MIFTAH
Thursday, 28 March. 2024
 
Your Key to Palestine
The Palestinian Initiatives for The Promotoion of Global Dialogue and Democracy
 
 
 

1. The Quartet has stated that the Hamas movement must meet a number of basic political conditions, and has connected Hamas’ response to levels and forms of future donor assistance to the Palestinian Authority (PA)1. The Government of Israel (GOI) has also indicated that it is not prepared to conduct political relations with Hamas unless it modifies its basic stance towards the State of Israel2.

The Evolving Economic Situation

2. In mid-March, the Bank modeled the impacts of a possible combination of actions by GOI and the donor community—see the Attachment. Readers are referred to Scenario 4, which assumed for 2006 the following:

  • continued GOI withholding of Palestinian tax revenues collected on the PA’s behalf;
  • border trade restrictions comparable to those enacted in 2005;
  • a 50 percent reduction in the average 2005 level of daily labor flows into Israel from Gaza and the West Bank; and
  • a reduction in donor disbursements of US$200 million, or 15 percent, as compared with last year.

3. Even with these restrained assumptions, the economy would experience a dramatic decline over the coming eight months: by the end of 2006, average personal income would decrease by 30 percent in real terms, unemployment would increase from the pre-election figure of c. 23 percent to about 40 percent, and poverty levels would climb from 44 percent last year to 67 percent.

4. Based on evolving GOI and donor policies, these projections now appear too rosy.

  • Palestinian revenues continue to be withheld, though GOI has decided to use a portion of them to reimburse Israeli public sector providers for electricity, water and health referral services supplied to the PA3;
  • Border trade restrictions are proving more stifling than in 2005, particularly in Gaza (where the border has been sealed to imports and exports for over a half of the year to date)4;
  • Donor disbursements could well prove lower than projected: the suspension of direct transfers to the PA by OECD donors is being implemented more rapidly than the Bank anticipated;
  • Commercial banks in West Bank and Gaza have been reminded of their potential legal liability under US anti-terror legislation, leading them to withhold services to the PA; this is impeding the PA’s ability to receive transfers of funds from abroad (in particular, from Arab League donors), and to operate an internal payments system5. Similar concerns have also led two major Israeli banks to announce that they will sever their relationship with Palestinian banks, and other Israeli banks are considering their position6.

5. The Bank’s recent projections will be revised in the forthcoming Economic Monitoring Note #2 using updated macroeconomic data, and in light of evolving developments. At the time of writing, though, the key aggregates seem likely to decline by several additional percentage points; this would make 2006, by a margin, the worst year in the West Bank and Gaza’s dismal recent economic history.

6. The recession has already begun, with March and April’s public sector salaries so far unpaid and with signs of food and gasoline shortages manifesting in Gaza, the result of faltering supply (due to persistent closure of the passages into Gaza)7. In early April, the UN’s Office for the Coordination of Humanitarian Affairs (OCHA) conveyed to Israel’s Ministry of Foreign Affairs its concern at the early emergence of a supply-induced humanitarian crisis8. GOI, which is calibrating the flow of commodities into West Bank and Gaza, remains confident said that the situation is under control, and believes such claims to be exaggerated9.

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