PALESTINIANS WEIGH a goat at a livestock market in Nablus last week, ahead of the Eid al-Adha festival..
(photo credit: REUTERS)
The Palestinian Authority is projected to face a $600 million financing gap this year amid a downturn in international aid, the World Bank says.
“The Palestinian Authority’s fiscal situation remains fragile with a $600m. financing gap projected for 2016,” as international aid is expected to reach $700 million and the budget deficit $1.3 billion.
International aid to the PA has declined more than 60% since 2008.
The World Bank issued its annual report on the Palestinian economy on Thursday, ahead of Monday’s scheduled meeting of the Ad-Hoc Liaison Committee, an international body that coordinates aid to the PA.
Despite concerns about the financing gap, the World Bank praised the PA for its efforts to reduce its budget deficit.
“The PA has managed to reduce the relative size of the fiscal deficit by 15 percentage points of GDP over the last decade, a highly impressive achievement rarely experienced in other places around the world,” the report said.
The World Bank added that increased tax revenues in the first half of 2016 have contributed to a 32% decline in the PA’s projected budget deficit for this year.
However, it said that the international community, as well as the PA and Israel, need to undertake a number of measures to deal with the fiscal gap.
“In the short term, donor support and in particular budget support is vital to address the financing gap and avoid a fiscal crisis leading to wider economic problems, as alternative options are limited,” the report read.
The World Bank said that the PA needs to increase its spending efficiency. “The PA needs to continue to stop non-priority spending and accelerate reform efforts,” the report said. In particular, it said the PA should take action to control “its oversized wage bill,” reduce excessive employment in the security and education sectors, and decrease the number of referrals outside the public health system.
Furthermore, the World Bank suggested that Israel should look at options to transfer tax and tariff revenue that it collects for the PA more efficiently.
The report projected that the Palestinian economy will grow about 3.5% in the medium term, and said overall unemployment stands at 27% – 42% in the Gaza Strip and 18% in the West Bank.
It noted that less than half of the aid pledged to reconstruct Gaza has been disbursed.
The World Bank also suggested that Israel could mitigate unemployment in the West Bank by opening Area C to Palestinian investment.
“World Bank analysis has reported that access to Area C could increase the Palestinian GDP by 35% and would be expected to lead to a 35% increase in employment.”
Under the Oslo Accords, Area C is under Israeli security and civil control.
Marina Wes, World Bank director in the West Bank and Gaza, summed up the report by saying the PA economic situation is concerning.
“The Palestinian economic outlook is worrying with serious consequences on income, opportunity and well-being. Not only will it affect the Palestinian Authority’s capacity to deliver services to its citizens, it may also lead to wider economic problems and instability,” Wes said.