January 30, 2015 – Government of the Palestinian Authority (PA) is in serious quagmire, following deliberate refusal by Israel to transfer clearance revenue collected by Israel on goods imported into West Bank and Gaza.
The problem is exacerbated by refusal by Arab nations and other countries who pledged a total of $5.4 billion in October last year to rebuild Gaza following weeks of heavy bombardment by Israel.
The US pledged $212m (£132m) in new aid, while the United Arab Emirates and Turkey both committed $200m (£124m). Failure to redeem these pledge the International Monetary Fund ( IMF) said is slowing down efforts to reconstruct Gaza which still lies mainly in ruins.
The IMF has as a result of these fall out predicted a high degree of uncertainty and various headwinds that will likely prevent a strong economic recovery for Gaza in 2015.
The report was presented by IMF mission led by Christoph Duenwald, during a visit to East Jerusalem and Ramallah from January 21-29, 2015, to assess recent economic developments in the West Bank and Gaza and the financial situation of the Palestinian Authority (PA), where in it noted a high degree of uncertainty over recovery.
“A high degree of uncertainty and various headwinds will likely prevent a strong economic recovery in 2015. Most notable is the non-transfer to the PA of clearance revenues collected by Israel on goods imported into the West Bank and Gaza”, the IMF said, adding that the money in question represents about two-thirds of net revenues which are essential to the PA’s budget and to the Palestinian economy.
It noted that refusal of Israel to pay the money has resulted in public spending cuts which the IMF said will likely cause a sharp reduction in private consumption and investment.
“In addition, Gaza reconstruction after the war is proceeding more slowly than expected, reflecting insufficient progress on national reconciliation and unfulfilled donor pledges.
“ Real GDP in 2015 is therefore set to rise only modestly, with a pickup in Gaza from a low base and a drop of nearly 2 percent in the West Bank, although the sharp fall in oil prices provides some relief to energy consumers. Medium-term growth will remain modest, unless there is an improvement in the political climate that would lead to a lifting of restrictions in the West Bank and the blockade in Gaza”, the IMF said.
The IMF noted that strong efforts by the PA can only go so far to contain the crisis for just a few months.
“The situation could become untenable, with a growing risk of social unrest and strikes that could lead to political instability. These serious risks could be mitigated if Israel quickly resumed transfers of clearance revenue and donors front loaded their aid,” it said.
The IMF team advised that the in the interim, the absence of clearance revenue will need to be compensated by curtailment of wages and allowances, cuts in non-wage spending, further borrowing from the banking system, or additional arrears accumulation.
“ In this context, reduced salary payments should be differentiated so as to minimize the impact on lower income earners”, the team said.
