World Bank - Economic Monitoring Report to the Ad Hoc Liaison Committee - September 22, 2009 - Back to Resources Page

---

a. On August 25, 2009, the Palestinian Authority (PA) presented a program entitled “Palestine: Ending the Occupation, Establishing the State” (hereafter referred to as Program), which envisions the establishment of an independent state within two years. The following report analyzes some of the economic and development conditions necessary for achievement of this goal.

b. The Program accords high priority to institution-building. Substantial efforts are still required to remedy institutional weaknesses in two crucial sectors – the judiciary, where the institutional setup lacks a clear legal structure and mutually accepted competencies, and land management, where there are significant strategic and operational bottlenecks to expanded and expedited land registration. In addition, reform of the public finance management system is not yet complete. However, PA institution-building performance is generally satisfactory and it has demonstrated competence in the provision of basic services. Therefore, provided Gaza and the West Bank are reintegrated, the PA is well positioned to establish the institutional basis for Palestinian statehood in the near future.

c. Achievement of another central goal of the Program -- “economic independence and national prosperity” -- requires more than well-functioning institutions, however. The Israeli closure regime, significantly tightened since the outbreak of the Second Intifada in 2000, has stymied Palestinian private sector growth. This growth is a key condition for the sustainable economic development required for fiscal independence.

d. Since the beginning of 2009, the Government of Israel (GoI) has taken significant steps to ease movement restrictions in the West Bank and to allow greater access to West Bank markets for Arab citizens of Israel. At the same time, the security environment in the West Bank has improved dramatically. Together these developments have led to increased investor confidence and more economic activity.

e. Access to markets outside the West Bank -- in Gaza, in Israel, and elsewhere in the world -- is still severely limited, however. In addition, much of the administrative system that undermines investor confidence and restricts access to natural resources, such as Area C land (which constitutes some 60 percent of the West Bank), water, and telecommunications frequencies, remains in place.

f. Therefore, even if the continued economic stagnation of Gaza is not included in the analysis, it is too early to conclude that the signs of new growth in the West Bank – though they may lead for the first time in years to positive Palestinian per capita GDP growth in 2009 -- represent a trend towards sustainable economic growth1. Much of the growth appears to have been generated by donor spending, which rose significantly in response to Israel’s recent military operation in Gaza, and may not be sustainable.

g. Indeed, the PA’s fiscal position remains precarious and it is currently facing a $400 million financing gap for 2009. While PA performance in wage bill control has improved dramatically, overall expenditure control requires improvement -- total expenditures in the first half of the year were 12 percent higher than the budget target. No amount of restraint will, however, be sufficient to address the unsustainable deficits generated by revenue shortfalls. For the PA to approach its deficit target, revenues must substantially increase in the second half of 2009.

h. Net revenues, however, were more than 15 percent below budget target in the first half of 2009 and around 13 percent lower than the same period of the previous year. Therefore, unless further major steps are taken to enable sustainable private sector growth -- particularly by improving access to Israeli markets and to international ones, via either Israel, Jordan, or Egypt -- the PA will continue to require large amounts of donor aid for the foreseeable future.

To Download this full report please below:

Attachment	Size
LetterofDevelopmentPolicy.pdf	813.19 KB

---

World Bank - Economic Monitoring Report to the Ad Hoc Liaison Committee - September 22, 2009 - Back to Resources Page