The political unification of the West Bank and Gaza under a deal struck last year will help boost growth that is forecast to stagnate at 2.3 per cent in the years ahead, but initial costs of the Ramallah-based Palestinian Authority taking over the Hamas-ruled strip will offset future gains, the IMF said.
“While a breakthrough in the peace process would be the real economic game‑changer, the prospect of reunification could provide a modest boost to growth over the medium term,” Karen Ongley, who headed a staff trip to the territories, said in a statement. “However, managing the fiscal impact of the Palestinian Authority resuming control of government operations in Gaza will not be easy, as the costs will outweigh the near-term revenue gains. This will require comprehensive reforms ..... alongside a rebound in donor support and tangible progress toward reducing fiscal leakages based on fair and transparent discussions.”
The reunification deal between Hamas and the Palestinian Authority has stalled since the agreement in October last year. The two territories, which rely on donor money, need robust growth to create jobs as they suffer from particularly high unemployment rates. In Gaza, 70 per cent of the population relies on international assistance and unemployment hovers at around 44 per cent.
The United States, which used to be the biggest donor to UN agency for Palestinian refugees called UNRWA, has cut off $65 million of $125m it had planned to send to the relief agency. Even if Washington released the amount, to the agency which provides aid to 5.3 million Palestinians across the Middle East including in Gaza and the West Bank, the total $125m would be well below the $355m that a US official said it gave UNRWA in the 2017 fiscal year. After the US cut back on its funding, Kuwait pledged $900,000 and about 15 donor countries, including Sweden and Japan, accelerated their donations to keep UNRWA afloat, AFP reported earlier this month, citing an official of the agency.
The row has intensified following US President Donald Trump's decision to move the US embassy to Jerusalem, a move rejected by the Palestinian Authority and the international community.
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Palestinians reject Trump threat to halt US aid over Jerusalem crisis
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The Palestinian leadership, which wants East Jerusalem to be the capital of a future independent Palestinian state, has refused to meet American envoys since Mr Trump's announcement in December, saying the US is now unqualified to be a mediator in the peace process. Israel occupied East Jerusalem during the 1967 war and then annexed it in contravention of international law.
Growth in the two territories slowed to around 3 per cent last year as the economy continues to suffer from “scarce economic and financial buffers” amid geopolitical insecurity, Ms Ongley said.
“At this rate, growth will not generate enough jobs or meaningfully improve living standards for the Palestinian people,” she said. “The continued deterioration of the socio-economic environment is a major concern, and there is a growing risk that humanitarian conditions may be nearing a breaking point”
Growth in the medium-term will stagnate at 2.3 per cent and is at the risk of being exacerbated by geopolitical uncertainties, lower donor support to the Palestinian Authority and relief agencies, and unrest sparked by the lack of economic opportunity “or unfulfilled expectations of reunification,” Ms Ongley said.
