On June 24, the World Bank released its study on Israel's Gaza
disengagement proposal and how it would affect the Palestinian
The World Bank study concludes that easing the harsh Israeli
closure policy would do more than any other step to revive the
Palestinian economy and that Gaza needs to export in order to
survive. The study also calls for
a credible Palestinian reform program to be restarted in order to
attract investors. If the Palestinian Authority and Israel carry
out these steps,
the study states that a donor assistance program of $500 million
annually (on top of the $1 billion already pledged) would help the
Palestinian economy turn the corner.
Principal Conclusions of the World Bank Study
* The deep economic crisis in the West Bank and Gaza threatens to
impoverish and alienate a generation of young Palestinians. It is
undermining the credibility of the PA, increasing the popular
appeal of militant factions, and threatening Israel's security.
Unless today's impasse is broken soon, the PA could melt away,
leaving Israel with a poor, embittered neighbor with
whom dialogue could be much more difficult.
* The Palestinian recession is among the worst in modern history.
Average personal incomes have declined by more than a third since
September 2000, and nearly half of Palestinians now live below the
* The economic crisis has been caused by restrictions on the
movement of Palestinian people and goods, which Israel regards as
essential to protect its citizens from attacks by militants.
Without a major reform of the closure regime, however, the
Palestinian economy will not
revive and Israel's security gains may not be sustainable.
* By itself, Israel's disengagement plan of June 6 will have very
little impact on the Palestinian economy and Palestinian
livelihoods, since it only proposes a limited easing of closure. A
focus on this over-arching issue is essential if disengagement is
to deliver long-term benefits.
* Disengagement will remove internal movement restrictions in Gaza
and in part of the northern West Bank, but Palestinian economic
recovery depends on a radical easing of internal closures
throughout the West Bank, the opening of Palestinian external
borders to commodity trade, and sustaining a reasonable flow of
Palestinian labor into Israel.
* Easing internal closures throughout the West Bank must be
accompanied by a credible Palestinian security effort; as long as
Palestinian violence persists, the case for dismantling closures
will always be contestable.
* Removing restrictions on the movement of cargo across borders is
relatively simpler - technologies and administrative methods exist
that permit the orderly flow of cargo and the maintenance of
Introducing a new, efficient border cargo regime would make a major
difference to Palestinian welfare and commercial prospects. The
international community should focus on this key economic issue in
its diplomatic dialogue with the government of Israel.
* An easing of closures alone, though, will not attract investors
back to the Palestinian economy. A reinvigorated program of
Palestinian reform, designed around measures that will create an
investor-friendly business environment, is essential. There is no
reason for the PA to delay implementation of such a program.
* It is important to understand that additional donor money alone
cannot solve today's economic problems. Donor disbursements of $1
billion per annum (or $310 per person) are already very high.
Additional aid in today's economy would help alleviate day-to-day
hardship, but would have little lasting impact. As long as the web
of Palestinian economic transactions remains shredded by closures,
investors will stay away, and short-term gains will not be
* With a freeing-up of the constraints on economic activity and
committed Palestinian reform, an additional major donor effort
would make a difference - it would enable the Palestinian economy
to turn the corner. An
additional $500 million per annum, on top of existing
disbursements, could by 2006 spur a growth in real personal incomes
of about 12 percent (and 20 percent in
nominal terms), and could reduce unemployment to levels only
slightly higher than prior to the intifada.
* The alternative to this is stark. At the wrong end of the
spectrum of possible outcomes is a Palestinian economy with
unemployment levels of more than 35 percent by 2006, and with
poverty afflicting upwards of 55 percent, and 70 percent in Gaza.
With the PA weakened as it is, time is running out to get things
* As for the settlement assets that Israel will leave behind, those
in Gaza have considerable economic value, and in time can make a
significant contribution - provided Gaza's borders are opened for
* The manner in which the settlement assets will be transferred to
the Palestinians remains a core issue. The PA should seize this
opportunity to demonstrate transparency, equity and efficiency in
receiving and disposing of the assets.