The Palestinian Authority (PA) is facing fiscal difficulties. Clearance revenues (customs revenues collected by Israel on behalf of the PA and repatriated each month) have been withheld by Israel since early January 2015. The clearance revenues amount to approximately 70% of the total PA revenues. As a result, the PA has been unable to pay public officials their full salaries.
The conflict in Gaza in July-August 2014 caused an estimated US$2.8 billion in damages. Even prior to the conflict, growth had slowed from 6% in 2012 to about 2% in 2013 as a result of political uncertainty, a reduction in aid, the ongoing restrictions on the movement of people and goods, and the collapse of tunnel activity between Gaza and Egypt.
In 2014 the Palestinian economy contracted entering into a recession. The Gaza economy contracted by nearly 15% as a result of the conflict, whereas the economy in the West Bank grew by 4.5% in 2014, but the growth was driven primarily by new building construction. Negative growth in Gaza has had a severe effect on unemployment, causing it to go up to 43%. The youth unemployment in Gaza is estimated at a staggering 60%. Overall unemployment in the West Bank and Gaza increased in 2014 to 27%.
Donors’ aid for budget support has been uneven, since its peak in 2008, and the fiscal adjustments put in place to mitigate the dropping aid flows have not been commensurate. The already difficult fiscal position of the PA was exacerbated by the recent Gaza conflict. The fiscal pressures threaten the provision of public services and the institutional development gains by the PA.
The current decline could be reversed in an environment where sustainable, private sector-led growth is fostered coupled with a commitment of ongoing financial support from the international community. A dynamic private sector can generate the sustainable growth needed; however, restrictions put in place by the Government of Israel continue to stand in the way of potential private investment. Access to Gaza remains highly controlled, and much of Area C, which makes up 60% of the West Bank, is inaccessible to Palestinians.
Last Updated: Sep 16, 2015