World Bank: Palestinian Economy Showing Signs of Recovery, but Gaza Still in Dire Straits

Most of the improvement is in the West Bank, but the Palestinian Authority may find it difficult to meet its financial commitments towards the end of the year, the Washington-based financial institution stated

Ronit Domke
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The West Bank town of Bethlehem last year.
The West Bank town of Bethlehem last year.Credit: Mahmoud Illean
Ronit Domke

The Palestinian economy is showing signs of recovery following the coronavirus pandemic, a World Bank report stated on Tuesday. While the West Bank is driving the growth, the Gaza Strip remains in a serious economic plight, with a very high rate of joblessness and deteriorating social conditions, the report noted.

“Business activity has gradually rebounded as a result of a decline in new COVID cases, the progress of the vaccination campaign and ease of lockdowns. The improved economic performance was fully driven by the West Bank while Gaza’s economy remained almost stagnant impacted by the 11-day conflict in May," the bank said in reference to May's war between Israel and Hamas.

The World Bank noted that the economy grew by 5.4 percent in the first half of 2021 and is expected to reach 6 percent this year. However, growth in the Palestinian economy is expected to slow in 2022 to 3 percent.

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The report, which will be presented next week in Oslo to a policy conference on development assistance for the Palestinian people,  "highlights the critical challenges facing the Palestinian economy in general and more specifically Gaza’s economic performance and development needs," the bank said.

The Palestinian Authority’s fiscal situation "remains very challenging," the Washington-based financial institution said. "Despite an increase in revenues, public spending grew at the same rate and foreign aid reached a record low."

The World Bank's headquarters in Washington.Credit: Daniel Slim/AFP

“The PA may encounter difficulties in meeting its recurrent commitments toward the end of the year," the World Bank warned, calling on donor countries to help reduce its budget deficit. 

In March this year, Secretary of State Antony Blinken announced the U.S. would provide $250 million to the Palestinian Authority, which is largely kept afloat by donor states, after Donald Trump slashed the funding during his tenure. 

However, the report also said the Israeli government had to address “some of the fiscal leakages that remain outstanding," a reference to what the World Bank says are revenues, such as fees collected at the Allenby Bridge border crossing, that have not been systematically transferred to the Palestinian Authority.

A market in Gaza.Credit: Bloomberg

The report also examined the cumulative effects of the Israeli and Egyptian blockade of the Gaza Strip, stating that the enclave's 'contribution to the overall Palestinian economy was cut by half over the past three decades, narrowing to just 18 percent now. Gaza has also undergone deindustrialization and its economy has become highly dependent on external transfers." 

"Gaza’s economic decline has had a severe impact on living standards with an unemployment rate of 45 percent and poverty reaching 59 percent as a result of the 11-day conflict and worsening COVID-19 conditions. Gaza’s citizens suffer from poor electricity and water-sewerage availability, conflict-related psychological trauma and limited movement," the World Bank stated.

Looking ahead, the World Bank also advised: "Beyond the immediate priorities, efforts should be exerted by the PA to place the fiscal stance on a more sustainable path through widening the tax base, better management of the generous public pension system and health referrals and improving of the regulatory environment to be more favorable for investment and private sector growth.”

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