Palestinian economy expected to grow 3.5% in 2022, says World Bank


The Palestinian economy, which largely depends on foreign aid and subsidies, is expected to grow by 3.5% in 2022.

This is due to the continued recovery of private consumption amid the full easing of Covid-19 restrictions and an increase in the number of Palestinians working in Israel, according to a new World Bank report.

The forecast, however, is lower than the 7.1% economic growth Palestinians recorded in 2021 and the 5.7% real gross domestic product growth in the first quarter of this year.

“In 2022, growth in the Palestinian territories is expected to slow as the weak base effect weakens, government consumption declines, and inflationary pressure persists,” the World Bank said.

Inflation is expected to hover around 3.6% for the year as a whole amid rising food and fuel prices, while government consumption will decline as the Palestinian Authority pays part of the salaries of its employees, the Washington-based lender said.

“If prices continue to rise at the rates seen so far in 2022, households could face average total increases of up to 80% in the cost of bread, flour and vegetable oil between January 2022 and January 2023,” the World Bank said.

“Consumption patterns indicate that these price shocks will hurt the poorest households relatively more than the richest deciles of the population.”

Food and commodity prices have soared globally due to the ongoing conflict in Ukraine.

Palestine faces the risk of higher inflation and greater food insecurity this year as most of its wheat supplies are imported from Russia and Ukraine, either directly or via Israel, the conference said. United Nations on Trade and Development in a report last week.

The West Bank and Gaza is the second largest importer (by share) of food in the region, with a substantial proportion of wheat flour and sunflower oil imports coming from Ukraine and Russia, the World Bank said.

Between January and April 2022, the food component of the Palestinian Consumer Price Index (CPI) rose sharply to its highest level in six years, according to the report.

The report also found that demand has increased as employment figures have risen this year.

The number of West Bank Palestinians working in Israel and settlements rose to 203,000 in the first quarter of this year, from 153,000 in the fourth quarter of 2021.

“The average daily wage for these workers is more than double the average daily wage in the West Bank, implying a greater impact on demand,” the report said.

Overall, the unemployment rate in the Palestinian territories was 24.2% in the second quarter of this year, compared to 26.4% in 2021.

However, the overall rate masks a wide regional divergence, with unemployment in the West Bank reaching 13.8% in the April-June period compared to 44.1% in Gaza, “reflecting the difficult social and economic conditions ” In the region. said Bank.

The report also states that the Palestinian Authority (PA) budget deficit decreased by 70% in the first half of 2022 compared to the same period in 2021 thanks to strong revenue growth.

It “maintained spending as increases in some spending items were offset by a sharp drop in spending on the national cash transfer program, with a significant social cost.”

“Even though the Palestinian Authority’s direct borrowing from the domestic banking sector is gradually declining, Palestinian Authority and public sector employees still account for nearly 40% of the banking sector’s total credit, posing risks of destabilization. “, said the World Bank.

“Non-performing loans and graded loans have also increased since 2018.”

Reforms are needed on both the revenue and expenditure sides for a more sustainable fiscal position, including reforms related to the wage bill, the public pension system and “untargeted transfers”, the report says.

Total revenue is expected to grow more than 10% to $4.67 billion in 2022 from $44.23 billion last year.

Meanwhile, the Palestinian Authority’s deficit is expected to reach $770 million in 2022, based on commitments, the World Bank said.

“A stable and predictable continuation of donor assistance to the PA through budget support operations will be essential in pursuing its reform agenda,” the World Bank said.

He added that the PA has strengthened its anti-money laundering and anti-terrorist financing framework to strengthen partnerships with the donor community.

“PA reforms are necessary but not sufficient to put the Palestinian territories on a path of sustainable development,” he said.

“Israeli government cooperation remains essential to reduce economic restrictions and sources of tax leakage, and to help create greater fiscal space for social assistance.”

Updated: September 18, 2022, 12:37 p.m.


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