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Palestinian economy to shrink in 2014, World Bank says

Officials blame downturn on Gaza conflict, drop in foreign aid and Israeli, Egyptian trade restrictions

Empty trucks from Gaza wait to be loaded with goods (left) as full trucks drive toward Gaza in the background at the Kerem Shalom crossing between Israel and Gaza last year (Tsafrir Abayov/Flash90)
Empty trucks from Gaza wait to be loaded with goods (left) as full trucks drive toward Gaza in the background at the Kerem Shalom crossing between Israel and Gaza last year (Tsafrir Abayov/Flash90)

RAMALLAH, West Bank — The Palestinian economy is expected to contract for the first time in seven years in 2014, the result of the recent Gaza war, continued Israeli and Egyptian restrictions on Palestinian trade and a drop in foreign aid, the World Bank said Tuesday.

The bank issued the report ahead of a meeting next week of donor nations to the Palestinians on the sidelines of the UN General Assembly.

The bleak forecast is a “wake-up call to everyone” that the status quo, particularly in Gaza, cannot continue, Steen Lau Jorgensen, the bank’s top official in the West Bank and Gaza, told The Associated Press.

The bank predicts the overall Palestinian economy will shrink by 4 percent this year, ending a period of growth driven largely by international aid that began in 2007. The downturn is expected to be sharpest in war-battered Gaza, with a projected drop of 15%, the bank said.

An international conference on raising funds for Gaza reconstruction is to be held October 12 in Egypt, but the issue will also be the focus of a meeting next week in New York of representatives of key countries providing aid to the Palestinians. Palestinian officials estimate $6 billion is needed for Gaza reconstruction.

The World Bank said a unified Palestinian government must run the West Bank and Gaza, and restrictions on trade and movement in and out of Gaza must be eased considerably if reconstruction is to be a success.

Both seem remote possibilities.

Hamas and Palestinian Authority President Mahmoud Abbas agreed earlier this year to form a unity government of experts in the West Bank and Gaza under Abbas’s leadership. But key disputes remain unresolved and the government has not begun working.

Hamas appears unwilling to hand over power in Gaza, including control over the security forces, even though it agreed to the formation of the unity government, largely in hopes that this would offer a way out of a deepening financial crisis.

At the same time, it is unlikely Israel or Egypt will agree to ease restrictions on Gaza as long as Hamas remains the de facto ruler there. As part of the border blockade, Israel and Egypt bar virtually all exports from Gaza.

Israel allows imports of most consumer goods, but severely restricts the influx of construction materials for fear they could be diverted by Hamas for military purposes, such as building attack tunnels. A network of such tunnels was uncovered and destroyed by Israel during Operation Protective Edge.

Jorgensen, the World Bank official, said a unity government and an easing of restrictions were key to unlocking donor funds.

“It’s not clear that you would have substantial amounts … of new money coming in if there is no unified governance framework,” he said. He added that under Israel’s restrictions on bringing construction materials into Gaza, it would take 18 years just to rebuild the homes destroyed in the last Gaza war and meet housing demand.

Even without the task of rebuilding Gaza, the Palestinian Authority faces a funding shortfall of about $350 million in 2014, the bank said.

The bank has repeatedly said that the Palestinian Authority can only reduce its dependence on foreign aid through economic growth. According to the bank’s projections, the West Bank economy is likely to stagnate this year, with about 0.5% growth, while the Gaza economy is expected to shrink by 15%.

Jorgensen said that aid to the Palestinian Authority should continue as long as it keeps along the path of fiscal reform. “I think no one wants the Palestinian Authority to collapse,” he said. “The humanitarian disaster would be so immense.”

Copyright 2014 The Associated Press.

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