Coronavirus Could Cause Palestinian GDP to Shrink Over Seven Percent, World Bank Says

Decline could be kept to 2.5% in 2020 if the pandemic comes under control within four months

Corin Degani
Corin Degani
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A Palestinian man, wearing a mask as a preventive measure against coronavirus, works at a bakery in Gaza City March 22, 2020
A Palestinian man, wearing a mask as a preventive measure against coronavirus, works at a bakery in Gaza City. March 22, 2020Credit: MOHAMMED SALEM/ REUTERS
Corin Degani
Corin Degani

After a difficult 2019 for the Palestinian economy, the spread of the coornavirus and lockdown measures are likely to cause gross domestic product to contract at least 2.5% this year, the World Bank said in a report.

The World Bank said its projected decline in Palestinian GDP assumed that the pandemic was put under control within four months. If not, the economy could shrink more than 7% in 2020. As of Monday, there were 449 confirmed cases of the coronavirus and three deaths in the West Bank and Gaza.

Bibi's got the perfect exit strategy - just not for the coronavirusCredit: Haaretz

Last year, Palestinian GDP grew less than 1%, shrinking 3.3% in the first quarter and about 2% in the second, according to the World Bank.

Early in 2019, Israel froze some 500 million shekels ($140 million, at current exchange rates) a month in taxes it collects for the Palestinian Authority in a dispute over payments the PA makes Palestinian prisoners detained by Israel. As a result, the PA was forced to cut spending by half and public sector salaries by 40%.

The economy recovered in the second half, and Israel and the PA agreed on terms for restoring the tax revenue last October.

Now, the recovery is threatened a second time, this time by the pandemic. According to the World Bank, nearly a quarter of West Bank and Gaza residents live on less than $5.50 a day and about the same percentage of the workforce is unemployed. International aid to help them cope with the coronavirus is expected to be modest.

The Palestinian economy is vulnerable. The public sector accounts for the majority of economic activity while the private sector is weak and underdeveloped due to Israeli restrictions. Palestinian agriculture has been in decline and industry treading water.

The economy is heavily reliant on the Israeli economy to provide jobs, but Israel has been subject to a severe lockdown that only began to ease this week.

About 140,000 West Bank Palestinians work in Israel, in ordinary times crossing the border every day from their homes. At the end of March, however, Israel said they could only continue working if they agreed to remain in Israel for at least two months. About 47,000 have done so. But Palestinians living in Bethlehem, which has emerged as a coronavirus epicenter, are barred from wokrig is Israel altogether.

Since salaries in Israel are generally higher than they are in the West Bank, any lost income threatens have an outsized impact on the Palestinian economy.

The PA itself estimates it will need no less than $120 million in aid to cope with the coronavirus, but overall aid from overseas has been in long time decline and is at its lowest in a decade.

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