World Bank: New growth in PA economy precarious

Report heralds growth of 8% in GDP but warns it could be temporary.

palestinians 88 (photo credit: )
palestinians 88
(photo credit: )
New levels of growth in the Palestinian economy are "encouraging" but may not be sustainable, warned Nigel Roberts, director of the World Bank in Gaza and the West Bank. Donor funds may be at risk, he said, unless the Israelis and Palestinians take steps to improve facts on the ground. "A heck of a lot has to be done," he told The Jerusalem Post on Sunday. Roberts's remarks followed the release of a World Bank report on the Palestinian economy that heralded an 8 percent growth in GDP - close to the 10% the World Bank predicted would be necessary through 2008 to bring unemployment down to the 2000 level - but warned this growth would be temporary unless the Palestinians can stop the violence against Israel and institute internal reforms, including anti-corruption measures. The report also noted that, in light of January's Palestinian Legislative Council elections, many decisions to implement reform would likely have to wait until new politicians entered office. Similarly, the report warned that Israel must ease restrictions on Palestinian movement, allowing for the flow of goods and people between Gaza and the West Bank. Israel must also allow for exports and Palestinian workers to enter the country. Roberts warned that, without these changes, "growth will train off very quickly." The report was released in advance of an international donor conference in London this Wednesday, in which the EU, the UN, the World Bank, the US and seven other countries are set to discuss future funding of the Palestinian Authority. Exact sums are not expected to be pledged at the conference, but plans are likely to be laid out for a pledging conference to take place in the spring, assuming that the Israelis and Palestinians both make policy changes. While donor funds are important to the recovery of the PA's economy, the report warned that donors would want to know if their long-term investments have a future before committing their funds. "The combination of violence and turmoil is undermining the stability needed to induce private investors to bring their capital to the Palestinian economy," said the report. The report showed an encouraging 4% drop in unemployment from last year to this year, but expressed concern that new fiscal activity in the PA is unlikely to be sustained into the next year. It attributed the drop in unemployment partially to this new fiscal activity, but warned that the PA was overextending itself and would go bankrupt if it continued in its practice of fiscal spending. The PA is "at risk of being unable to meet their salary bills," said Roberts. Unemployment also dropped because Israel allowed the number of daily workers entering Israel and the settlements to rise from 50,000 in 2004 to 64,000 for the first three quarters of 2005, according to the report. "Labor exports to Israel, if those continue, will play a large part in sustaining growth," said Roberts, adding that they "remain a vital part of economic growth. The economy has not yet adjusted away from a dependence on Israel." The report warned that donations are risky at this time because "not enough has been done to lay a really solid" foundation for growth. Though it asked donors to prepare to increase aid, the report noted that, without changes, giving the PA money could be a mistake. "In the worst-case scenario, donors could find themselves on a policy-free treadmill, disbursing three times what they did before the intifada without any assurance of sustainable impact," stated the report. "If you don't have the conditions in place to ensure that this money yields positive benefits, then you're actually further increasing the dependency," said Roberts. Donor funds for 2005 are expected to reach $1.1 billion, an increase of 20% from last year. The G8 in July agreed that it would give the PA up to $3b. a year in public and private finances if conditions warranted it. The European Commission is ready to double its commitments from €259 million to €500m. as long as the situation improves, said the report. But "donors need to see considerable progress before dispersing those funds." The report also called for the Arab League to increase its donations to the PA, noting that, in 2005, Arab countries were only set to provide $197m. in funds. The report follows a decision by Israel to suspend talks on enabling IDF-escorted buses of Palestinians to travel between Gaza and the West Bank as of this Thursday. Convoys of goods had been expected to start running this route in January. Prime Minister's Office spokesman Ra'anan Gissin said the report proved what Israel had been saying all along - that the Palestinian economy can not flourish as long as terror reigns. "The less terror there is, the better the economy is," he said, explaining that Israel's concerns regarding the passage of Palestinian goods and people was connected to its fear that such movement was a security risk. "It's because of terrorism that we have to use harsher measures," he said. Hilary Leila Krieger contributed to this report.