Attachments
Executive summary
The vulnerability of the Palestinian economy to the impact of prolonged Israeli occupation and closure policies was heightened by donors and financial restrictions on the Palestinian Authority (PA) in 2006. "Separation" has isolated Palestinians in the West Bank and Gaza from Arab regional and world markets, and institutionalized fragmentation inside the occupied Palestinian territories. With economic decline, it is estimated that the Palestinian Authority lost nearly $1.2 billion in revenues from 2000 to 2005. As donor support has decreased, tenuous Palestinian Authority financial solvency undercuts national fiscal policy to stabilize the economy in economic downturn via automatic stabilizers. Furthermore, in the absence of a strong international mediator, renewed confrontations have resulted in unprecedented restrictive measures on Palestinians. Viability of the economy is less an issue. Rather, the focus is increasingly on how to limit vulnerability and create an appropriate and effective policy space that minimizes the economic impact of Israeli security measures. The immediate economic priority is to sustain minimal levels of "effective demand" under greater isolation. The reversal of post-Oslo investor confidence and the trend towards de-formalization of the economy mean private sector stabilization will require an intensive Palestinian Authority trade policy fortified by expanded policy space in the areas of macroeconomic, trade and labour policy. There is an urgent need for comprehensive trade facilitation overhaul. Initial steps can take place regarding the urgent matter of trade flows and within a fuller analysis of re-routing costs, and the activation of transit agreements with Egypt and Jordan. The United Nations, including UNCTAD through its technical assistance and policy advice, and its international partners in Palestinian development need to continue to help the Palestinian people withstand this prolonged humanitarian and economic crisis.
I. Political change impacts donor funding
1. As anticipated in the secretariat's previous report on assistance to the Palestinian people (UNCTAD, 2006a), suspension of direct donor support to the Palestinian Authority following the Palestinian legislative elections of January 2006 has contributed to a further economic decline in the West Bank and Gaza. This reinforced the momentum of de-development triggered by repeated violent confrontations, and tightened Israeli restrictive measures and the closure policy which had been in place since September 2000. In 2006 and early 2007, Palestinians have suffered harsher travel restrictions, with increased checkpoints, expanded and deeper impact of the separation barrier in the West Bank, and greater restrictions on the mobility of people and goods.
2. The deterioration in movement and access in the West Bank increased in the last quarter of 2005, following Israeli unilateral disengagement from Gaza, and picked up momentum after the formulation of the first Government following the Palestinian Legislative Council elections in early 2006. The United Nations Office for the Coordination of Humanitarian Affairs (OCHA) counted 527 checkpoints and other obstacles by the end of December 2006, a 40 per cent increase since the Gaza disengagement benchmark. The situation in the Gaza Strip is particularly acute. Since 2000, when access to Israel for work began to decline, Gazans have depended on Palestinian Authority government payrolls for 45 per cent of total employment (OCHA, 2007). It is not surprising, therefore, that budgetary assistance has been described by the World Bank (2002) as the most efficient method for injecting cash into the landlocked and fragmented Palestinian territories. Recently, the World Bank (2007a) has underscored how Palestinian Authority achievements in transparency and accountability have been "undermined" by donor mechanisms to sidestep the Palestinian Authority.
3. Israeli withholding of Palestinian clearance revenues collected on behalf of the Palestinian Authority (in contravention of the Paris Protocol of 1994) and the absence of budget support from most Western nations have further reduced the already limited policy space available to Palestinian decision makers. This has effectively prevented the Palestinian Authority from paying the bulk of public employee salaries since April 2006, and when they have been paid, it has been only partially and irregularly. As a result, public service strikes have been recurrent, affecting Palestinian Authority essential service delivery personnel such as doctors, nurses, teachers and local municipal workers. This in turn has deepened the ongoing socio-economic decline. An urgent redirecting of aid through the Palestinian Authority is needed so that it can address vital social and economic concerns. UNCTAD has already highlighted concern for a declining Palestinian Authority role in "guiding allocation of donors funds", affirming the importance of seeking all options to expand policy instruments available to the Palestinian Authority, especially the trade, fiscal and monetary arrangements of the 1994 Paris Protocol (UNCTAD, 2006a, b).