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ISRAEL-OPT: World Bank says donors need long term plan for OPT

JERUSALEM, 19 September 2007 (IRIN) - A new report by the World Bank warns that international aid to the Palestinian Authority (PA) has been "reactive" and not governed by long-term development goals. Palestinian gross domestic product (GDP) has become more dependent on foreign aid and remittances from abroad, and was down a third from its 1999 level, it said.

The report, entitled Two Years After London: Restarting Palestinian Economic Recovery, will be presented at a meeting of the Ad Hoc Liaison Committee, a major donors’ group, on 24 September in New York, during a preparatory meeting for a larger conference later this year.

In the last two years, the occupied Palestinian territory has seen massive capital flight and little foreign investment. Health and social indicators also declined. Women's participation in the labour market "is amongst the lowest in the world", the report said.

The World Bank said the Palestinian economy has steadily deteriorated in recent years, triggered by the start of the Palestinian uprising in September 2000, and compounded by the political turmoil of the last two years, including an economic boycott of Hamas and the PA government it headed, and which Palestinian President Mahmoud Abbas fired after a June takeover of Gaza by Hamas.

Attempts by the international community to circumvent Hamas "may have been a practical response to political constraints, [but] it was neither cost-effective" nor in line with the PA's needs.

The report said Israel had imposed limitations on movement to restrict access to domestic and international markets, water and other natural resources, and block aid projects. In Gaza, these restrictions had been especially hard felt since the borders were closed in June, leading to mass lay-offs, negative repercussions for the agricultural sector, and a near complete shutdown of industries.

The report said Gaza was an integral part of the Palestinian economy, and there could be no way forward, both economically and with regard to the peace process, without the enclave.

The UN has said the Gaza Strip is heading towards complete aid dependency.

Review of aid

Regarding international aid, seen as being given with "short-term political positions rather than a collective, longer-term view" for development, the World Bank said: "Aid has been reactive and lacking levers to encourage or enable institution-building or to create powerful incentives to reform."

Furthermore, the declining economy "has risked reversing the benefits of over US$10 billion in past aid, and has diverted funds to recurrent expenditures and basic lifeline humanitarian support rather than to an investment in building effective Palestinian institutions and infrastructure."

Because of the lack of development projects, aid, while considerable, has not created long-term economic progress. This was further complicated as Israel and the PA did not "create an environment where funds translate into sustainable growth".

The PA will need at least US$1.62 billion in donor assistance per year to close its growing deficit, but only 6 percent of that will go to long-term development.

The PA should also set a "finite horizon" of aid dependency, the bank said.

The way forward

According to the World Bank, the PA must be reform-oriented and reach fiscal self-sufficiency; international aid must support reforms; restrictions on movements of people and goods must be eased; and "whether practical or not under the current circumstances," these steps must be parallel and must include Gaza.

Otherwise, there is little chance for Palestinian economic growth, which, the World Bank sees as a crucial part of a successful peace process.

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Copyright © IRIN 2007
This material comes to you via IRIN, the humanitarian news and analysis service of the UN Office for the Coordination of Humanitarian Affairs. The opinions expressed do not necessarily reflect those of the United Nations or its Member States.
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