UNCTAD report on Palestinian economy calls for intensified donor commitment to development

Cement blocks preventing Palestinian vehicles from movement at Kalandia checkpoint (Helga Tawil)

Action on Palestinian development policy may be postponed by the weight of events on the ground. At the same time, however, even if greater stability is achieved, it does not necessarily mean that structural imbalances and distortions will simply recede, warns UNCTAD in its annual report on assistance to the Palestinian people (TD/B/51/2). The report, which will be reviewed at the forthcoming meeting of UNCTAD´s governing body, the Trade and Development Board (Geneva, 4-15 October), notes that the 4.5% estimated growth in real gross domestic product (GDP) that occurred in 2003 is not sufficient to signal genuine recovery. Moreover, its sustainability is uncertain, subject to the implementation of the two-state solution and the donor community´s renewed commitment to mainstreaming development concerns into relief and reconstruction efforts.

The Palestinian economy: war-torn, with persistent imbalances

Economic indicators for 2003 show a reversal of the steep decline experienced by the Palestinian economy during 2000-2002. At best, the growth estimated for 2003 is a rebound from, and adjustment to, a very depressed economy, explains the UNCTAD report. The economy today is at least 28% smaller than that of 1999, as measured by real GDP, and real gross national income (GNI) per capita has declined by 41% from $1,750 to an estimated $1,040 in 2003. Poverty continues to afflict growing numbers of the population, with 72% of Palestinian households living below the poverty line of $3.60 per day by the end of the fourth quarter of 2003. Indeed, the size of the economy had by 2003 been reduced to a level last experienced in the late 1980s. The total cost of accumulated physical damage (housing, factories, infrastructure, land) since October 2000 is tallied conservatively at $2.2 billion, representing almost 19% of the estimated Palestinian capital stock in the West Bank and Gaza. In other words, the occupied Palestinian territory has lost at least one fifth of its economic base over the past four years as a consequence of war and occupation.

The widespread economic crisis continues to highlight the need for a concrete strategy and vigorous policy measures to address deep-seated structural weaknesses created by a prolonged occupation and dependency on the Israeli economy. Most notable in this respect is the lack of an internal engine of growth, which rendered the economy highly reliant on donor aid and workers´ remittances from Israel, sharply reduced since 2001. Previous UNCTAD reports detailed the extent to which dependency on Israel curtailed Palestinian development prospects and the deficiencies of the interim-period trade and economic policy regime adopted by Palestine since 1994. This year´s report reiterates the need for focused policy measures to rectify the structural impact of occupation and four years of strife as well as for re-orienting the Palestinian economy towards balanced relations with its trade partners through regional and global integration.

Overcoming the economic predicament

UNCTAD policy recommendations on Palestine since 2001 continue to inform the evolving debate within Palestinian and international circles on the prospects and prerequisites for development under, and after, occupation, and particularly the need to place emergency assistance efforts within the context of a cohesive development strategy that creates synergies between relief and long-term development objectives. These concepts have figured both in the draft Palestinian Authority (PA) Medium-term Plan for 2005-2007 and as the unifying theme of an Arab-International Forum for Palestinian socio-economic rehabilitation and development, to be convened in Beirut from 11-14 October by the Economic and Social Commission for Western Asia (ESCWA), with UNCTAD support.

UNCTAD´s current report points out that a keystone to linking relief to development is a focus on the profound changes that have taken place in the structure and functioning of the economy, and particularly the contraction in its productive capacity and reduced productivity; fluctuating unemployment; the prohibitive increase in transport and transaction costs; and increased dependency on the Israeli economy, especially through trade. In this context, the report calls for policy measures to target those sectors that (i) are capable of creating sustainable employment opportunities, (ii) possess strong backward and forward linkages, (iii) offer better export potential and (iv) have physical capital resistant to destruction, with relatively low replacement costs. Among the sectors that could be considered as candidates for priority intervention are agriculture and natural resource-based industries, in addition to information technology services and related high-tech industries.

The role of donors

The donor community was quick to respond to the widespread economic crisis, with annual disbursements almost doubling from $500 million in 1999-2000 to around $1 billion in 2001-2002. However, donor focus on emergency humanitarian needs, while understandable, runs the risk of encouraging long-term dependencies, UNCTAD warns. The share of development assistance dropped from 88% of total international aid in 1999-2000 to 26% after 2000. Moreover, the report notes that most of what was categorized as development assistance in 2001-2002 was actually emergency assistance in the infrastructure of certain social sectors, especially health. Within the development assistance category, the share of productive sectors declined from 14% to 9% after 2000. As noted by the report, recently there has been some shift in donors´ focus, with renewed commitment to long-term development objectives. However, the experience of many developing countries shows that unless grounded within a clear national vision, donor-funded projects will have less of an impact.

UNCTAD’s response

Despite adverse conditions in the field, UNCTAD has been actively engaged in supporting Palestinian development efforts, establishing new partnerships with the private sector and international development organizations and supporting the PA´s renewed development policy-making efforts through “fast-response” advisory services. The secretariat has recently completed a survey-based study on the small and medium-sized enterprise (SME) sector (see press release UNCTAD/PRESS/PR/2004/029) and is currently preparing a comprehensive study on the development prospects of the war-torn Palestinian economy. It will also be providing the PA with analytical tools to assess the economic impact of alternative economic policy options within the context of the Integrated Framework for Palestinian Macroeconomic, Trade and Labour Policy.

In addition, UNCTAD mobilized new resources in 2004 to continue to implement the ASYCUDA project on customs modernization and automation. This project will see the installation of the prototype system in PA Customs headquarters in Ramallah and at two pilot PA Customs sites by early 2005. The secretariat has also begun this year to help the Palestinian Investment Promotion Agency (PIPA) implement an investment retention programme and is working closely with the PA and relevant private-sector institutions to set up a Palestinian Shippers Council. Meanwhile, the secretariat has prepared proposals for targeted technical cooperation in the areas of food security, trade policy, creative industries, port management, e-commerce, debt management and reforming the insurance sector.

However, UNCTAD´s ability to sustain its activities is being undermined by resource constraints, which could seriously limit its ability to respond to emerging needs. This comes at a time when UNCTAD is facing increased demand overall for its technical assistance and advisory services.

More Information

  • UNCTAD Press Office, T: +41 22 917 5828, Email: press@unctad.org or R. Khalidi, T: +41 22 917 5857, Email: app@unctad.org.

    Related Links

  • Report on UNCTAD’s assistance to the Palestinian people, UNCTAD (11 August 2004)
  • NCTAD stresses vital role of small-, medium-sized enterprises in rehabilitation of Palestinian economy, UNCTAD (22 September 2004)
  • Rerouting Palestinian transit trade could cut costs, boost savings, says new UNCTAD study, UNCTAD (22 April 2004)