São Paulo – The Gross Domestic Product (GDP) of Palestine shrank by 1% in 2014, the first decline since 2006, according to projections for the economy of Gaza and the West Bank issued last Thursday evening (29) by the International Monetary Fund (IMF).
In a statement, the IMF says the economy of the occupied territories has been badly hit by clashes between Israeli forces and the Hamas movement in Gaza last July, and by political tension in the West Bank and East Jerusalem. The statement is the outcome of meetings of local authorities with an IMF mission visiting East Jerusalem and Ramallah from January 21 to 29.
The IMF estimates that the West Bank’s GDP was up 4.5% last year, but Gaza’s was down approximately 15%. Unemployment rates are 41% in Gaza and 19% in the West Bank.
The statement points to Israel’s non-transfer of clearance revenues as one of the factors detracting from Palestine’s economy. Since the territories are occupied, goods entering Gaza and the West Bank are “controlled” by Israel, which also collects clearance revenues. Said revenues represent roughly two thirds of Palestine’s net revenues.
“A high degree of uncertainty and various headwinds will likely prevent a strong economic recovery in 2015. Most notable is the non-transfer to the PA of clearance revenues collected by Israel on goods imported into the West Bank and Gaza,” the IMF statement quotes mission leader Christoph Duenwal as saying. The Fund also remarks that the reconstruction of Gaza following conflicts is being slower than expected.
The IMF acknowledges the fact that the Palestinian Authority has succeeded in managing the dearth of resources, but says insufficient revenues mean wages and subsidies will have to be cut, and bank loans and debt will eventually be needed. The challenges will stand even if clearance revenue transfers resume within a few months. Palestine will still need to cut spending and allocate available funds to the poor and to social assistance, considering the IMF’s assessment of the humanitarian situation as “particularly dire.”
Despite these challenges, the IMF advises the Palestine Monetary Authority to strive for a more “sustainable” fiscal position through structural reform, particularly in “public financial management and revenue administration, including by developing a simplified tax regime for small businesses.”
*Translated by Gabriel Pomerancblum