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Palestinian Economy on Brink, World Bank Warns
Palestinian laborers head for jobs in Israel on May 3 at a border crossing station near the West Bank city of Ramallah. (Issam Rimawi/Anadolu Agency via Getty Images)

Palestinian Economy on Brink, World Bank Warns

Expert: Donor countries, Israel won’t allow collapse

The Palestinian economy could shrink by as much as 11% this year due to the coronavirus pandemic, according to a bleak report published by the World Bank on Monday.

The document also cautions that poverty among Palestinians could double.

More than a quarter of all Palestinians lived in poverty before the pandemic, and the report says the figure likely has already risen to 30% in the West Bank and 64% in the Gaza Strip.

Mohammad Khabeisah, a Palestinian financial expert, told The Media Line that the World Bank figures were optimistic compared to official numbers from the Palestinian Central Bureau of Statistics, which talk of the economy contracting by 24%.

“There’s a little bit of exaggeration although there is no doubt the economy is in bad shape,” he said. “The coronavirus exacerbated the situation. All institutions agree that there is a downturn.”

Khabeisah adds, however, that the Palestinian Authority’s economy is not about to crash.

“The Palestinian government, donor countries and even Israel will not allow this to happen because any collapse of the Palestinian economy will have regional and maybe international consequences,” he said.

The PA is still able to manage its finances without resorting to extreme measures, he noted.

“There was a Palestinian-Israeli agreement for Israel to loan the Authority NIS 800 million ($228 million), but the Palestinian government did not go with it because it did not need it,” he said. “There were expectations that Palestinian government revenue would fall by half in March, April and May, but the decline was much lower.”

A report by the United Nations warns of imminent PA bankruptcy.

Both documents were prepared and released ahead of a virtual meeting on Tuesday of the Ad Hoc Liaison Committee, which coordinates the delivery of international financial assistance to the PA.

Thabit Abo Al Ros, a financial expert at Palestine Technical University in Tulkarem, in the northwestern West Bank, told The Media Line that the steps taken by the PA in its fight against COVID-19 had added to the economic misery.

“There is evidence that the poverty rate has increased, from 25% to 30%, and that unemployment has reached 30%,” he said.

The Palestinian territories have seen low infection rates since the first cases of the novel coronavirus were recorded in early March. The government quickly set out strict measures to contain the pandemic, closing off areas under its control and limiting the movement of people.

The Palestinian economy normally depends to a great degree on tens of thousands of workers crossing into Israel each day, but because of the pandemic, the numbers declined drastically in the past three months.

“Up to 133,000 Palestinians [normally] work in Israel, bringing with them an average of NIS 900 million a month,” Khabeisah noted. “Add to that the 210,000 government civilian employees whose salaries come from the PA.”

These two pillars help keep the Palestinian Authority afloat. But analysts say it is the situation of the more than 600,000 people who work in the local private sector that threatens the stability of the economy.

“About 60% of workers in the private sector received some financial compensation that helped them survive during the crisis, but that had a major impact on the local markets,” he said.

Abo Al Ros says that two months of interrupted incomes and the long business closure paralyzed local markets, especially since they included the Muslim holy month of Ramadan, the busiest time of the year for most merchants.

“There is a sharp decline in demand and a decrease in consumption, resulting from a lack of liquidity in the hands of a large segment of the population,” he stated. “In addition, those who have cash tend to save rather than spend it.”

But both analysts warn that as long as the risk of a second wave of the pandemic exists, the local economy will suffer.

The World Bank says the Palestinian economy had a lackluster performance in 2019, when it grew by 1%, and its recovery will depend on how quickly it rebounds from the crippling pandemic measures imposed in the PA.

Dr. Nasr Abdel-Karim, a professor of financial and economic sciences in the College of Graduate Studies at the Arab American University in Ramallah, points out political issues as well.

“Let us not forget that we are under a military occupation and have been for decades, which contributes to the desperate state of the economy in Palestine,” Abdel-Karim told The Media Line, adding that the Trump Administration’s decision to cut financial aid to the PA also played a role.

UN Mideast envoy Nickolay Mladenov has highlighted the tense political standoff between Israel and the Palestinians, warning that unilateral actions by either side would “most likely trigger conflict and instability” in the region.

Israeli Prime Minister Binyamin Netanyahu has made it clear that he intends to annex parts of the West Bank and place them under Israeli sovereignty. This infuriates Palestinians, who want the West Bank and the Gaza Strip for their future state, with east Jerusalem as its capital.

PA President Mahmoud Abbas responded to Netanyahu’s annexation plans by cutting all ties with Israel, including security coordination, and with the United States.

Abdel-Karim says the Palestinian economy is in a “difficult and critical stage” and will suffer if Israel goes forward with annexation.

“It will heighten tensions and confrontations with the occupation and its settlement project, and this will bring additional economic troubles that could be more severe than [those created by] the coronavirus pandemic,” he said. “It is impossible to create a viable Palestinian state under the Trump ‘Deal of the Century,’ which also makes it impossible to have a sound economy.”

The PA last week announced several steps to ease the pandemic restrictions on movement and commerce, including an end to a curfew. The decision allowed tens of thousands of Palestinians to cross through checkpoints for work in Israel, according to the Israeli military.

The Palestine Trade Union Confederation told The Media Line that more than 100,000 workers returned to work this week, and more will do so by the weekend.

“With the return of Palestinian labor to jobs in Israel, the situation should improve,” Khabeisah said.

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