major macro economic indicators
|GDP growth (%)||2.2||-0.4||2.9||3.0|
|Inflation (yearly average) (%)||1.7||1.7||1.6||2.6|
|Budget balance (% GDP)*||-12.6||-12.4||-12.2||-13.8|
|Current account balance (% GDP)*||-22.4||-18.9||-18.0||-18.7|
|Current account balance (% GDP)**||-12.3||-10.9||-11.1||-12.0|
|Public debt (% GDP)||37.8||40.9||41.9||43.3|
(e) Estimate (f) Forecast
* Excluding Grants ** Including grants
- Observer State status at the UN since end-2012
- Scale of international bilateral and multilateral aid
- Significant transfers from the diaspora
- Absence of geographical, political and economic unity
- Restrictions on movement in the West Bank imposed by Israel, and blockade of the Gaza Strip by Egypt and Israel
- Stalemate of the peace process with Israel
Gradual recovery in 2016 if the security situation remains unchanged
The 50-day war between Hamas and Israel destroyed a substantial part of the infrastructures in the Gaza Strip and has had profound repercussions on the economy of the Palestinian territories. Since the ceasefire signed in September 2014, unemployment in the Gaza Strip has reached a record level with close to 40% of the population remaining unemployed. The reconstruction efforts that promised a rapid upswing in activity have advanced at a slow pace. The closing of the border on the Egyptian side and the slow execution of the GRM under the auspices of the United Nations is limiting the reconstruction efforts even though the Cairo conference made it possible to collect 35% of the financing allotted by international donors to the reconstruction. The West Bank, whose activity accounts for 70% of the territories’ GDP, has proved to be resilient although it has remained subject to continued Israeli restrictions on trade and movement of people. The West Bank which has suffered from the repercussions of the Israeli slowdown is likely to benefit from a resumption of trade with Israel. Moreover, the Gaza reconstruction process will probably enter its cruising phase. The recovery expected in 2016 will nevertheless depend on the status quo being maintained concerning the Mosque Esplanade and the easing of tensions between the communities. A resurgence of tensions following the wave of knife attacks since September 2015 could, on the contrary, curb any recovery in 2016 if it gave rise to a tightening of Israeli restrictions or an outbreak of a new conflict. Inflation should increase while remaining moderate in 2016, after decreasing under the combined effect of Israeli deflation and the fall in commodity prices at a worldwide level.
Still critical financial situation
The Palestinian Authority is trying to apply the measures provided for by the three-yearly development plans that have followed one another since 2008, but its public finances remain dependent on the relations with the Israeli government. The reason is that Israel has maintained discretionary power over transfers of customs duties, which account for a significant part of the Palestinian budget. The halt to the payment of customs duties during four months in 2015 led to a virtual crisis for the Palestinian Authority’s public finances. This crisis was averted after wage payments to civil servants were halted and bank financing was used.
The broadening of the tax base and a more efficient collection of mandatory contributions have nevertheless enabled a reduction in the budgetary imbalance. This rebalancing has allowed the Palestinian Authority to keep its fiscal deficit in check in a crisis context. Even so, the cost linked to spending on electricity, water and health services paid to the Israeli government has increased following the payment of arrears to the Israeli electricity company. The fall in international aid earmarked for the reconstruction of the Gaza Strip may give rise to an increase in the fiscal deficit in 2016.
The Palestinian public debt exceeded the 40% of GDP threshold in 2015. Half of the debt is made up of arrears to state-owned Israeli companies (46%), the rest being domestic debt, predominantly short-term. The reduction in donations to the Palestinian Authority may cause an increase in the debt level in the coming years, especially if financing methods remain unchanged.
Increase in the current account deficit and slowdown in transfers
The external accounts remain dependent on the Israeli economic situation: trade with Israel accounts for 70% of imports and 85% of exports. Moreover, a significant percentage of the Palestinians are employed on Israeli territory or on territories under Israeli control. Revenues from Palestinian workers in Israel accounted for 10% of GDP in 2014. Also, the slowdown in the Israeli economy in 2015 largely explains the increase in the current account deficit amid a fall in commodity prices that is positive for the Palestinian territories. In 2016, the Palestinian territories are likely to benefit from the Israeli recovery, but a resurgence of tensions in the West Bank could lead to a tightening of the blockade of the Palestinian territories, restricting the movement of Palestinian workers and an upswing in exports. Furthermore, the effect of the slowdown in the countries of the Gulf Cooperation Council on transfers from the diaspora would negatively impact the external accounts.
Persistence of severe internal and external tensions
Since September, there has been a new wave of tensions in East Jerusalem. The partition of the holy places between the different faith communities is a controversial topic and a wave of discontent has risen on the Palestinian side. A de-escalation of the situation could be possible in 2016 if the status quo concerning the Mosque Esplanade is maintained, but the escalation of violence since the start of the campaign of knife attacks indicated that this scenario is unlikely. Also, the resignation of the unity government between Fatah and Hamas in June 2015 seems to be plunging the Palestinian territories into another political deadlock. The end of the peace process negotiations with the Israeli government as well as the growing shift to the right of the Israel political landscape are pushing back the prospect of an agreement in the medium term. Lastly, the appeals and efforts at an international level against the colonisation process that Israel stared after 1967 tend to give results. The Palestinian Authority has announced several declarations of recognition in 2014 and has been a member of the International Criminal Court since April 2015.
Last update: January 2016