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Report on UNCTAD assistance to the Palestinian people: Developments in the economy of the Occupied Palestinian Territory (TD/B/EX(68)/4) [EN/AR]

territorio Palestino ocupado
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Trade and Development Board
Sixty-eighth executive session
Geneva, 30 September–4 October 2019
Item 6 of the provisional agenda
Report on UNCTAD assistance to the Palestinian people

Executive summary

In 2018 and early 2019, the performance of the Palestinian economy and humanitarian conditions reached an all-time low. Per capita income fell, mass unemployment increased, poverty deepened and the environmental toll of occupation has been rising in both the Gaza Strip and the West Bank. The Palestinian people are denied the right to exploit oil and natural gas resources and thereby deprived of billions of dollars in revenue. The international community should help the Palestinian people to secure their right to oil and gas in the Occupied Palestinian Territory and ascertain their legitimate share in the natural resources collectively owned by several neighbouring States in the region. In March 2019, the Government of Israel started to deduct $11.5 million monthly (equivalent to $138 million annually) from Palestinian clearance revenues. The Palestinian National Authority responded that it would not accept anything less than the full amount of its rightful clearance revenues, which represent two thirds of Palestinian fiscal revenue. This fiscal shock is compounded by declining donor support.

UNCTAD continues to respond positively to the needs of the Palestinian people. However, securing extrabudgetary resources remains critical to fulfilling the requests in the Nairobi Maafikiano and in General Assembly resolutions for UNCTAD to report on the economic costs of occupation for the Palestinian people.

I. Falling per capita income and worsening depression-level unemployment

1. Precipitous deterioration in Gaza and a slowdown in the West Bank combined in a scant 0.9 per cent growth in gross domestic product (GDP) in 2018, well below the population growth rate, implying a drop in per capita income and worsening unemployment and poverty crises. The slowdown was driven by the dire conditions in Gaza, with the recent decimation of the productive base and capital stock and restrictions on the importation of essential production inputs. The economy of Gaza contracted by 7 per cent and poverty deepened.

2. Investment in Gaza practically vanished, falling to 3 per cent of GDP, 88 per cent of which was channelled to the rebuilding of structures destroyed during several major military operations in the last 10 years. Non-building investment remain minimal, at 0.5 per cent of GDP. Had the capital stock accumulation and productivity growth rates been similar to those in the West Bank, output growth in Gaza could have reached 9 per cent (International Monetary Fund, 2018).

3. In the West Bank, the economy may have reached the limits of consumption and credit-led growth; GDP growth slowed from 4 to 3 per cent between 2017 and 2018. The slowdown is explained by the decrease in donor support, contraction of the public sector and deterioration of the security environment, which discouraged private sector activities. In the recent past, substantial donor aid and domestic credit expansion financed a consumption-led growth that masked the severity of the economic consequences of the prolonged occupation. With the decline of donor aid, this mask has been slipping and the unsustainability of this type of illusory growth is laid bare.

4. The forces set in motion by occupation restructured the Palestinian economy and made its growth performance driven by the non-tradable goods sector, namely, construction, wholesale, retail and services, while exports contribute little and the massive trade deficit adversely affects GDP growth. The overall share of manufacturing in total value added shrank from 20 to 11 per cent of GDP between 1994 and 2018, while the share of agriculture and fishing declined from over 12 per cent to less than 3 per cent.

5. This pattern underscores the incapacity of the Palestinian National Authority (PNA) to steer the economy towards an export-led growth strategy, which would be most suitable for a small, open economy. The distorted distribution of investments across sectors gives rise to jobless growth in good times and deprives the economy of the benefits of technological innovation and the dynamism it entails, which are characteristic of the manufacturing and agricultural sectors hampered by occupation.

6. According to the Palestinian Monetary Authority (2018), in 2018, the Palestinian banking sector showed some signs for concern. Deposits only increased by 1 per cent, compared with 12 per cent in 2017, while the credit-to-deposit ratio increased to 69 per cent in 2018, compared with a maximum of 60 per cent in previous years. Non-performing loans increased by 25 per cent. Such developments are a cause for concern in their own right and also because even a minor banking crisis can spill over and dampen economic growth by limiting the ability and willingness of banks to support the economy’s supply and demand sides.

7. The prospects for the Palestinian economy are grim because the sources of growth that have propelled it in the last two decades are disappearing, while the constraints imposed by prolonged occupation persist and worsen. Many new developments render the horizon bleaker, including heightening political uncertainty, the steep decline in donor support and the volatile fiscal situation. In the short term, growth is expected to hover around 1 per cent, well below the population growth rate, which means continuous decline in real per capital income and rising levels of poverty.