The International Monetary Fund last week issued a report on the economic situation in the “West Bank and Gaza,” suggesting “the Palestinian economy is enduring a fiscal crisis and the economic outlook is
dire.”
The report, available for downloading here, says that repeated political and security shocks, and the combination of the COVID-19 pandemic and spending priorities, have driven deficits in the PA and Gaza to unprecedented levels.
“With limited financing options, the authorities have accumulated large domestic arrears. Public debt (including arrears) increased from 34.5% of GDP in 2019 to 49.3% of GDP in 2021.”
The report points out that “the fiscal challenges are largely structural in nature. Under unchanged policies, the economic outlook is dire with debt on an unsustainable path and per capita GDP projected to decline. This is against the backdrop of already persistently high unemployment and poverty, particularly in Gaza.”
“Unemployment has stayed stubbornly high and poverty worsened, with Gaza suffering disproportionately,” according to the IMF report. “At the end of 2021, the unemployment rate stood at 24%. It improved to 13% in the West Bank, but remained very high in Gaza, at 45%, reflecting the [May] 2021 conflict [with Israel] and existing restrictions on the movement of people and goods. Extremely high unemployment in Gaza is closely associated with high and increasing poverty, with the World Bank estimating that almost 60% of the Gazan population lives below the poverty line.”
The report concludes that the political and security situation is the source of considerable uncertainty in both Gaza and the PA. It notes that “the May 2021 conflict between Israel and Hamas led to significant infrastructure damage in Gaza and reconstruction is only gradually getting underway. Moreover, Gaza remains cut off from the rest of the Palestinian territory. The periodic eruption of tensions in the West Bank—with the conflict between Israelis and Palestinians in eastern Jerusalem and around Israeli settlements, and occasional Palestinian demonstrations against the PA—also contributes to ongoing uncertainty. It is further compounded by the indefinite postponement in the Spring of 2021 of elections for the Palestinian Legislative Council (the parliament) and President. However, local elections took place in most West Bank municipalities in December 2021 and March 2022. Meanwhile, the new Israeli government is taking a cautious approach. It has agreed on some economic confidence-building measures, accompanied by ministerial-level meetings, but no peace talks are envisaged.”
The IMF report concludes that “the PA’s fiscal problems are deep and will take time to resolve. The goal should be to first arrest the increase in public debt (which includes arrears) and subsequently bring it down, including through the clearance of arrears,” and concedes that “given the size of the fiscal deficit and the multitude of difficult reforms that will need to be pursued, this requires a multi-year horizon.”
But in reality, there’s no conceivable way for the PA, and even more so Hamas in Gaza, to even dream of reducing their ever-burgeoning debt and the catastrophic decline into poverty of their populations. At a minimum, such an effort would require Hamas to stop investing most of its funds in preparing for yet another war with Israel, and the PA to stop hemorrhaging hundreds of thousands of shekels on salaries to terrorists and their families. None of it is going to happen.
What’s more likely to happen is another disastrous confrontation between Hamas and Israel that would result in another demolition of the Gaza Strip cities, to be followed by debt forgiveness and international investments. But that would require that someone out there would give a hoot about the PA and Gaza Arabs, and at the moment everybody is busy.
