世界发展银行-Economic-Monitoring-Report-to-the-Ad-Hoc-Liaison-Committee_29页_1mb

Economic Monitoring Report Summary

Core Content

This report provides an analysis of the economic developments in the Palestinian territories, focusing on the real economy, public finance, and the banking sector, while also addressing the challenges and opportunities for digital infrastructure growth.

Main Economic Developments

1. Economic Growth

• The Palestinian economy has been heavily reliant on private and official transfers, with a decline in official transfers recently.
• Trade and movement restrictions have limited economic growth and kept investment levels low, favoring non-traded services.
• In 2019, real GDP growth was only 1%, with Gaza experiencing minimal growth after a steep recession of -3.5% in 2018, and the West Bank recording 1.2% growth, the lowest since 2003.
• The impact of the Covid-19 outbreak has severely affected economic activity, leading to a projected full-year decline of at least 7.6% in 2020.
• In the event of a slower recovery or further restrictions, the decline could reach -11.2%.
• A modest recovery is expected in 2021, with the West Bank likely to experience a larger decline due to the loss of income from Palestinian workers in Israel.

2. Public Finance

• The PA's fiscal position was already extremely vulnerable due to the liquidity shock in 2019.
• The clearance revenue standoff led to a deficit after aid of around US$800 million or 4.6% of GDP.
• The PA's 2020 budget anticipates a substantial increase in domestic borrowing, which will raise its exposure to the banking sector and reduce liquidity for the private sector.
• The World Bank estimates a financing gap of over US$1.5 billion in 2020 to address the increased demand for health, social assistance, and support for the private sector.
• The deficit (before grants) decreased from 19% of GDP in 2008 to 8% in 2019, but donor support has been declining, from 27% of GDP in 2008 to below 4% in 2019.

Challenges and Opportunities

3. Banking Sector

• The banking sector experienced an 8% decline in profitability in 2019 due to the liquidity crisis.
• Non-performing loans (NPLs) continued to increase, affecting the quality of loan portfolios.
• The Covid-19 crisis has introduced new risks, especially with the PA's increased borrowing and the expiring temporary measures by the Government of Israel (GoI) to protect correspondent banking relationships.
• The AML/CFT system has been upgraded in line with international standards, but long-term arrangements need to be established.

Digital Infrastructure

4. Digital Development in the Palestinian Territories

• The digital economy offers promising opportunities for growth, especially in overcoming movement and access constraints.
• Digital infrastructure remains underdeveloped, with Gaza limited to 2G and the West Bank to 3G networks, while other countries are moving towards 5G.
• The cost of network operations has increased due to these restrictions, and the launch of new services has been impeded.
• Internal challenges include the absence of a digital economy strategy, an outdated 1996 telecom law, and the lack of an independent regulator.

5. Recommendations for Digital Infrastructure

• The Joint Telecommunications Committee (JTC) should be made more effective to resolve bilateral issues with Israel.
• The JTC should prioritize spectrum allocation, removal of import restrictions, and leveling the playing field with Israeli operators.
• There is potential to expand broadband coverage using new technologies and existing infrastructure to improve reliability and reduce costs.
• The PA should develop a comprehensive digital economy strategy, including passing a new telecom law aligned with international best practices and establishing an independent regulator.

External and Institutional Support

• The international community is crucial in supporting the PA to survive the economic impact of the Covid-19 crisis and to create a supportive environment for reforms.
• Donor support is essential for institutional development in the telecom sector and for innovative financing schemes that can mitigate political risks.
• Continued budget support is needed to assist the PA with fiscal adjustment and to provide a stable environment for the private sector.

Key Figures and Data

• Table I shows selected macroeconomic indicators for the Palestinian territories, highlighting the decline in real GDP growth and increase in unemployment.
• Table 2 outlines the 2020 budget and percent changes compared to 2019 actuals.
• Table 3 provides PA public finances for 2020 based on WB projections.
• Table 4 summarizes World Bank recommendations to AHLC meetings over the years.

Conclusion

The Palestinian economy faces significant challenges due to the Covid-19 crisis and ongoing political and economic constraints. The digital economy presents a key opportunity for future growth, but requires bilateral cooperation with Israel and internal reforms to unlock its potential. International support is vital to help the PA navigate the crisis and implement necessary reforms.