IMF staff conclude a visit to the West Bank and Gaza

IMF staff conclude a visit to the West Bank and Gaza

10 March 2022

The press releases issued at the end of IMF missions contain statements made by teams of IMF staff on preliminary conclusions reached after the member’s visit. The views expressed in this statement reflect the views of IMF staff and do not necessarily reflect the views of the Fund’s Executive Council. This mission will not result in a discussion in the Executive Council

  • The Palestinian economy continues to recover from its deep recession in 2020, but will only reach its pre-pandemic level in 2023.
  • As policies remain unchanged, the economic and fiscal outlook threatens serious consequences, and the Palestinian Authority has been forced to build up large arrears.
  • Overcoming these challenges requires a comprehensive and coordinated reform, with efforts being made in this regard by the Palestinian Authority, Israel and the donor community. The PA’s 2022 budget provides an opportunity to launch reforms.

Washington DC
:
From 17 February to 3 March 2022, a team of IMF experts led by Alexander Teman held hypothetical discussions to evaluate recent economic developments in the West Bank and Gaza. The Fund team met with Dr. Muhammad meets Shtayyeh The Prime Minister, His Excellency Mr. Shukri Bishara, Minister of Finance, His Excellency Dr. Firas Melhem, Governor of the Palestinian Monetary Authority, His Excellency Mr. Khaled Al-Aseeli, Minister of National Economy, and other members of the Palestinian economic team.

At the end of the discussions, Mr. Theme made the following statement:



The Palestinian economy continues to recover from the deep recession it experienced

2020
. The economic downturn reached 11.3 percent that year due to the COVID-19 pandemic and emergency spending cuts made by the Palestinian Authority due to the severance of economic and security ties with Israel between May and November 2020. After COVID-19 vaccines became available in In the late spring of 2021, the Palestinian economy achieved a partial recovery, as it recorded an estimated growth of about 6% in 2021 as a whole, and by 7% in the West Bank. At the same time, due to reasons, including the conflict between Israel and Hamas in May 2021, economic growth in Gaza slowed, not exceeding 2%. Despite the recovery achieved, Palestinian GDP is not expected to reach its pre-pandemic level before the end of 2023. The banking sector recovered from the shock caused by the pandemic, and profitability and capital adequacy returned at the end of 2021 to levels very close to what they were. due to the increase in deposit growth at a rate that far exceeds the slow rate of credit growth.

The Palestinian economy is facing a crisis in terms of public finances.
Against the background of repeated political and security shocks, and despite the good performance of the Ministry of Finance and Planning,

In terms of revenue, the combination of the COVID-19 pandemic with declining donor support and the emergence of priority expenditures has led to larger deficits. With limited financing options, the authorities have accumulated large domestic arrears. Public debt (including arrears to suppliers and the Palestinian Pension Agency) increased from 34.5 percent of GDP in 2019 to 49.3% of GDP in 2021 (or excluding 20.9% arrears). Most of the fiscal challenges are structural – the Palestinian Authority spends much of its budget in Gaza and East Jerusalem, but generates almost no revenue in these areas or in the West Bank under Israeli civilian and security control, known as Area C, and that the Palestinian Authority and Israel differ on the amount of revenue that Israel must transfer to the Palestinian Authority; Economic growth is chronically weak. With unchanged policies, the outlook for the economy is bleak as debt follows an unsustainable path and GDP per capita is expected to decline. This comes against the backdrop of unemployment and poverty, which are already constantly recording high levels, especially in Gaza.

"وسيتطلب التغلب على هذه التحديات إصلاحات تحويلية وجهود ضرورية من جانب السلطة الفلسطينية وحكومة إسرائيل ومجتمع المانحين. وسيكون من المهم وضع استراتيجية مالية كلية متوسطة المدى تسمح للحكومة بالاستثمار في مشروعات التنمية والإنفاق الاجتماعي لدعم الشعب الفلسطيني، مع الحفاظ على مستويات الدين في حدود يمكن الاستمرار في تحملها. وتحتاج السلطة الفلسطينية إلى إجراء إصلاحات في الإنفاق – تتمحور حول فاتورة الأجور، والإحالات الصحية، ومعاشات التقاعد، وصافي الإقراض – وكذلك زيادة توسيع القاعدة الضريبية، وإجراء إصلاحات هيكلية تُحسّن بيئة الأعمال. في هذا الصدد ، نشعر بالتشجيع من تركيز وزارة المالية والتخطيط مؤخرًا على الإصلاح المالي.

In the context of Israel and the Palestinian Authority working together, they must find a solution to financial leakage to improve Palestinian incomes and reduce barriers to the movement of goods and people to unleash potential economic growth. Attracting donor funds can be achieved by improving trust, which in turn is achieved through the implementation of Palestinian-led reforms, which help reduce the burden of adjustment on the population and private sector companies during the period of economic transition to a more sustainable path. Comprehensive and joint efforts will support macroeconomic stability and pave the way for faster economic growth, job creation and poverty reduction.

“During the mission, progress was made with the clarity of the authorities’ intentions with regard to their policy.

The authorities’ goals are to improve the business environment, reform the wage bill and implement a new revenue-raising strategy – including, in collaboration with Israel, the introduction of an electronic value-added tax project for trade between Israel and Palestinian markets – is a promising start, as well as intentions to recover. Consider spending related to the health care system and create a cabinet that includes a unit to manage net loans. There is more work to be done to translate these reform plans into concrete policy actions in the context of a multi-year strategy consisting of carefully consecutive steps to improve fiscal prospects and reduce debt. In this regard, the 2022 budget represents a critical opportunity to begin addressing fiscal challenges.

The IMF team is grateful for the open and constructive talks with the Palestinian Authority,

Together with representatives of the government of Israel, the private sector and the international community, who have improved our understanding of the situation. The IMF team will now remain involved with the Palestinian Authority to help them address economic and financial challenges. ”

Department of Communications, International Monetary Fund
Media Relations Division

Press Affairs Officer: Wafa Amr

phone:7100-623 202 1+Email: MEDIA@IMF.org

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