Int'l report: Israeli restrictions hinder PA economy

According to report, Palestinians more dependent on int'l aid; Israeli official cites security concerns.

By JERUSALEM POST STAFF
palestinian economy 88 2 (photo credit: Ariel Jerozlimski)
palestinian economy 88 2
(photo credit: Ariel Jerozlimski)
The Palestinians are becoming more dependent on foreign aid, mainly due to a sluggish economy stifled by continued Israeli restrictions on trade and movement, the World Bank said in a report published Wednesday. The bank prepared the report for a meeting of key donor country representatives during the UN General Assembly in New York this month. The report counters a key assumption of international policy - that the current massive aid to the Palestinians would stimulate their economy and make them increasingly less dependent on foreign money in the future. A three-year plan for Palestinian economic recovery was launched in December in Paris, and was based on three elements - Palestinian government reform, a pledge of $7.7 billion in foreign aid through 2010 and a significant easing of Israeli movement restrictions. However, the bank said that while the Palestinians have moved forward with reform and the donors have delivered significant sums of aid, Israel has only removed a few obstacles and its economic restrictions on the Palestinians have increased. "Aid and reform without access are unlikely to revive the Palestinian economy," the bank wrote. "As such, international manifestations of support toward a viable Palestinian state and institutions are incomplete insofar as they do not tackle Israeli economic restrictions in parallel." Foreign Ministry spokesman Yigal Palmor, who had not yet seen the report, noted in an initial response that security is key to any economic development. Israel has said its restrictions are aimed at stopping Palestinian terrorists who not only threaten Israelis, but also the Palestinian Authority government in the West Bank. The World Bank said that while Israel has important security concerns, considerations not related to security also come into play. "Overwhelming evidence suggests that the current restrictions correlate to settlement locations and expansion," the report said. Palmor dismissed the report's comments on security concerns as superficial, saying Hamas terrorists continue to pose a threat to Israel and the Palestinian Authority. The Palestinian gross domestic product grew marginally this year, by 0.8 percent, the bank said. However, the economy remains sluggish, with the GDP increase outpaced by an annual 2.6 percent population growth. Since 1999, the real per capita GDP dropped by 30 percent, the bank said. Donors contributed $1.2 billion so far this year to support the Palestinian operating budget, such as the government payroll. However, a total of $1.85 billion is needed for the entire year. The Palestinians' 2009 spending envisions only $1.3 billion in budget support, but "with the [Israeli] restrictions restraining growth, it is questionable whether the current level of budget support can be reduced," the bank wrote. From 2007 to 2008, the share of foreign aid spent on budget support grew from 25 percent to 28 percent of the estimated GDP of $6.6 billion. The bank also took the donors to task for not paying regularly and making it difficult for the Palestinian government to plan ahead. The bank noted that the economies of Gaza and the West Bank are drifting further apart. After the Hamas takeover, Israel and Egypt virtually sealed the territory of 1.4 million people. The bank, citing the Palestinian Federation of Industries, said the closure forced 98 percent of Gaza's factories to close. The cease-fire between Israel and Hamas has not led to a significant easing of the border closure, the bank said.