World Bank: Israel to Blame for Palestinian Financial Woes, Dependence on Foreign Aid

According to a new report issued by the international development institution Israeli restrictions in the West Bank cost the Palestinians more than $3.4 billion annually.

Restrictions imposed by Israel on most of the West Bank are to blame for the Palestinian Authority's excessive dependence on foreign aid, the World Bank said in a report released Tuesday.

The global financial institution also drew a direct link between what it called the "regime of restrictions" practiced by Israel in the West Bank's Area C and the weakness of the Palestinian private sector. These restrictions alone cost the Palestinian economy roughly $3.4 billion, annually.

"The key to Palestinian prosperity continues to lie in the removal of these restrictions with due regard for Israel's security," the reads the report, titled "Area C and the Future of the Palestinian Economy."

Last month, Palestinian Authority Prime Minister Rami Hamdallah announced that his government needs to raise $500 million by the end of the year to allow it to continue functioning and pay its employees' salaries.

The report further states that the Palestinian economy stands to grow by about $3.4 billion annually, should Israel lift the limitations it places on transportation, development, construction, water resources, agriculture and trade in the area. Economic growth will allow for an immediate increase in the government's tax revenue, which would reach $800 million without raising taxes, according to the bank's estimate. Such a development has the potential to cut the Palestinian Authority's fiscal deficit by half, significantly reducing the need for recurrent donor support.

As the report notes, Area C, which is under Israeli civilian and military control, constitutes 61 percent of the West Bank (not including East Jerusalem). The 1993 Oslo Accords stipulated that the area was to be gradually placed under Palestinian control by 1998, but the transfer never took place.

"The densely populated urban areas of the West Bank usually command the most attention," Mariam Sherman, the World Bank's outgoing country director for the West Bank and Gaza said in a statement. "But unleashing the potential from that ‘withheld land,’ – access to which is currently constrained by layers of restrictions – and allowing Palestinians to put these resources to work, would provide whole new areas of economic activity and set the economy on the path to sustainable growth."

Sherman's comment may be construed as veiled criticism of a tendency, both by countries that provide aid and the Palestinian Authority, to focus on areas A and B, which the report brands as "smaller territorial islands," as opposed to Area C, which is "richly endowed with natural resources and is contiguous."

This isn't the first time that the World Bank, alongside other international aid organizations, directly addresses Israeli restrictions on Palestinian economic activity in Area C. And yet, both the donor countries and the Palestinian Authority have recoiled over the years from attempting to plan and invest in projects of any size in the area, knowing that the chances that Israel would issue construction and development permits are slim to none. Palestinian nongovernmental organizations and small international aid groups have gone as far as to lament that the donor countries and the Palestinian Authority in effect have forsaken Area C, thus lending a hand to the creation of detached Palestinian enclaves and to Israeli settlement activity in the bulk of the West Bank.



Contrary to optimistic forecasts pinned by donor countries to former Palestinian Prime Minister Salam Fayyad's government and his policies of building up state institutions, the PA has faced growing difficulties in paying salaries and paying off debts over the past two years. In the first half of 2013, the Palestinian gross domestic product hit 1.9 percent, down from 5.9 percent in 2012 and 9 percent in the years 2008-2011. Foreign aid, meanwhile, has dropped by half.

"This slowdown has exposed the distorted nature of the economy and its artificial reliance on donor-financed consumption," the report said.

The World Bank's study joins a series of reports and statements indicating growing impatience within Western countries over Israeli policies in Area C. Over the past three years, the European Union has repeatedly asserted that Israel's "domination and control" in Area C undermines the feasibility of the establishment of a Palestinian state.

The World Bank report refrains from addressing the politics of the matter, and even notes that it does not seek to predetermine the status of any territory that may be subject to negotiations. However, it does state that "the manner in which area C is currently administered virtually precludes Palestinian businesses from investing there."

The report details a series of concrete restrictions that hurt the PA's financial sectors and weaken the competitiveness of Palestinian businesses vis-à-vis Israeli farmers, manufacturers and telecommunication companies. It attributes the drop in Palestinian agricultural productivity, the high housing prices in the West Bank and the excessive spending by communication companies, as well as the high prices that they charge their Palestinian consumers, to Israeli policies in Area C.

Coincidentally or not, the report comes alongside efforts by U.S. Secretary of State John Kerry and Mideast Quartet envoy Tony Blair to promote the Palestinian Economic Initiative, which is based on a development plan devised by the Palestine Investment Fund, and to drum up foreign investment in the Area C sectors mentioned by the World Bank: agriculture, natural resources (including resources extracted from the Dead Sea and rock quarries), tourism, telecommunication and construction. Kerry and Blair, as well as the World Bank, are of the opinion that prosperity and development are both inevitable and possible regardless of the political situation, and are contingent on an Israeli decision to lift its restrictions. 

An archive photo of Palestinian farmers in the West Bank.
AP