World Bank: Palestinian economy in decline

During President Obama’s visit to Israel and the Palestinian Authority (PA)  next week, he will visit the West Bank towns of Ramallah, where he will meet PA leader Mahmoud Abbas, and Bethlehem, to see the Church of the Nativity. A new report by the World Bank says he will see an economy that is in steady decline and losing its competetiveness.

The World Bank published its report ahead of a forum of donors to the Palestinian Authority in Brussels next week. It said the deterioration of the Palestinian economy “will have lasting and costly implications for economic competitiveness and social cohesion.”

The report blames Israel for its economic restrictions, lack of freedom of movement, and prolonged closures. Israel says its restrictions are solely for security. The report says the PA

“Continued financial support by the donor community, and increased reform efforts by the PA to manage the current fiscal challenges must remain a high priority,” Mariam Sherman, World Bank Country Director for the West Bank and Gaza told The Media Line. “However, such bolder efforts to create the basis for a viable economy need to be made to prevent the continued deterioration that will have lasting and costly implications for economic competitiveness and social cohesion.”

The economy could lose its ability to compete in the global market. The productivity of the agricultural sector has been cut in half since the late 1990’s, and the manufacturing sector has stagnated. In Gaza, the quality of infrastructure in sectors like water and transportation is declining.

Unemployment among university graduates is close to 30 percent and Palestinian society is facing a growing brain drain.

“What is their option but to look for job opportunities abroad?” Naser Abdelkarim, a professor of economics at Birzeit University told The Media Line. “They simply leave the West bank and Gaza. If you want to let young people stay you must offer them hope for a better future.”

Part of the problem has to do with the world recession and the slowing of economic activity in Israel. The report also says that donor countries have not paid their pledges to the PA, leaving them unable to pay the salaries of civil servants.

Israel has also contributed to the problem by holding some $100 million it collects in customs and tax revenues on behalf of the Palestinian Authority. The PA also has large debts to banks and suppliers.

Economic growth is also down, from 11 percent in 2010 and 2011 to 6.1 percent in 2012. While those numbers are positive, especially in comparison to growth rates in Europe, most of it is fueled by donors which is not sustainable in the long – term.

The future of the Palestinian economy is expected to be on the agenda when President Obama sits down with President Abbas. Palestinians say the political issue and the economic reality are intertwined.

“It must come up in the meetings because you cannot talk about a political settlement of the conflict without talking first about living conditions of the Palestinians,” Professor Abdelkarim said. “I expect that the Israeli restrictions of our economy will come up too. Unemployment is also linked to the political issue.’