The Palestinian economy cannot sustain statehood while it continues to rely
heavily on donor funds and its private sector fails to thrive, the World Bank
said in a report it published Wednesday.
“No matter what steps the
Palestinian Authority takes, it is unlikely to reach fiscal sustainability until
there is a political settlement [peace deal] that allows the private sector to
experience rapid and sustained growth,” the bank said.
The report blamed
the problem on the absence of a final-status agreement, which would allow for a
But Israeli restrictions on movement and access make
the situation worse, it said, as such restrictions limit the Palestinian private
sector’s ability to develop sustainable businesses.
The report also
chastised the PA for not taking enough steps to educate a skilled work force,
for failing to maximize its land holdings and for not developing legislation to
The PA has made considerable progress in building the
institutions it needs for a future state, but it has not been able to develop a
sustainable economic base, the report said, adding that economic growth has been
“The situation is unsustainable, and aid levels have
already begun to fall,” the World Bank said.
A future Palestinian state
can only be economically viable with a strong private sector that generates jobs
for the growing population, the report stated.
The Palestinian economy in
the West Bank is “skewed toward the public sector and non-tradables,” it
According to the report, industry, agriculture, tourism and some
other services have declined, while donor-funded sectors such as public
administration, education, health and electricity have grown from 20 percent of
GDP in 1994 to more than 27% in 2010.
Real growth reached 5.4% in 2007,
rising to 7.4% by 2009 and 9.8% in 2010, the report said, adding that most of
that growth was in the West Bank.
The growth, it noted, provided a
deceptive picture because much of it was driven by large donor transfers, which
have begun to decline.
In 2007, the international community gave the
Palestinians $3.4 billion in donor funds, more than double the donor-funding
level in 2002, the report said.
“Such high levels of aid are not
sustainable and since 2008 aid has decreased,” it stated.
In 2010, donors
gave the PA $1.1b.
“But even this large amount did not cover the full
recurrent deficit, forcing the PA to borrow from the local banking sector” to
pay the $1.6b. needed for salaries, the report said.
This leaves the PA
with few resources for development, and pushes it further into dependence on
donor financing, it said.
By 2010, it continued, the PA was in debt to
local banks for $840 million.
According to the report, the situation is
so problematic that even after a Palestinian state is established, the
Palestinian tax base won’t be able to support its government.
In order to
develop a future state, the PA must increase its trade and choose a trade policy
so it can foster the private sector.
One of the questions it must answer
is whether it should have a customs union with Israel, a free trade agreement or
a non-discriminatory trade policy. It must also create legislation to protect
trade, the report said.
In addition, the PA must take steps to increase
the work force, according to the World Bank, which noted that the West Bank and
Gaza have some of the highest unemployment rates in the world.
fix this situation, it must improve its education system, so that it provides
businesses with highly skilled employees, the report said.
Palestinian state will be small and resource poor,” it predicted. “The education
system is not providing its graduates with the type of skills required by a
The World Bank also called on the PA to expand land
registration in the West Bank.
Land suitable for development is scarce,
the report noted. Available land is difficult to access because ownership is
fragmented and only a small portion of it is registered and titled, the report
said. It pointed out that only 30% of Palestinian private land was properly