Palestinian territory (oPt) recorded marginal economic growth last year, and unemployment remained high, with Israel's closure policy in the West Bank and the blockade of the Gaza Strip continuing to inhibit the territory's potential for rapid economic expansion, the United Nations reported Tuesday.
In its annual report on assistance to the Palestinian people, the UN Conference on Trade and Development (UNCTAD) estimates that oPt's gross domestic product (GDP) rose by 6.8 per cent in 2009, but the rate of unemployment declined by only 1.6 percent, UN official website reported.
Per capita GDP was 30 per cent lower than it was a decade ago, and at least 30 per cent of the Palestinian work force remains jobless. Food shortages are widespread and are especially severe in Gaza, where they affect 60 per cent of the population.
UNCTAD argues that the Palestinian economy is still held back by fallout from the Israeli military operation in Gaza in 2008-09 and by the costs of Israel's closure policy in the West Bank and its continued economic blockade of Gaza.
At the heart of the Palestinian development impasse is a tradable goods sector whose competitiveness is crippled by closures, the use of foreign currencies (the Israeli shekel, United States dollar and Jordanian dinar) and an eroded productive base, according to the report.
It contends that revitalizing the tradable goods sector and rebuilding productive capacity are essential for Palestinian economic development. While donor support is vital, its economic effectiveness will only be sufficiently realized when the Israeli closure policy and blockade of Gaza are lifted, the report adds.
UNCTAD is mandated to assist the Palestinian people to alleviate the adverse economic conditions and to create conditions conducive to building a sovereign and viable Palestinian State.
The revival of the private sector in oPt continues to be hampered by Israeli movement restrictions both within the territory and at border crossings, in addition to the effects of the Israeli separation barrier, settlements, and confiscation of land, according to the UNCTAD report.
Those factors have deprived productive sectors of their most vital resources while inflating transaction costs to prohibitive levels and therefore reinforcing an economic shift towards low value-added activities.
The situation in Gaza is far worse than in the West Bank, where the so-called "tunnel economy" and informal economy expanded at an unprecedented rate to compensate for the collapse of the productive sector, the report says.
As a result, the Palestinian trade deficit worsened from 57 per cent of GDP in 2008 to 59 per cent in 2009. This deficit continued to be coupled with heavy dependence on Israel, which accounted for more than three quarters of Palestinian trade. Although the trade deficit with Israel declined from 82 per cent to 65 per cent of the overall trade deficit between 2008 and 2009, it is still high, exceeding the $2.4 billion in donor support provided to the oPt in last year.
Despite significant fiscal reforms, the Palestinian Authority (PA) public deficit on a "commitment' basis - which reflects what was actually committed for public spending during the fiscal year - deteriorated by 2.6 per cent to reach $1.6 billion in last year.
The report warns that while fiscal reforms and a narrowing of the public deficit can be important policy goals, they should not be pursued in a manner that worsens already serious poverty levels, nor should they undermine the ability of local governments to deliver services and respond to the needs of their constituents.
According to the UNCTAD analysis, indirect cost in terms of lost output ranges from $600 million to $800 million per year, or about 13 per cent of GDP. When the $1.3 billion in direct costs of physical damage caused by the 2008-09 Israeli military operation in Gaza are taken into account, the direct and indirect economic losses add up to $3.1 billion for the period between 2008 and this year.
Overcoming the Palestinian economic crisis, widespread unemployment, and deepening poverty is not possible unless all Israeli restrictive measures are lifted, the report contends, noting that "palliative measures" will not re-launch sustained growth or promote development, and donor support has its limits.
UNCTAD's quantitative-scenario analyses estimate that an injection of $1.6 billion in aid for public investment from 2010 to 2012 under conditions of continued blockade and closure may increase annual GDP by less than 1 per cent on average.
However, the same level of investment under a scenario of full lifting of the blockade of Gaza and a relaxation of the West Bank closures may increase annual GDP by 14 per cent on average, and could help spur the creation of 80,000 jobs per year.