The conflict and humanitarian tragedy in Gaza has made an already struggling Palestinian economy worse and put further stress on the fiscal situation of the Palestinian Authority. To return to a sustainable growth path, action is needed in three areas: providing access to imports and exports into, out of and between the West Bank and Gaza; re-integrating the governance framework between the West Bank and Gaza under the Palestinian consensus government; and additional funding from the international community to facilitate continued reforms and the re-construction of Gaza’s economy.
Political uncertainty and restrictions on movement and access are the main reasons why the Palestinian economy is unable to take off. Private investment in the Palestinian territories remains far from sufficient to fuel adequate rates of economic growth and to create enough jobs to allow unemployment to fall. The lack of a comprehensive peace agreement leads to a vicious cycle of economic decline and conflict. The impact of this political instability on the Palestinian investment climate has been severe, resulting in uncertainty, increased costs for businesses and investors, and the fragmentation of Palestinian economic space and markets. There are positive aspects in the investment climate, such as a stable financial sector and low incidence of bribery; and firm performance indicates potentially competitive productivity levels.
These positive aspects imply that the Palestinian private sector couldrespond effectively once movement and access is allowed.
In summary, the following elements are critical for a sustainable Palestinian economic future:
- For the international community, continued budget support to strengthen the PA’s fiscal position will be essential to sustain reforms and enable provision of services to the Palestinian population, including those in Gaza.
- For the PA, strong efforts are needed to address governance challenges in Gaza both to support recovery and reconstruction efforts and to provide a unified business climate.
- For the Government of Israel (GoI), sincere efforts are needed to allow better and faster movement of people and goods in, out and among the Palestinian territories, while taking into account legitimate security concerns of the GoI.