UNCTAD Policy Briefs: The Palestinian economy: Towards recovery and sustained growth

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Reconstruction of the Palestinian economy requires not only substantial foreign aid, but also renewed development efforts to link emergency relief interventions with long-term development objectives. At the same time, the foundations must be laid for Palestinian sovereignty and statehood. In this policy brief, UNCTAD advocates a multi-pronged recovery strategy focused on rebuilding the economy's productive capacity. It argues that to be successful, development policies in the Palestinian context will have to deviate from economic orthodoxy, favouring growth through investment in higher productivity over trade-led liberalization. Aid effectiveness will have to be improved as well in order to ensure greater investment in crucial infrastructure and a vibrant private sector, avoid perpetuating aid dependency, and bring about a genuine structural transformation of the economy.

One year has passed since Israel's military operation in the Gaza Strip, but economic conditions in the occupied Palestinian territory (oPt) continue to be bleak. Gaza, home to 40% of the population, remains isolated from the West Bank and the rest of the world, with the flow of all but the most basic humanitarian goods suspended. The result has been an almost total collapse of Gaza's productive sector and the expansion of informal subsistence activities. Gaza's private sector, which once employed over 50% of the labour force, has lost most of its 3,900 registered enterprises, while agriculture's share of employment has plummeted to single-digit levels. More than 80% of the population are now impoverished; 43% are unemployed; and 75% lack food security.

In view of the eroded productive base, poverty is likely to widen and deepen unless reconstruction begins in earnest and without further delay. Economic security, access to sources of livelihood, and living conditions in Gaza are at their worst since occupation began in 1967. Limited access to safe drinking water and electricity continues to create serious public health hazards. The prospects of Gaza emerging from its deep recession are even bleaker in light of the direct and indirect economic losses resulting from the Israeli military operation, estimated at $4 billion. The Palestinian Central Bureau of Statistics in January 2009 assessed the direct losses alone at $1.9 billion, or 135% of Gaza's 2006 GDP.