Last update - 00:00 18/09/2007
World Bank: Gaza must be part of PA economic recovery plan
By Avi Issacharoff, Haaretz Correspondent
A new World Bank report warns that the unless the flow of funds from donor nations to the Palestinian Authority is accompanied by a long-term economic program including the Gaza Strip, it won't be able to bring about real change in and growth of the Palestinian economy.
According to the report, which is scheduled to be presented at a gathering of donor states on September 24 in New York, the economic situation in the territories continues to deteriorate rapidly. Moreover, the increasingly rapid rate of aid transferred since the start of 2007 ($450 million) has not managed to slow the Palestinian economy's decline.
The World Bank reiterated its demand for a number of fundamental conditions that should be met for the Palestinian economy to enjoy growth:
1. The Palestinian Authority must restore law and order and become fiscally self-sufficient.
2. The continued aid to the PA must be based on economic considerations and should serve to bolster a commitment to reforms.
3. Israel must implement immediately the agreement on movement and access signed in 2005 and ease the movement of goods and people in the West Bank.
4. The report states that "any discussion on economic recovery and peace is incomplete without the Gaza Strip."
Gaza represents about 40 percent of the population and a quintessential part of the Palestinian territory, economy and identity. Thus, any serious options for a private-sector-led and export-oriented Palestinian economy must include Gaza.
Without it, the collective investments and commitments advocated in this report are unlikely to materialize due to continued uncertainties about the sustainability and inclusiveness of Palestinian institutions."
The report offers a plethora of data showing the deterioration in the Palestinian economy, indirectly criticizing the way in which donors, states and organizations have offered aid without an overall economic plan.
"Aid flow... has been considerable, but remains fragmented and focused on bilateral arrangements with donors based on short-term political positions rather than a collective, longer-term view on broader economic and governance fundamentals.
Thus, aid has not been governed by a longer-term Palestinian development agenda, nor has it been matched by parallel actions by the PA and the government of Israel to create an environment where funds translate into sustainable growth."
The report's authors also estimate that the PA requires a minimum of $1.62 billion in foreign aid per year, 91 percent of which will go to meet recurring expenditure needs rather than be allocated for development.
However, as a way of meeting a growing economic crisis, the PA has broadened the public sector. The "West Bank and Gaza face an expanding labor force and a shrinking private sector. Thus, the public sector has become the only alternative for jobs. With few options at its disposal, and despite an unsustainable wage bill, the PA has resorted to
absorbing workers as a way to alleviate poverty. At the same time, many workers have been hired as part of a trend to bolster political support. As a result, public sector employment has grown by 60 percent since 1999 and by 2006 stood at about 157,800."
This means the PA's dependency on donor nations has only increased since there has been no investment in development and the private sector has shrunk, as has the production capacity of the Palestinian economy.
Private investments have nearly ceased to exist, and during 2005-06 they decreased by a further 15 percent. "The pace of capital flight has reached an all-time high in the last two years, with almost no foreign direct investment," states the report.
The report's conclusion is that all sides must take actions collectively and in parallel so they can achieve long-term benefits. Citing the experience of the past 15 years, the report's authors say that only parallel actions can bring about meaningful results.
"Whether practical or not under the current circumstances, the need for these parallel steps is evident. These are the fundamentals of economic growth and draw on the basics that guide all economies. Without them, all well-intentioned and creative solutions, policies and investments are undermined. The implication of this view is that all parties will need to expend more resources and assume more risks than they have done in
the past.
Perhaps this is best referred to as an investment in peace. The costs are
subjective to each side and are beyond the scope of this report. But the benefits of success make this an investment worth making," the report states.