Gazans wait to draw money from an ATM of the Bank of Palesti.
(photo credit: ABED RAHIM KHTIB/FLASH 90)
THE WORLD BANK AND INTERNATIONAL MONETARY Fund (IMF), in presenting their annual
report to the meeting of donors (known as the Ad Hoc Liaison Committee) to the
Palestinian Authority (PA) in New York on September 23, reported glowingly
positive Palestinian economic growth, a decade, almost to the day, after the
start of the second intifada.
Real gross domestic product (GDP) growth in
2010 is projected to be eight percent in the West Bank and 16 percent in the
Gaza Strip, alongside a slight decrease in unemployment in the West Bank (from
15.9% to 15.2%), but an increase in unemployment in Gaza (from 36% to
In the West Bank, much of the credit for the improvement in
economic conditions clearly is due to PA Prime Minister Salam Fayyad and
President Mahmoud Abbas. In contrast to Yasser Arafat, who first and foremost
regarded himself as a revolutionary fighter, the current pair of leaders has
taken seriously the idea that their mandate is to build the foundations of a
Palestinian national entity. The most important actions they have undertaken
have been to rebuild the Palestinian society and economy after the terrible toll
of the second intifada. There are no mysteries here: a stable economy requires
personal security, a working judiciary and a predictable bureaucracy. The
business sector in cities such as Ramallah is booming because those factors now
exist in the West Bank.
At the same time, how much the Palestinian
economy has suffered, and how far it still has to go, needs to be kept in mind.
The Oslo Accords, signed 17 years ago, were based extensively on an economic
vision of improved conditions in the West Bank and Gaza Strip. The expectation
was that a better economy and hope for the future would lead to reduced
terrorism and, in turn, to fewer Israeli restrictions on the Palestinians, which
would then further improve the Palestinian economy, and so on.
happened, however, was the opposite: a wave of terrorist attacks in Israel
almost immediately after Arafat’s return to Gaza began a process of Israeli
disengagement from the Palestinians that ended with hundreds of IDF checkpoints
in the West Bank, the construction of a security barrier, and the sinking of
both Palestinian hopes and their economy. The corruption-heavy economy Arafat
introduced to the West Bank and Gaza Strip only further strangled economic
To appreciate how badly the situation became, consider that
only now, after several years of strong growth, living standards in the West
Bank are beginning to return to what they were in 1994, the year the Oslo
Accords began to be implemented. Unemployment is still much higher than it was
in 1994, when many Palestinians had opportunities for employment in Israel that
will likely never return.
Moreover, the PA, with its relatively low tax
collection, remains critically dependent on donor money. Manufacturing and
agriculture have not recovered their 1994 levels, while 23 percent of GDP is due
to public sector wages, a very high proportion. At the same time, the IMF is
projecting a funding shortfall of more than $300 million in the PA’s 2010
As always, the fate of the PA economy is highly dependent on
political developments. Several more years of quiet institution building,
increased security, and continued lifting of Israeli restrictions on the
movement of goods and people would be the best recipe.
But given the
expectations surrounding the renewed Americansponsored direct negotiations
between Israel and the PLO, to say nothing of continued discord between Fatah
and Hamas, there is no guarantee of a period of calm steadiness. Whether or not
the negotiations succeed, there will be pressure on the PLO leadership to take a
fateful, and potentially turmoil-inducing, step toward declaring Palestinian
statehood. Violent conflict could erupt, either due to Hamas aspirations to
scuttle negotiations or disappointment with the outcome of the
Both Abbas and Fayyad could find their leadership
challenged from several quarters. Expect interesting times, one way or another.