Nearly half a million jobs lost in Palestine as financing gap nears $1.2bn

Palestinian economy is projected to shrink anywhere between 6.5 and 9.4 per cent during 2024, World Bank says

Destroyed buildings in Jabalia, northern Gaza. The Israel-Gaza war has devastated Palestine’s economy. AFP

Palestine's economy has lost close to half a million jobs since the Gaza war began in October with the gap between revenue and public expenditure widening significantly, according to the World Bank.

An estimated 200,000 jobs have been lost in the Gaza Strip, while 144,000 people are no longer employed in the occupied West Bank as a result of the escalating violence and its repercussions on supply chains, production capacity and breadwinners’ inability to access their workplace, the multilateral lender said in a report on Friday.

About 148,000 cross-border commuters from the West Bank were also denied access to the Israeli labour market due to the continuing war, pushing unemployment levels higher in the Palestinian territory.

Meanwhile, the fiscal situation of the Palestinian Authority, which runs the West Bank, has also dramatically worsened in the past three months, “significantly raising the risk of a fiscal collapse”, the report titled The Impact of the Conflict in the Middle East on the Palestinian Economy, said.

“Revenue streams have largely dried up due to the drastic reduction in clearance revenue transfers payable to the Palestinian Authority and a massive drop in economic activity,” the report said.

Clearance revenue are those collected by the Israeli government and transferred to the Palestinian Authority after certain deductions have been made. Most clearance revenue are value-added tax and import duties, and they are remitted on a monthly basis.

The rapidly widening gap between the amount of revenue coming in and the amount needed to finance essential public expenditure is driving a “fiscal crisis” in Palestine, the report said.

As of the end of 2023, this financing gap reached $682 million and is projected to double within the coming months, reaching up to $1.2 billion, according to the Washington-based lender.

“A focus on fiscal policies, especially those improving spending efficiency (particularly regarding the unsustainable wage bill) and enhancing tax mobilisation, must remain a top priority in the reform agenda,” the report said.

The Israel-Gaza war has devastated Palestine’s economy, with severe damage to infrastructure and increasing poverty levels.

The Palestinian economy is projected to contract anywhere between 6.5 and 9.4 per cent during 2024, the World Bank said.

However, the outlook remains highly uncertain, “depending on the severity and duration of the conflict, changes in Israeli policies in the West Bank, including those related to access to the Israeli labour market, and the outcome of the clearance revenue dispute”, it added.

Naser Mufrej, professor of finance and economics at the Arab American University in Ramallah, told The National that Palestine's economy has suffered a lot since the Israeli aggression, with the economy in Gaza “almost now with zero function”.

“The Gaza economy lost all its contribution to Palestine gross domestic product, which is estimated on an annual basis at about $4 billion, and as to the West Bank GDP, it lost around 15 to 20 per cent so far.”

He also cited the same reasons for the situation including the denial of access to Palestinian workers in Israel, the collapse of business activity in Gaza and the West Bank, as well as reduction in clearance revenue from Israel.

“Israel has withheld 50 per cent of clearance revenue due to Palestinians,” Mr Mufrej said.

“For the last seven months, they transferred only around 50 per cent of the previous level of clearance revenue, which is about $120 million, representing around 40 per cent of the payroll that the Palestine Authority needs to pay for its employees and staff either in military or civil services.”

The fiscal position situation of the Palestinian Authority “is so tough, so difficult”, he added.

“The authority faces an unprecedented level of uncertainty and unprecedented financial stress because of the decline of liquidity. Even domestic local tax revenue have declined because of the drop in economic activity.

“If the situation continues, the Palestine Authority will find itself unable to meet its obligations, even at minimum,” Mr Mufrej said.

The World Bank also highlighted the hit to Palestine's GDP per capita amid the Gaza war. In 2023, it stood at $3,360, a 12 per cent drop from 2022. For Gaza alone, there was a 28 per cent drop, it said, while adding that in 2023, Gaza’s per capita real income “was the lowest ever recorded”.

Poverty levels have continued to rise amid the Israeli bombardment of the Palestinian territories.

“In the wake of the conflict, living standards plummeted, accentuating the stark divide between the West Bank and Gaza, with the latter reporting its lowest-ever income per capita in 2023. Nearly every Gazan is currently poor.”

Using night-time lights as a proxy for economic activity, the output decline in Gaza has been in a range of approximately 90 per cent, since immediately after the war broke out between the two sides on October 7. To date, it has not rebounded, the World Bank said.