Overview

The lack of a clear political horizon towards peace and reconciliation creates an unsustainable economic situation.  Even though donor aid had increased government-funded services and fueled consumption-driven growth during 2007 to 2012, this growth model has proved unsustainable. Donor support has significantly declined in recent years and, naturally, aid cannot sustainably make up for inadequate private investment, constrained by weak investor confidence due to the ongoing restrictions and the lack of political progress. Thus, growth started to slow in 2013 and the Palestinian economy contracted in 2014 as a result of the Gaza war. Recovery has started, but real per capital GDP in 2015 is estimated to have remained constant.

The July-August 2014 conflict in Gaza created a humanitarian crisis and has dramatically worsened the development challenges.  More than 2,100 Palestinians died during the hostilities, a third of the population was internally displaced and economic losses amounted to US$1.7 billion. Gaza’s economy continues to suffer from the impact of the 2014 war; at the current pace of recovery the Gaza economy is not expected to rebound to its pre-war level until 2018.

A quarter of the Palestinian labor force is still unemployed. Gaza’s unemployment was 38% by the end of 2015 – twice that of the West Bank. Youth unemployment was very high in 2015. Poverty in Gaza was 39% in 2014, which is almost 2.5 times higher than that in the West Bank. According to the United Nation’s Relief and Works Agency, almost 80% of Gaza’s population is currently aid dependent.   

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: Apr 01, 2016

The World Bank has special arrangements for assisting the West Bank & Gaza. In 1993, the World Bank established the Trust Fund for Gaza and the West Bank as a mechanism for funding assistance. The Bank leverages its comparative advantage by focusing on laying the foundation for a future Palestinian state, as it has since 1993, a grasp of longer term development issues, convening influence with development partners, and technical expertise.  

The program is guided by a joint World Bank Group Assistance Strategy for fiscal years 2015-16. The Bank’s program of knowledge products and grants is focused on municipal services, energy, water and solid waste management sectors, as well as social protection and education. 

A recent project lays the foundation for private sector development to create employment.  Along with offering a range of advisory services, the International Finance Corporation (IFC) continues to support both existing and new clients in the Palestinian private sector. The Multi-Lateral Guarantee Agency (MIGA) has underwritten a number of projects in the power, agribusiness, and manufacturing sectors.

Last Updated: Apr 01, 2016

  • Initiatives of the ongoing Assistance Strategy (2014-16) are progressing towards their goals. The poor and vulnerable have accessed social and economic services and municipalities have applied social accountability measures. The PA has developed protocols for medical referrals abroad and increased its control over net lending as electricity distribution companies’ performance indicators are being tracked.  Towards private sector led growth increasing employment opportunities, jobs have been created in marginalized and rural communities along Abraham Path. Adequate infrastructure contributes to private sector development and job creation. The difficulty in getting inputs into Gaza has impeded growth of mobile phone connections, rehabilitation of the war-damaged electricity networks as well as the sewage treatment plant’s functioning.
  • The World Bank has maintained a robust analytical program that has assisted the PA’s monitoring of the impact of restrictions on economic activity and promoting private sector-led growth. A recently completed Investment Climate Assessment identified constraints and drivers of growth for the private sector in the West Bank and Gaza, and provided the analytical framework for the upcoming Finance for Jobs project, scheduled to be approved at the end of fiscal year 2015.
  • With support from the World Bank and a number of donors, the PA has improved the institutional frameworks for, and access to, water and sanitation, solid waste management, electricity, and municipal service delivery through investments and analytical work. The Bank has helped analyze the infrastructure needs in Gaza and supported the rehabilitation of dilapidated infrastructure there. A World Bank study, published in October 2013, showed that access to Area C for Palestinian businesses could increase GDP by a third.
  • The Bank functions as the secretariat for the Ad Hoc Liaison Committee of donors to the Palestinian Authority. The Bank submits a report prior to each meeting updating partners on recent economic and fiscal trends, and provides economic and institutional analysis. The effectiveness of public expenditure reforms was analyzed in the Bank’s report to the September 2015 Ad Hoc Liaison Committee (AHLC) of donors while opportunities for fiscal enhancement have been examined for the report to the April 2016 AHLC. 

Last Updated: Apr 01, 2016

By administering a multi-donor Trust Fund (Australia, Canada, Finland, France, Japan, Kuwait, Norway, Poland, and the United Kingdom have contributed to this) the Bank has channeled funds (approximately US$1.4 billion since its inception) to support the Palestinian Authority’s budget.

Coordination with a number of donors on investment projects has allowed the World Bank to leverage funding (four times the amount of Bank resources) and maximize impact on the ground.  The Partnership for Infrastructure Multi-Donor Trust Fund (PID MDTF), established in 2012 to support infrastructure projects focusing on water, energy, and urban development, has grown to eight donors (Denmark, France, Finland, Norway, Sweden, the Netherlands, Portugal, Croatia) and over US$104 million in funding. The PID MDTF was the main vehicle to channel donor funding to emergency Gaza reconstruction in water, energy and municipal sectors.

Last Updated: Apr 01, 2016


LENDING

West Bank and Gaza: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments