'Palestinian economic growth dropped in 2012'

World Bank reports warns situation for PA will only worsen if Israeli-Palestinian conflict continues.

Palestinians in the West Bank (photo credit: REUTERS/Ronen Zvulun)
Palestinians in the West Bank
(photo credit: REUTERS/Ronen Zvulun)
The Palestinian Authority had a $1.7 billion deficit in 2012 as economic growth dropped and unemployment rose, according to a World Bank report published Tuesday in advance of a March 19 international donor conference in Brussels.
The report warned that the situation would only worsen in 2013 if the Israeli-Palestinian conflict continued and if better business practices were not put in place.
It particular, it noted that the manufacturing sector needs to grow and expand into higher value-added items, such as technology and pharmaceuticals.
Palestinians must also send products to a much wider list of countries, rather than depending almost entirely on Israel to be their main trading partner.
In 2011, according to the report, 86 percent of Palestinian exports went to Israel.
“Continued financial support by the donor community, and increased reform efforts by the PA to manage the current fiscal challenges must remain a high priority,” said Mariam Sherman, World Bank Country Director for the West Bank and Gaza.
“However, much bolder efforts to create the basis for a viable economy need to be made to prevent the continued deterioration that will have lasting and costly implications for economic competitiveness and social cohesion,” she said.
The report, titled Fiscal Challenges and Long Term Economic Costs, had harsh words to say about Israeli restrictions and the absence of a peaceful two-state solution.
The continued existence of a system of closures and restrictions is creating lasting damage to economic competitiveness in the PA territories, according to the report.
Donors have focused on keeping the PA solvent, but the economy will only thrive if long-term issues are resolved.
But not all the problems would disappear if the Israeli-Palestinian conflict was resolved, the report said.
“Aid cannot substitute for a poor business environment,” the report said.
“The growth of a small economy depends to a large extent on its capacity to compete in global markets and increase the exports of goods and services,” the report said.
It warned that the Palestinian economy was losing this ability, because its manufacturing sector was stagnant.
“The rapid decline in manufacturing has not been replaced by the growth of high value added service exports such as Information Technology (IT) services and tourism,” the report said.
Agricultural employment has doubled, but Palestinians do not grow enough food to provide for their population in the West Bank and Gaza, and as a result must import food, according to the report.
Manufactured products are based on natural resources, with low value added, such as stone, ceramics and low-end furniture, the report said.
Exports of goods make up only 7% of the Palestinian economy in 2007, compared with 10% in 1996, according to the report.
“This figure is among the lowest in the world,” the report said.
These exports are mostly lowvalue products, as opposed to technologically advanced ones, the report said.
According to the report real GDP growth for the first three quarters of 2012 dropped to 6.1% from 11% in 2011 and 2010. Similarly the Gaza GDP dropped from 15% in 2010 and 2011 to 7.7% in the first three quarters of 2012, according to the report.
The World Bank blamed the West Bank drop on Israeli restrictions, a shortfall in donor aid, uncertainty created by the PA’s fiscal crisis and the global economic slowdown, including in Israel, the report stated.
The Gaza economy slowed down because agriculture and fishing have declined and the rebound effect has waned, the report said.
The World Bank estimates that end-of-the-year figures for 2012 will not change, and that economic growth will continue to slow down in 2013.
The GDP in 2013 is expected to slow to 4.7% in the West Bank and 6% in Gaza, according to the report.
Unemployment increased by 2% in 2012, according to the report, standing at 18.3% in the West Bank in 2012 and at 32.2% in Gaza.
“[The] Gaza unemployment rate continues to be among the highest in the world,” said the report.
It warned that the unemployment rate would continue rise.
The private sector cannot generate enough job opportunities for the increasing population, it said. The PA’s fiscal crisis means that public sectors jobs are likely to decrease. In Gaza, 38% of jobs are in this sector, compared to 16.3% in the West Bank.
The PA, according to the report, continues to have higher- than-expected costs and lower-than-expected revenues.