In a report today, the World Bank said that despite some signs of recovery, the Palestinian economy has not yet recovered to pre-pandemic levels.
Ongoing movement and access restrictions, the long-term impact of the fiscal crisis combined with rapid price increases are contributing to a slower economic recovery, with growth expected to reach 3.5% in 2022, compared to 7.1%. in 2021.
“The war in Ukraine has exacerbated the already heightened price pressures in the Palestinian territories. Combined with the negative impact of COVID-19, price shocks have directly affected the supply of basic necessities and undermined the well-being of Palestinian households, particularly the poorest and most vulnerable,” said Ferid Belhaj, World Bank vice president for the Middle East and North Africa.
“We are encouraged by the PA’s progress on its reform agenda, and a concerted positive effort … is still needed to create fiscal space for vital social assistance and economic development.”
The report points out that a stable and predictable continuation of donor support to the PA through budget support operations will be crucial as it continues on its reform agenda.
The report pointed out that rapid inflation has further pushed up food and fuel prices, which account for a larger proportion of poor households’ spending. The West Bank and Gaza Strip are the second-highest food importers in the region, with a significant share of wheat flour and sunflower oil imports coming from Ukraine and Russia.
“The Palestinian economy continues to face enormous challenges that could affect its long-term macroeconomic stability. The amplified impact of the COVID-19 pandemic and the Ukraine war, clashes in the West Bank and recurring conflicts in the Gaza Strip compound the risks of destabilization in addition to fiscal strains. In addition, donor assistance remains insufficient to close the financing gap, which could reach 3.3% of GDP in 2022, reducing the ability of the PA to meet its recurring commitments,” said Stefan Emblad, World Bank country director for the West Bank and the Gaza Strip.
According to the report, “The Palestinian Authority (PA) budget deficit decreased by 70 percent in the first half of 2022 compared to the same period in 2021. This was due to strong revenue growth and continued spending as increases in certain expense items were offset by a sharp decrease in spending on the National Cash Transfer program at high social costs.
“Close cooperation between the Palestinian Authority, the Israeli government and the international community will be essential to reorient the economy towards long-term sustainability, significantly increase the revenues of the PA and support Palestinian households to cope with soaring prices ‘ Emblad said
The World Bank said Palestinian reforms are needed on both the revenue and expenditure sides for a more sustainable fiscal position, adding: “Expenditure reforms should target the payroll, the public pension system and untargeted transfers.” Better management of health referrals and unplanned subsidies for local government entities are also important priorities.”