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Developments in the economy of the Occupied Palestinian Territory (TD/B/71/3) [EN/AR/RU/ZH]

Attachments

Trade and Development Board
Seventy-first session
Geneva, 16–27 September 2024
Item 8 of the provisional agenda
Report on UNCTAD assistance to the Palestinian people

Summary

The thirtieth anniversary of the Oslo Accords coincided with a severe confrontation. Intense Israeli operations in Gaza and restrictions in the West Bank inflicted the greatest damage to the Palestinian economy in recent history. In Gaza, the military operation decimated the remaining infrastructure and precipitated an unprecedented humanitarian and environmental crisis, as the gross domestic product fell by 81 per cent in the last quarter of 2023 and unemployment soared to 79 per cent. Prior to October 2023, 80 per cent of Gazans depended on international assistance. By the end of the year, multidimensional poverty had affected the entire population. The West Bank and East Jerusalem were not spared, as violence spread and the occupying Power tightened long-standing restrictions on movement and access. The quarterly gross domestic product shrank by 19 per cent and unemployment reached 32 per cent. Inflationary pressures combined with increasing unemployment and declining incomes to erode household welfare. The decline in economic activity exceeded the impact of previous confrontations in 2008, 2012, 2014 and 2021, on course to surpass the impact of the aftermath of the second intifada.

Settlements continued to expand in 2023 and early 2024. Their growth displaces Palestinians, alters reality on the ground, changes the demographics in East Jerusalem and Area C of the West Bank and hinders a two-State solution. The success of the Palestinian National Authority in governance and building capable institutions has been widely recognized, as early as in 2011, including by the International Monetary Fund, the United Nations and the World Bank. However, in recent years, the capacity of the Palestinian Government to perform basic functions has been weakened by a lack of resources and recurrent crises. Withholding and deductions by Israel from Palestinian revenues, leakage of fiscal resources and a steep decline in donor aid have contributed to a severe fiscal crisis that poses direct threats to sociopolitical stability and the banking system.

I. An unparalleled shock overwhelms the Palestinian economy

A. From arrested development to large-scale destruction

1. The thirtieth anniversary of the Oslo Accords coincided with the most severe confrontation in recent history and since the establishment of the Palestinian National Authority in 1994. Following the events of 7 October 2023, the occupying Power launched a military operation in Gaza. An intense and sustained military operation has decimated entire neighbourhoods and resulted in high numbers of deaths and the destruction of infrastructure, schools, hospitals, housing units, agricultural assets and energy, water and telecommunications networks. Across the Occupied Palestinian Territory, production processes have been disrupted or decimated, income sources have disappeared, poverty has intensified and expanded, neighbourhoods have been eradicated and communities and towns have been ruined. The operation caused unprecedented humanitarian, environmental and social crises and transformed the region from one experiencing underdevelopment to one facing devastation. The direct damage to the economy, infrastructure and productivity of Gaza continued to accumulate through mid-2024. Repairing the damage will take decades, and the socioeconomic repercussions of the large-scale destruction will be felt for a long time. By early 2024, 82 per cent of private sector establishments in Gaza had been damaged or fully destroyed; and 96 per cent of private sector establishments in the West Bank reported a decline in sales and 42.1 per cent reported a decrease in the total number of employees reporting to work.1

2. UNCTAD has assessed the evolution of the economic crisis in Gaza, which took a sharp downturn in 2007, and provided a preliminary assessment of the economic impact of the current confrontation.2 The report of the Secretary-General to the General Assembly at its seventy-ninth session provides a detailed assessment of the economic impact of the military operation through May 2024.

3. Prior to October 2023, a consensus had emerged that sustainable development in the Occupied Palestinian Territory required lifting the restrictions and closures in Gaza and the removal of all restrictions on movement, trade and investment in the West Bank, as first steps to ending occupation. 3 The performance of the Palestinian economy has been largely determined by measures taken or not taken by the occupying Power and, to a lesser extent, by aid flows that have either mitigated the economic impact of occupation or revealed the impact when they ebbed. In the past few years, UNCTAD and various international organizations have described the state of the Palestinian economy and its prospects as dire. Post-pandemic growth momentum has waned. Gross domestic product (GDP) growth was projected to lag behind population growth and hover at around 2 per cent over the medium term, implying a continuous decline in per capita income for the growing population.4

4. Table 1 shows the immediate impact of the latest military operation. All key economic indicators fell steeply in the fourth quarter of 2023 and the first half of 2024, as the economy was affected by the greatest economic shock in recent history. In the first three quarters of 2023, the Palestinian economy grew by 2.8 per cent, compared with in the same period in 2022. However, in the last quarter of 2023 alone, the Palestinian economy shrank by 30 per cent, compared with in the fourth quarter of 2022. This reversal led to a 5.5 per cent contraction in annual GDP and an 8 per cent decline in GDP per capita; one of the deepest slumps in recent history. In the West Bank, 4 per cent GDP growth in the first three quarters of 2023 was followed by a 19 per cent decrease in the last quarter. Consequently, annual GDP contracted by 1.9 per cent; and GDP per capita, by 4.5 per cent. In the fourth quarter of 2023, the economy of Gaza shrank by 81 per cent; the most severe contraction in recent history. In 2023, GDP in Gaza contracted by 22.6 per cent, leading to a decline of 24.5 per cent in GDP per capita, with 91 per cent of the contraction taking place in the fourth quarter (figure 1). As the military operation continued through May 2024, economic activity in Gaza fell to less than 20 per cent of the level in 2022. By early 2024, the decline in economic activity across the Occupied Palestinian Territory had exceeded the impact of previous confrontations in 2008, 2012, 2014 and 2021, and was on course to surpass the impact of the aftermath of the second intifada that began in 2000 and continued for some years.