PALESTINIANS FACE an “acute financial crisis” due to declining growth and diminishing aid ahead of next week’s call for recognition of a state in Palestinian territory occupied by Israel, according to a report published yesterday by the World Bank.
It praised the Palestinian Authority (PA) for making rapid progress in its drive to create infrastructure and institutions as foundations for the state.
The bank argued that in the security, justice, development and service sectors, Palestinian public institutions “compare favourably with [those in] other countries in the region” and ensured that the authority was “well-positioned for the establishment of a state at any point in the near future”.
It added, however, that “a protracted fiscal crisis risks gains in institution-building made painstakingly over the past years.
This crisis has arisen because the authority’s $3.7 billion budget needed external support of $967 million but in the first half of the year, the authority received only $293 million. This compelled it to resort to bank loans and to cuts in wages for 170,000 public sector workers. The authority’s deficit is projected to be $900 million this year.
While the US and the EU have met their commitments, Arab donors have provided less than $80 million in assistance during the first half of this year, compared to $231 million in 2010 and $462 million in 2009, the report stated. Projected growth has fallen from 9 per cent last year to 7 per cent for Gaza and the West Bank.
The figure for the West Bank, administered by the authority, stands at 4 per cent as compared to 8 per cent during the first half of 2010.
Building a sustainable economy required revival of the private sector which “remains stifled by Israeli restrictions on access to natural resources and markets,” the report said.
Mariam Sherman, the bank’s country director for the West Bank and Gaza Strip, urged Israel, the authority and donors to build a new economic system in the Palestinian territories. She made it clear, however, that Israel had to change its behaviour.
“Ultimately, in order for the PA to sustain the reform momentum and its achievements in institution-building, remaining Israeli restrictions must be lifted.”
She blamed “the closure regime” imposed by Israel as “the most substantial obstacle to Palestinian economic viability”. Total Israeli control provides the context for the “closure regime.”
Israel commands all sea, air and land access to the Palestinian territories. Since its withdrawal from Gaza in 2005, the strip has been a single entity. However the West Bank has been divided into an archipelago of semi-autonomous Palestinian enclaves surrounded by Israeli-held land, 60 per cent of the West Bank, and cut off from East Jerusalem, the West Bank’s traditional political, commercial and cultural capital.
Palestinians moving from enclave to enclave have to pass through Israeli checkpoints; West Bankers have to obtain permits to visit Jerusalem. Goods imported through Israel are approved and handled by Israeli officials, warehoused at Israeli facilities, issued movement permits by Israel and carried on Israeli licensed lorries to the enclaves before being transferred to Palestinian-owned lorries for delivery in the enclaves.
The system creates delays, boosts costs and prevents the Palestinians from developing an independent economy. Customs dues and taxes valued at $1.2 billion a year are collected by Israel on behalf of the authority and are then forwarded to it. On occasion the funds have been withheld, creating acute cash flow problems.
Unable to create an independent economy, the Palestinians have become dependent on donors who do and do not deliver.
Saudi Arabia, Kuwait and the Emirates have grown impatient over the authority’s eternal need for funds and argue that donors are financing Israel’s occupation regime while Israel refuses to negotiate fruitfully with it and expands its settlements. This makes the emergence of a Palestinian state all the more unlikely.
The authority’s financial crisis could come to a head next week if Washington suspends $470 million a year in support when Palestinians calls on the UN General Assembly to vote for recognition of a Palestinian state in East Jerusalem, the West Bank and Gaza.
