Gaza economy continues to deteriorate – report

In recent months, about a quarter of Palestinians in the Gaza Strip have seen their incomes significantly drop, resulting in a severe liquidity squeeze that has impacted all aspects of the economy, according to a World Bank report published Thursday.

The report listed two main reasons for the ongoing economic crisis in the Gaza Strip: the Israeli-Egyptian blockade and the continued power struggle between the Palestinian ruling Fatah faction and Hamas, the terror group that has held sway in the Gaza Strip since 2007.

“While the blockade has been a key factor in this decline, the internal divide since 2007 has also exacted a toll,” said the report, which will be presented to the Ad Hoc Liaison Committee in Brussels next week.

The 15-member committee serves as the principal policy-level coordination mechanism for development assistance to the Palestinians.

The rate of unemployment in the Gaza Strip continues to be high, reaching 44 percent, the report said.

The report said that a growth strategy for the Gaza Strip, which requires cooperation by all parties, “would be critical to unlock its economic potential.” It noted that over the past two decades, the economy in the Gaza Strip witnessed a gradual deterioration. “Over the past 20 years, the Gaza Strip has undergone deindustrialization and the economy has become dependent on transfers from outside.”

Noting that real per-capita incomes in the Gaza Strip had fallen by a third since the establishment of the Palestinian Authority in 1994, and reforms will take time to materialize, the report recommended immediate action to reverse the recent erosion in the livelihood of the residents of the territory, to avoid potential unrest, by providing increased liquidity to the economy.

“This will be critical for reinstating payments to public servants in Gaza, pending a resolution of the civil service integration,” the report said in a reference to the dispute between Hamas and Fatah over payments to civil servants in the Gaza Strip.

The PA has suspended salaries to thousands of civil servants as part of an effort to pressure Hamas to cede control of the Gaza Strip. Hamas, for its part, is demanding that thousands of its workers be incorporated into the PA government in the framework of “reconciliation” between the two parties.

The report said that while proposed projects to increase water and electricity supplies to the Gaza Strip were “extremely welcome,” the sustainability of these investments will be in doubt “unless there is an opportunity to boost incomes through expanding trade.”

It said efforts must focus on easing constraints that currently stifle private activity and setting the enabling conditions for private investment.

“An improved growth performance would also ease the PA’s fiscal situation and ease risks faced by the financial sector,” the report added. “Minor changes to the restrictive system currently in place will not be sufficient, and bold efforts are needed by all the parties to set Gaza on a sustainable private sector-driven growth path.”

The report pointed out the significance of building effective governance systems and internationally recognized legitimate government institutions to economic development in the Gaza Strip. Efforts to increase revenues will also be key, it said, noting that the Gaza Strip currently generates less than 10% of the PA’s total revenues.

“In Gaza, alongside revenue reforms, efforts to support economic growth can lead to a drastic increase in the tax base revenue generation,” according to the World Bank report. “Therefore, the PA should extend reforms it is currently implementing in the West Bank to improve the business climate, facilitate access to finance. Increasing energy supply is also critical for the Gaza economy.”