PA Booming – For Now

As always, the fate of the Palestinian Authority economy is highly dependent on political developments.

By ZIV HELLMAN
Gazans wait to draw money from an ATM of the Bank of Palesti (photo credit: ABED RAHIM KHTIB/FLASH 90)
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 39%).
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.
What 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 opportunity.
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 budget.
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 negotiations.
Both Abbas and Fayyad could find their leadership challenged from several quarters. Expect interesting times, one way or another.