World bank warns Palestinian fiscal crisis to deepen

The World Bank's latest Economic Monitoring Report on Palestinian economy warned that a severe fiscal crisis will deepen if the recent decline in donor assistance continues and that this situation is 'jeopardizing gains' made in recent years in building strong institutions, Wednesday said a report by World Bank. The report, entitled 'Stagnation or Revival? Palestinian Economic Prospects', is a document prepared twice a year to inform Ad Hoc Liaison Committee (AHLC), a forum of donors to the Palestinian Authority that is due to meet in Brussels on March 21. The authors of the report acknowledged important efforts by PA to mitigate the crisis through improved domestic revenue collection and a reduction in expenditures, said the statement. 'However, this will have limited impact in the absence of improved Israeli cooperation, including, among other things, sharing of relevant tax information.' Additional aid in the short-term is also imperative, because the PA simply 'can not take enough steps to reduce the projected recurrent deficit to the currently expected level of aid,' said the report. The World Bank statement said while the Palestinian economy continues to grow, indications of sustainable growth remain absent, as the West Bank growth actually slowed in 2011 compared to the previous year. 'In addition to the decline in donor support and the fiscal crisis, the slow down can also be attributed to a largely unchanged Israeli system of restrictions preventing the free flow of commercial traffic and goods,' added the statement. It said Gaza continued to recover in 2011, experiencing double-digit GDP growth, yet the examination of the factors driving growth in the territory raises doubts regarding the sustainability of this trend. 'Much of the growth stems from a construction boom produced by increased aid flows, the lifting of Israeli restrictions on the entry of some raw materials and increased imports through the tunnels from Egypt,' said the World Bank. In addition, the Gazan economy is still rebounding from a very low base, with the average Gazan remaining worse off than s/he was in the late nineties. According to the report, growth will remain highly aid-dependent unless the Palestinian private sector has the room to grow. This will only be possible if Israel lifts remaining restrictions on access to land, water, a range of raw materials and export markets. The report added that the Palestinian private sector will grow if PA improves the business environment and attracts needed investments through such measures as expending land registration in the West Bank; reforming the current laws governing business and building its own capacity to regulate the economy and ensure competition. 'Stabilization of the PA's fiscal position compels immediate action by the donor community,' said Marian Sherman, the World Bank Country Director for the West Bank and Gaza. 'But, there's a lot of energy and resourcefulness in the Palestinian private sector which is the longer-term path out of crisis mode towards sustainable economic growth. Unleashing the potential of Palestinian enterprises can be achieved only if Israel and the Palestinian Authority take concrete steps to level the playing field for entrepreneurs,' added Sherman.