Broad policy plan needed to revive Palestinian economy – UN report

Reviving the struggling Palestinian economy, which had a zero growth rate in 2007, will require making use of a full range of fiscal, monetary, trade and labour policies, according to a report released today by the United Nations Conference on Trade and Development (UNCTAD).

The annual Report on UNCTAD Assistance to the Palestinian People notes that measures such as lifting the Israeli closure policy and movement restrictions imposed on the occupied Palestinian territory, dismantling the Israeli separation barrier, and intensifying donor support and institutional reform are necessary to boost economic growth.

However, these measures by themselves are not enough to revive an economy that experience a 5 per cent decline in 2006 and zero growth last year, the report argues.

UNCTAD stresses the need to strengthen the capacity of the Palestinian Authority (PA) to design and carry out economic development policies, as well as to play the lead role in aid allocation and management.

Due to limited growth in the economy, gross domestic product (GDP) per capita continued to decline, unemployment rose to nearly 30 per cent last year, and the percentage of those living below the national poverty line increased to 57 per cent in 2006 from 52 per cent in 2005.

The report notes a widening gap in living conditions between the West Bank and the Gaza Strip, whose population of 1.5 million Palestinians are suffering what the agency calls “its worst humanitarian crisis.” In 2006, 66 per cent of Gazans suffered from absolute poverty – 30 per cent higher than in the West Bank.

The Israeli closure policy and movement restrictions had a “pronounced negative impact” in the Palestinian trade sector, the report adds, noting that exports in 2007 were one-third lower than eight years ago, while imports increased by 4 per cent.

In addition, restrictions on movement, along with Israel’s withholding of Palestinian tax and customs revenue collected on behalf of the Authority, have worsened the ongoing fiscal crisis.

“This source of funds, when it is not withheld, represents 60 to 70 per cent of public revenue and is therefore the cornerstone of Palestinian budget resources,” says UNCTAD. Israel’s withholding of these revenues has caused total PA revenue to fluctuate sharply between 1999 and 2007.

Uncertainty over this major source of income not only makes budget planning almost impossible but also deprives the PA of the fiscal policy tools it needs to manage and stimulate the economy or even to meet essential social sector needs, the report states.

UNCTAD stresses the urgent need to expand the PA’s policy space, and empower it with more fiscal, monetary, trade and labour policy tools to promote economic growth. Along with ending the isolation of the Palestinian economy, the report also emphasizes the need for greater consistency and predictability in foreign aid, as well as large-scale public investment programmes to rebuild infrastructure. In addition, special attention should also be given to developing institutional and human resource capacities.

While political instability has curtailed some of UNCTAD’s planned technical assistance activities in the Gaza Strip, it is helping to modernize and strengthen Palestinian customs capacities. Also, in cooperation with the UN Economic and Social Commission for Western Asia (UN-ESCWA) and the UN Development Programme (UNDP), the agency has launched a project to promote regional economic and trade policies.