JERUSALEM, (AP) – The Palestinian economy is sinking into dependence on foreign aid, its public sector swelling while manufacturing and other businesses wither, the World Bank reported Tuesday.
The 35-page report details how the economies in the West Bank and Gaza have deteriorated since 2000, when the Israeli-Palestinian peace process broke down and violence erupted.
The latest crisis is in the Gaza Strip, where the takeover by the Hamas militant movement in June led Israel to almost completely close border crossings, threatening businesses that rely on imported raw materials and exported products. The Gaza Strip is now totally dependent on foreign aid, according to the United Nations.
The report marks two years since donors pledged hundreds of millions of dollars at a conference in London and made plans to rehabilitate the Palestinian economy. In 2006, donor assistance reached a record $1.4 billion, the report said. It pleads for further efforts by donors, while acknowledging that economic development projects in unstable political conditions are risky.
The World Bank points to a dropping gross domestic product as evidence of the economic deterioration. After reaching $1,612 in 1999, the GDP per capita dropped to $1,129 in 2006.
“More troubling than the negative growth rates over the past few years is the changing composition of the economy” — the shrinking private sector and expanding public sector, the report said.
“The GDP is being increasingly driven by government and private consumption from remittances and donor aid,” the study found, noting that almost all of the aid is being used for daily expenses, such as salaries of civil servants, instead of long-term development.
Already battered by Palestinian-Israeli violence, the economy took a further blow early last year when Hamas formed a government after sweeping an election. In response, Israel, the U.S. and the European Union cut off funds, because they list Hamas as a terror group.
Then, Hamas forcibly took over Gaza last June.
In response, moderate Palestinian President Mahmoud Abbas replaced the Hamas-led government with a Cabinet of his supporters, leaving the deposed Hamas regime in control of Gaza and his government ruling the West Bank. In turn, donors have resumed aid to Abbas’ regime while freezing out aid to Gaza’s rulers, only supplying humanitarian assistance to the coastal territory.
The World Bank report warned that the closure of crossings in and out of Gaza could lead to laying off 30,000 private sector workers, worsening the already critical economic situation there.
Alluding to the isolation of Gaza after the Hamas takeover, the report said no economic solution could ignore the need to turn Gaza into a productive, export-oriented center.
Israel has allowed very few exports out — less than 15 trucks of vegetables — and only humanitarian aid into Gaza since it virtually sealed all crossings after the Hamas takeover.
Israel refuses to open the crossings further, saying it cannot coordinate their oversight with a militant group that calls for the destruction of the Jewish state. As a result, Gazans report a shortage of all raw materials, from cement to computer parts.
The World Bank also called on Israel to ease its travel restrictions in the West Bank, charging that they have hamstrung the local economy and forced the Palestinian Authority to try to administer disconnected enclaves instead of a contiguous territory.
The report said that economic development must proceed despite ongoing strife, though “parallel actions in a situation of conflict and political uncertainty are risky and politically costly.”
“Whether practical or not under the circumstances, the need for these parallel steps is evident,” it concluded.