The Palestinian economy won't grow this year, largely due to Israeli restrictions on movement and despite billions of dollars in aid meant to shore up support for peace talks, the World Bank predicted Sunday.
The bleak prognosis stands in contrast to the bank's initial assessment that double-digit economic growth would be possible if Israel, the Palestinian government and the donors did their part, the AP reported.
The bank now estimates that the Gross Domestic Product - currently at about $4 billion - will grow by only 3 percent in 2008.
"That, taking into account population growth, leaves per capita income static, if not lower than the previous year," the report said.
The bank noted that the Gaza economy has sharply contracted because of the virtually complete closure of the Gaza strip by Israel and Egypt after the violent Hamas takeover there last year. In the West Bank, where Israel maintains a network of hundreds of checkpoints, gates and earthen barriers, GDP growth was only modest, the bank said.
In December, donor countries pledged $7.7 billion over three years to help fund a Palestinian reform and development plan.
The idea was to gradually cut government spending and revive the private sector, which has been hit hard during Israeli-Palestinian fighting and stifling Israeli restrictions on Palestinian trade and movement. This would eventually make the Palestinians less dependent on international aid.
The international community also hoped that an economic recovery would lend support to peace negotiations, which have yielded little tangible progress so far.
However, the bank said that "the private sector revival required for a virtuous cycle of growth has not been realized due to the continued restrictions on movement and access."
The Palestinian reform and development plan is largely implemented in the West Bank, though Gaza does see some of the foreign aid, in the form of salaries paid to thousands of civil servants there.
On Friday, said the Palestinian government in the West Bank has made "significant strides" toward reducing its huge budget deficit of 27 percent of the GDP, but that international donors need to transfer an additional $400 million to close the deficit in 2008. Much of international aid is currently earmarked for development projects, not budget support.
Israeli government spokesman Mark Regev said Israel is working closely with the donor community, and that it is in Israel's interest to see the Palestinian economy recover.
However, he said Palestinian militants continue to pose a threat, and a hasty removal of roadblocks, if followed by attacks on Israel, could set back peace efforts.
"We are ready for calculated risks. We are not ready for irresponsible risks," he said. "We will continue to work with the Palestinians and the international community in taking down roadblocks."
In recent weeks, Israel removed some obstacles to movement in the West Bank, mainly dirt mounds. However, the report, citing U.N. figures, said in March that the overall number of obstacles had increased.