Israel Destroyed Palestinian Economy, Says World Bank

by Emad Mekay

"Mainly as a result of the heavy restrictions on the movement of labor and goods in the West Bank and Gaza, the Palestinian economy is in severe recession," says the Bank's paper, "Fifteen Months -- Intifada, Closures and the Palestinian Economic Crisis," portions of which were released.

Unemployment has tripled to almost one-third of the workforce and real incomes have fallen by almost 30 percent and are now lower than they were in the late 1980s, says the report, routinely released every spring.

The proportion of the poor (those consuming less than two dollars per day) has doubled, to almost one-half of the population of the West Bank and Gaza.

The share of the Palestinian population living below the poverty line is estimated at almost 50 percent, double what it was in late 2000.

The report, other parts of which will be later released this month, says that physical damage from the Intifada by the end of December 2001 is estimated at $305 million, while gross national income has lost at least $2.4 billion.

Still, there is hope.

"The economic crisis is not irreversible," says Nigel Roberts, director of the Bank in the West Bank and Gaza. "If the closures are lifted, the Palestinian economy will recover."

"If closures persist or intensify, the economy will eventually unravel. Public services will break down. Unemployment and poverty rates will continue to climb. Helplessness, deprivation and hatred will increase, and this unique chance for reconciliation will pass."

The report, which was prepared by the Bank with support from the Office Of The United Nations Special Coordinator (UNSCO) and funding from the Government of Norway squarely blames Israeli closures of Palestinian territories for the economic situation.

"It is clear that the main proximate cause of the Palestinian economic crisis is closure, the impact of which far exceeds that of armed confrontation and associated physical destruction," it says.

It describes how closures -- internally within the West Bank and Gaza, between those areas and Israel, and closure of international crossings that link the area with its main trading partners Jordan and Egypt -- have completely stopped trade and movement of goods.

The Bank says the finances of the Palestinian Authority (PA) have drained sharply since closures began in September 2000 because of "a sharp drop in PA revenue collections".

Exhaustion of PA coffers is also due to Israel's suspension -- since December 2000 -- of the transfer of revenues such as taxes and tariffs that the country collected on the PA's behalf. That amounted to more than $500 million in 2000.

"It is axiomatic from the Bank's analysis that any significant recovery of the Palestinian economy requires that the Government of Israel dismantle the present system of internal checkpoints and border restrictions on goods and workers," says the report. "In addition, withheld tax revenues need to be released to the PA (Palestinian Authority), and regular revenue clearances resumed." The report says the economy has been buttressed by solid PA emergency plans, a strong social fabric and help from international donors.

Despite the ongoing conflict, donor disbursements climbed by 93 percent in 2001 over 1999 (to almost $930 million). Over 80 percent of this was devoted to budget support and emergency relief.

"Without the intervention of the donors, and in particular the Arab League and European Union states, all semblance of a modern economy would have disappeared by now," the report says.

Households have reduced their expenditures and drawn down their savings, and informal self-help and sharing systems have "redistributed" the economic pain.

The PA has managed its deficit by borrowing from commercial banks, slashing salaries, constricting operating costs and shelving the payment of bills. "But all of these strategies are reaching their limit," warns the document.

The economy is not far from total collapse, with many households nearly exhausting all their savings and capacity to borrow.

The report suggests the creation of a well-designed Palestinian reform agenda that would ensure "public accountability and transparency", and offer a firm legal milieu for private investment.

Nearly 1,300 people have died as a result of the conflict since September 2000 and nearly 20,000 were injured, says the report. Of the dead, more than 900 were Palestinian and 220 Israeli.