rates. These were some of the conclusions of International Monetary Fund (IMF) technicians after assessing the economic conditions of the regions managed by the Palestinian Authority (PA). The conclusions were published in the report “Recent Experience and Prospects of the Economy of the West Bank and Gaza,” issued last weekend.
The IMF shows that in 2011, the PA received a lower volume of aid to maintain its recurrent budget. The expected budget was US$ 1 billion, but the PA received US$ 800 million. Donations for development projects were also lower. The PA expected US$ 500 million but only received US$ 200 million.
“These shortfalls, in addition to lower-than-expected tax revenue in the context of a slowdown in economic growth, led to the accumulation of $0.5 billion in domestic payment arrears to the private sector and to the public pension fund. There was also an increase in net domestic bank borrowing by about $140 million, raising the stock of government debt to the banking system to a total of $1.1 billion,” according to the Fund. The figure represents 11% of the Palestinian GDP.
In 2011, the West Bank’s GDP slowed down to a 5.7% growth rate. From 2008 to 2010, the average growth was 9%. In the region, 17% of the population is unemployed. In the Gaza Strip, the unemployment rate remains at around 30%, however the growth rate in 2011 was roughly 20%. According to the IMF, the high unemployment rates reflect the “skewed nature of growth” because economic activity in the Palestinian territories is limited by Israel’s restrictions.
This mostly affects exports. The IMF estimates that Palestinian exports to Israel dropped by 24% between 2008 and 2011 as a result of increased barriers imposed by the latter. Palestinian sales to other countries pass through Israel before they are shipped to their final destination.
According to the IMF, the Palestinian Authority will need to curb the rising cost of living so it will not need to spend more on wages. The local government must avoid hiring new servants. Development projects must only be implemented in case funds are donated specifically to this end. To boost revenues, the Palestinians need to expand their tax collection system.
The Fund advises the Palestinian authorities to take measures aimed at boosting government efficiency in order to lower its dependence on donations. That would include, for instance, making “comprehensive” pension reforms, strengthening the social security network, and ensuring the transfer of electric power from municipalities to commercial companies.
*Translated by Gabriel Pomerancblum
