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Commitment in an Uncertain Environment

June 24, 2010

World Bank support for Palestinian private sector growth and institution building under unstable conditions.

Jerusalem, June 24, 2010. The West Bank and Gaza (WB&G) program presents a unique challenge for the World Bank: Operations in a conflict-affected environment requires that we be flexible in our approaches, while, at the same time, ensuring that the outcomes of our actions deliver real benefits to the Palestinian people. 

The pressures in conflict situations often result in economic aid fulfilling a humanitarian function, contributing to dependency rather than catalyzing sustainable economic growth. Under these conditions, we at the World Bank are obliged to constantly reevaluate and adjust our operations, to ensure that we are striking the correct balance between response to short-term needs and attention to long-term goals.

In order to achieve this balance we have identified two key principles that guide us in the planning of our operations. First, given the limited financing available to the World Bank, our work is most effective if it leverages and complements the work of other reformers and donors. Therefore, timely and accurate identification of the appropriate junctures for our interventions is an imperative.

Second, if we are to meet our primary development objective -- supporting the development of systems that can provide sustained delivery of high quality services to the Palestinian people -- we must focus on actions that facilitate the establishment of a fiscally stable Palestinian State, underpinned by robust and well governed institutions of state and civil society.

Fiscal stability is predicated on economic growth. Growth, however, is only sustainable if it is driven primarily by the private sector. The Israeli closures, significantly tightened since the outbreak of the Second Intifada in 2000, have stymied private sector development. Although some of the restrictions have been significantly relaxed in the recent past, we have yet to see the resurgence of Palestinian private enterprise required for the Palestinian Authority (PA) to reduce its dependence on aid.  There are numerous committed businesses active in the market, but much more needs to be done to support their growth and the entry and prosperity of more businesses.

Restrictions on access to markets, particularly in Gaza and East Jerusalem, to natural resources, primarily land in Area C and investment continue to impede business development. Over the next few months much of the Bank’s analytical and advisory capacity will be dedicated to (a) assessing the potential for private sector growth and recommending policies that encourage its realization; (b) measuring the current economic impact of restrictions and providing recommendations both for easing them. The first products of this renewed effort will be published in the autumn.

Much of the WB&G project portfolio is designed to effectively support Palestinian institution building. Given the program’s relatively limited financial resources and the fluidity of the situation on the ground, we place particular emphasis on preserving and developing human capital, both in the public sector and in civil society. This edition of the West Bank and Gaza Update reports on a number of these projects.

Governance is another field where we strive to integrate our global expertise with local knowledge in support of Palestinian institutions. A major study of this issue is nearing completion and, based on its results, we will engage in an extensive outreach effort during the second half of the year. We believe the results will improve public confidence in the many areas where performance is satisfactory, and, in parallel, encourage reform where it is not.

As the World Bank’s new Country Director, I return to the region after thirteen years. It is a privilege to be back.  The challenges we face are formidable. However, in the short time since my return, I have been struck by the extraordinary capacity and commitment of the Palestinian people to bring about change, even under the most adverse conditions. I look forward to continuing the work of my predecessors in support of Palestinian reformers and entrepreneurs though the synthesis of our global expertise with their local knowledge.

Mariam Sherman
Country Director