World Bank

The World Bank circulated a new report on the Palestinian financial crisis. The report says that the crisis is worse than expected and it threatens to provoke a humanitarian crisis and the collapse of the Palestinian Authority. According to the report, 2006 is shaping up to be the worst year in recent times for Palestinians in the occupied Palestinian territories. The report follows the recent cut-off of financial aid to the Palestinian Authority. On Tuesday, Secretary-General Kofi Annan will host a high-level meeting on Tuesday of the diplomatic Quartet, the partnership of the United Nations, European Union (EU), Russia and the United States amid a potentially dangerous deterioration looming on the horizon.

In recent weeks, both the Government of Israel (GOI) and donors have been considering a variety of economic responses to the outcome of the Palestinian Legislative Council (PLC) election of January 25, 2006, some of which are already under implementation. GOI has suspeneded the regular transfer of revenues which it collects on behalf of the PA; other forms of economic interaction at issue are Palestinian labor access to Israel, and the flow of imports and exports across Palestinian borders with Israel. Donors are planning to reduce various categories of foreign assistance.

The World Bank approved a $42 million grant to assist the Palestinian Authority (PA) meet its immediate financing needs in the wake of a severe fiscal crisis to avoid suspension of vital basic services to the Palestinian population. The grant will be made through a multi-donor trust fund—the Public Financial Management Reform Trust Fund—launched in 2004, with support from international donors, to channel budgetary aid to the PA against progress in financial reforms. The EC, France, the Netherlands, New Zealand, Spain and the UK contributed to the current grant. The West Bank and Gaza continue to suffer from a debilitating economic recession brought on by restriction on movement of goods and people since September 2000.

Paul Wolfowitz, president of the World Bank, said yesterday that the Bank should continue delivering aid to the West Bank and Gaza in spite of last week’s electoral victory for Hamas, reports The Financial Times. The Bank chairs the committee of donors for the West Bank and Gaza, which disburses about $1bn a year. The EU, which is the largest single donor, recently suspended some of the aid that was funneled directly into the budget of the Palestinian Authority (PA) in protest at financial mismanagement. The PA’s fiscal situation has become increasingly unsustainable mainly as a result of uncontained government consumption, in particular a rapidly increasing public sector wage bill, expanding social transfer schemes and rising “net lending”.

A group of Palestinian and Israeli private sector representatives presented today a joint Declaration at a Conference on “Promoting Economic Growth in the West Bank and Gaza through the Private Sector” in London. The conference was co-hosted by the World Bank and the United Kingdom Treasury. The Declaration identified priority areas, such as security, movement of goods, protection of investors, legal and regulatory reform and private sector participation in revitalizing the economy. The Working Group met for the first time last week in Jerusalem to discuss issues of common interest and develop a joint position on matters of economic development.

A disengagement plan that is accompanied by a rolling back of Israel’s closure policy and a stronger Palestinian commitment to reform will bring the Palestinian economy out of its present stagnation, according to a World Bank report released today. Titled Stagnation or Revival? Israeli Disengagement and Palestinian Economic Prospects, the report further asserts that only significant new efforts by both parties can justify a major increase in donor aid beyond existing levels. The report states for an economic recovery to be possible, Israel will need to roll back the security-related system of restrictions on the movement of people and goods imposed since the beginning of the intifada.

The World Bank approved this week a grant of US$7.8 million to the Palestinian Authority to deal with the impending public health, safety, and environmental hazards stemming from the lack of proper treatment of wastewater in North Gaza. The North Gaza Emergency Sewage Treatment project is the fourth in a series of water and sanitation projects supported by the World Bank Trust Fund for Gaza and West Bank since 1993. Although 64 percent of the wastewater is collected in Gaza, most of it is not properly treated, contributing significantly to contamination of the coastal aquifer and seashore, including beaches.