Palestine: What challenges does the Palestinian economy face?

The Palestinian Economic Monitoring Report to the Ad Hoc Liaison Committee (AHLC) was presented in Brussels on May 10, 2022. This report highlights the critical challenges facing the Palestinian economy and the necessary fiscal reforms, while the overall economic index has improved markedly in the West Bank and Gaza Strip.

The size of the budget deficit remained large. Given the sharp decline in aid, which fell from 27% of GDP in 2008 to 1.8% in 2021, the Palestinian Authority (PA) has accumulated a large arrear to the private sector, the pension fund and domestic borrowing. As domestic financing options are no longer possible, priority reforms should be pursued to increase revenue and improve fiscal sustainability.

While the economy contracted by 11.3% in 2020, the growth rate reached 7.1% in 2021. Gaza’s recovery has been slower given the conflict in May 2021. Despite the economic recovery, fiscal policy management remained challenging, with the size of the deficit before international aid reaching $1.26 billion, while aid reached a record high of just $317 million in 2021.

To contribute to the sustainability of public finances, the report calls on the international community to provide budget support and urges the Palestinian Authority to redouble its efforts to pursue revenue and expenditure reforms.

Although PA reforms are necessary to reduce the size of the budget deficit, they are not sufficient to ensure sustainable development. The cooperation of the government of Israel is essential to increase revenue, according to this report.

Palestine : L’activité économique connait une forte baisse en février 2022

What is the situation of the PMA Business Cycle Index?

The results of the monetary authority’s business cycle index showed a marked improvement in Palestine’s overall index, which rose from -0.4 points in March to 11.8 points in April, reaching the one of its best levels, in response to an improvement in the West Bank and Gaza Strip. These developments are due to religious events and the month of Ramadan, and their impact on market recovery and increased demand.

The overall index for the West Bank rose significantly, from 5.8 points in March to 17.7 points in April, reaching one of its highest levels.

The overall index for the Gaza Strip also improved, from -32.6 points in March to -18.6 points in April.

Consumer prices continued to rise in April

In April 2022, the consumer price index increased by 3.78% compared to April 2021 (4.31% in Jerusalem; 4.30% in the Gaza Strip and 3.51% in the West Bank).

It also increased by 1.08% compared to March 2022 (0.78% in Jerusalem, 1.26% in the West Bank and 0.72% in the Gaza Strip).

Changes in the Palestinian CPI for April 2022 go up due to the increase in the prices of Fresh Chicken (+10.32%), Fresh Vegetables (+10.16%), Diesel (+5.8%), Gasoline (+3.3).