Palestine’s Economy Not Ready For Independence, Says World Bank

By: EW News Desk Team   Date: 26 July 2012

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26 July 2012

The Palestinian economy will be unsustainable if the nation achieves statehood in the near future, said the World Bank on Wednesday, with foreign aid still seen as the only reason behind the Palestinian Authority’s (PA) present survival.

"While the Palestinian Authority has had considerable success in building the institutions of a future state, it has made less progress in developing a sustainable economic base," wrote the 181-page report, which examined Palestine’s economic growth since the PA was founded in 1994 under the Oslo Accords.

According to the bank, the failure of both the PA and Israeli authorities to form a final-status agreement, which would allow for a two-state solution, meant that movement and access in Palestine’s private sector remain restricted, thus preventing any significant investments in the region.

Additionally, the Palestinian economy in the West Bank is still “skewed toward the public sector and non-tradables,” said the bank, with the manufacturing and agriculture sectors having shrunk over the past few years.

“No matter what steps the Palestinian Authority takes, it is unlikely to reach fiscal sustainability until there is a political settlement that allows the private sector to experience rapid and sustained growth,” the report wrote.

"The Government of Israel’s security restrictions continue to stymie investment and the recent growth has largely been driven by donor aid. This situation is unsustainable and aid levels have already begun to fall,” it added.

Last month, the PA admitted that it was facing its worst financial crisis since 1994, with debts of $1.5 billion and an immediate cash shortfall of $500 million.

Though the IMF declined Israel’s request to provide a $1 billion bridge-loan to the PA, Saudi Arabia pledged last week to donate an emergency $100-million (82-million euro) donation to the PA after Palestinian president Mahmud Abbas visited the kingdom and appealed for help.

Related: IMF Rejects Israel’s $1 Billion Loan Request For Palestinian Authority

Related: West Bank (Palestine) Economic Statistics and Indicators

Related: Palestinian Economy

Nevertheless, "economic sustainability cannot be based on foreign aid,” said World Bank economist John Nasir, as cited by AFP. “So it is critical for the PA to increase trade and spur private sector growth.”

The World Bank also suggested that the PA “seek to emulate Asian countries that have managed to sustain high levels of economic growth by adopting an outward orientation and integrating into world supply chains."

“There are a number of areas where the PA can focus its attention to not only improve current performance, but to lay the groundwork for a future state," it said.

Crucially, Palestine must also improve its education system, so that it can provides businesses with highly skilled employees, the report said.

“A future Palestinian state will be small and resource poor,” it predicted. “The education system is not providing its graduates with the type of skills required by a modern economy.”

In 2010, donors gave Palestine just $1.1 billion in aid, compared to $3.4 billion in 2007. Though Palestine’s GDP grew by 7.7 percent from 2007 to 2011, the growth, the World Bank noted, provided a deceptive picture because much of it was driven by large donor transfers.

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