The World Bank called on Israel to stop deductions from Palestinian tax revenues and address the outstanding financial issues. It urged donors to resume aid to public finances despite the severe economic challenges facing the Palestinian Authority (PA).
The World Bank issued a report on the Palestinian economic situation, noting that the Authority still faces severe challenges. Despite significant increases in fiscal revenues, the fiscal situation remains fragile due to high public spending and low external financing.
The Bank will present the report, issued on Tuesday, at the donors' meeting in Oslo on October 17.
It indicated that "after accounting for the advance payment given to the PA on clearance revenues by the Israeli government, and donor financing, the PA's deficit is expected to reach $1.36 billion in 2021."
The PA may encounter difficulties in meeting its recurrent commitments by the end of the year.
No longer able to borrow from domestic banks, the Authority may be forced to accumulate further arrears to the private sector, pulling away more liquidity from the market. The projected gap remains very large, according to the report.
In the immediate term, the report calls on donors to help reduce the budget deficit and the Israeli government to address some of the outstanding fiscal leakages.
For example, the Israeli civil administration collects tax revenues from businesses operating in Area C, and the Israeli government collects exit fees at the bridge. However, there has not been a systematic transfer of these revenues to the PA as requested by the signed agreements.
"Releasing some of these funds would provide much-needed quick financing in these difficult times."
The World Bank report came when the Authority said it is suffering the worst financial situation since its establishment due to Israel's deduction of clearance revenues, the Covid-19 crisis, and the decline in external support.
According to the latest data, budget support was only ten percent of what was received during the same period last year.
Growth reached 5.4 percent in the first half of 2021 and is expected to reach six percent this year. However, growth in 2022 is predicted to slow to around three percent as the low base effect weakens and sources of growth remain limited.
According to the report, the Palestinian economy is showing signs of recovery mainly due to improved activity in the West Bank.
However, Gaza still suffers from a challenging economic situation with very high unemployment and deteriorating social conditions. In the current economic context, the outlook is uncertain as sustainable sources of growth remain limited.
World Bank Country Director for West Bank and Gaza, Kanthan Shankar, announced that the current consumption-led growth in the West Bank reflects a rebound from a low base in 2020, exacerbated by the COVID-19 crisis.
The economy still suffers from restrictions on movement, access, and trade, the biggest impediment to investment and access to markets, said Shankar.
"The way ahead is still uncertain and depends on coordinated actions by all parties in revitalizing the economy and providing job opportunities for the young population."
The report also examines the accumulated effects of years of blockade on Gaza's economy, which is currently a fraction of its estimated potential.
"Gaza's contribution to the overall Palestinian economy was cut by half over the past three decades, narrowing to just 18 percent currently."
Gaza has also undergone deindustrialization, and its economy has become highly dependent on external transfers.
Gaza's economic decline has had a severe impact on living standards, with an unemployment rate of 45 percent and poverty reaching 59 percent due to the 11-day conflict and worsening COVID-19 conditions.
