São Paulo – The International Monetary Fund (IMF) has revised its Palestinian economic growth forecast for this year down from 5% to 4.5%, according to a communiqué released last Wednesday (3rd). “The Palestinian economy continues to be dominated by the public sector, and persistent Israeli controls and obstacles on internal movement, exports, and imports in the West Bank, as well as the virtual closure of Gaza, thwart the private sector,” said the IMF mission chief for the West Bank and Gaza, Christoph Duenwald, following a visit paid by a delegation to East Jerusalem and Ramallah.
According to the executive, the rate of growth of the Gross Domestic Product (GDP) will continue on a downward trajectory. Last year, Palestine grew by 6%, according to IMF estimates. “Given weak growth, little progress is expected in reducing the unemployment rate, which currently stands at 24 percent,” said Duenwald.
The mission chief added that the finances of the Palestinian Authority (PA) remain fragile, even though the government has taken measures to limit the growth of the wage bill. Spending on energy subsidies is high, non-payment of electricity bills and revenue shortfalls have more than offset savings. According to him, even if all the money pledged by donor countries is actually transferred this year, there will still be a deficit. The IMF is expecting a US$ 1.7 billion budget deficit in 2013.
Another issue is accumulated borrowing from banks and other private institutions, which the Fund believes is cause for concern over the PA’s medium-term financial viability. In the meantime, according to Duenwald, government spending centres around the wage bill, leaving scant resources with which to invest in education and infrastructure, and thus compromising private sector development.
The Fund advises the PA to freeze wages and hiring, rationalize allowances for high income public sector workers and carry out a reform of civil services and the pension system. The IMF also believes the income transfer program should be expanded so it can cushion the impact of said reforms among the poorest. With regard to tax collection, the advice is to minimise tax exemptions and evasion.
Duenwald says the PA needs the continued support of the international community and the cooperation of Israel. “Indeed, there is no substitute for a far-reaching relaxation of Israeli restrictions needed to unshackle the private sector and thereby boost growth and employment,” he said. He also says the donor community needs to support the transition to viable public finances with stepped up aid based on multiyear commitments.
*Translated by Gabriel Pomerancblum
