´Palestinian economy can’t sustain statehood´ (JERUSALEM POST) By TOVAH LAZAROFF 07/26/12)
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The Palestinian economy cannot sustain statehood while it continues
to rely heavily on donor funds and its private sector fails to
thrive, the World Bank said in a report it published Wednesday.
“No matter what steps the Palestinian Authority takes, it is unlikely
to reach fiscal sustainability until there is a political settlement
[peace deal] that allows the private sector to experience rapid and
sustained growth,” the bank said.
The report blamed the problem on the absence of a final-status
agreement, which would allow for a two-state solution.
But Israeli restrictions on movement and access make the situation
worse, it said, as such restrictions limit the Palestinian private
sector’s ability to develop sustainable businesses.
The report also chastised the PA for not taking enough steps to
educate a skilled work force, for failing to maximize its land
holdings and for not developing legislation to protect trade.
The PA has made considerable progress in building the institutions it
needs for a future state, but it has not been able to develop a
sustainable economic base, the report said, adding that economic
growth has been donor-driven.
“The situation is unsustainable, and aid levels have already begun to
fall,” the World Bank said.
A future Palestinian state can only be economically viable with a
strong private sector that generates jobs for the growing population,
the report stated.
The Palestinian economy in the West Bank is “skewed toward the public
sector and non-tradables,” it added.
According to the report, industry, agriculture, tourism and some
other services have declined, while donor-funded sectors such as
public administration, education, health and electricity have grown
from 20 percent of GDP in 1994 to more than 27% in 2010.
Real growth reached 5.4% in 2007, rising to 7.4% by 2009 and 9.8% in
2010, the report said, adding that most of that growth was in the
The growth, it noted, provided a deceptive picture because much of it
was driven by large donor transfers, which have begun to decline.
In 2007, the international community gave the Palestinians $3.4
billion in donor funds, more than double the donor-funding level in
2002, the report said.
“Such high levels of aid are not sustainable and since 2008 aid has
decreased,” it stated.
In 2010, donors gave the PA $1.1b.
“But even this large amount did not cover the full recurrent deficit,
forcing the PA to borrow from the local banking sector” to pay the
$1.6b. needed for salaries, the report said.
This leaves the PA with few resources for development, and pushes it
further into dependence on donor financing, it said.
By 2010, it continued, the PA was in debt to local banks for $840
According to the report, the situation is so problematic that even
after a Palestinian state is established, the Palestinian tax base
won’t be able to support its government.
In order to develop a future state, the PA must increase its trade
and choose a trade policy so it can foster the private sector.
One of the questions it must answer is whether it should have a
customs union with Israel, a free trade agreement or a non-
discriminatory trade policy. It must also create legislation to
protect trade, the report said.
In addition, the PA must take steps to increase the work force,
according to the World Bank, which noted that the West Bank and Gaza
have some of the highest unemployment rates in the world.
To help fix this situation, it must improve its education system, so
that it provides businesses with highly skilled employees, the report
“A future Palestinian state will be small and resource poor,” it
predicted. “The education system is not providing its graduates with
the type of skills required by a modern economy.”
The World Bank also called on the PA to expand land registration in
the West Bank.
Land suitable for development is scarce, the report noted. Available
land is difficult to access because ownership is fragmented and only
a small portion of it is registered and titled, the report said. It
pointed out that only 30% of Palestinian private land was properly
registered. (© 1995-2011, The Jerusalem Post 07/26/12)
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