世界发展银行-Economic-Monitoring-Report-to-the-Ad-Hoc-Liaison-Committee_18页_1004kb

Economic Monitoring Report Summary

Core Content

This report provides an overview of the economic situation in the Palestinian territories, focusing on recent developments in economic growth, public finance, and the financial sector. It highlights the ongoing fiscal crisis, the impact of the clearance revenue standoff, and the broader implications for the economy and public services.

Main Points

A. Economic Growth

• Economic Drivers: The Palestinian economy has historically relied on large inflows of transfers due to restrictions on movement and access, which have hindered other growth sources.
• Recent Performance: In the first quarter of 2019, real GDP growth contracted by 1% compared to the previous quarter, with the West Bank declining by 2.1% and Gaza growing by 3.6%.
• Annual Growth: The latest data shows a growth rate of 1.3% for 2019, largely due to a recovery in Gaza after a severe recession in 2018. The West Bank is expected to see slower growth at 1.2% in 2019, down from 3.1% in 2018.
• Sectoral Trends:
  • Agriculture: Growth has been weak, with a decline of 8.1% in 2016 and 0.5% in 2019.
  • Industry: Growth has remained relatively stable, with a 1.2% increase in 2019.
  • Services: Growth has slowed, with a 1.4% increase in 2019.
• Unemployment: The overall unemployment rate in the Palestinian territories remained at 26% in the first half of 2019. The West Bank saw a slight decrease to 15%, while Gaza experienced a sharp rise to 47%.
• Youth Unemployment: Remains extremely high in Gaza, reaching 64% in the second quarter of 2019.
• Poverty: The poverty rate increased from 2011 levels, with 24% of Palestinians living below the US$5.5 PPP per day poverty line in 2016/17. Gaza has a significantly higher poverty rate (46%) compared to the West Bank (9%).

B. Public Finance

• Fiscal Performance (Jan–Jun 2019):
  • Public revenue receipts dropped significantly, with clearance revenues decreasing by 68% compared to the same period in 2018.
  • Domestic taxes fell by 12%, and non-tax revenues declined by 22%.
  • The PA's total deficit reached US$415 million in the first half of 2019, with aid at US$194 million.
  • The financing gap exceeded US$1 billion after accounting for the loss of clearance revenues.
• Arrears and Debt:
  • The PA built up arrears to employees, suppliers, and the public pension fund, totaling US$686 million in the first half of 2019.
  • The total stock of arrears to the private sector now exceeds US$700 million.
  • The PA's debt to domestic banks reached US$1.6 billion by June 2019.
• Fiscal Forecast:
  • The recent fuel tax transfer of approximately US$560 million in August 2019 eased the fiscal stress but did not resolve the underlying issue.
  • The PA is expected to face a financing gap of around US$1.8 billion after aid in 2019, with US$500 million potentially financed through domestic bank borrowing.
  • If no additional donor aid is secured, the PA will likely have to rely heavily on arrears to the private sector, public employees, and the pension fund.
  • The financing gap is forecasted to exceed US$2.4 billion in 2020 if the standoff continues.
  • Prolonged reliance on arrears could choke economic activity, and reduced wages will negatively impact consumption.

C. Money and Banking

• Sector Risks: The financial sector faces substantial risks due to the fiscal crisis, including increased non-performing loans (NPLs) and classified loans.
• Credit Trends:
  • Total credit in the banking system reached USD8.9 billion by June 2019, with a credit-to-deposit ratio of 71%.
  • The ratio has increased from historical levels of 50-60%, indicating growing risks.
• Sectoral Concentration: Two-thirds of private sector lending is concentrated in construction, trade finance, and consumer loans.
• Exposure to PA: Banks have increased their exposure to the PA, particularly due to the PA's reliance on domestic financing and rescheduling of loans.
• CBR Risks: Correspondent Banking Relationships (CBRs) between Palestinian and Israeli banks are at risk due to de-risking practices by Israeli banks.
• Immunity Expiry: The immunity and indemnity package for banks with CBRs is set to expire in May 2020 and February 2021, respectively, highlighting the need for a longer-term solution.

Key Information

• Clearance Revenue Standoff: The PA has been unable to receive full clearance revenues from the GoI since March 2019, leading to significant liquidity challenges.
• Impact on Economy: The loss of 65% of the PA's total revenues and 15% of GDP has forced the PA to adopt emergency measures, including partial salary payments and reduced public spending.
• Reforms Needed: A broader reform agenda is necessary to improve the economy and living standards, focusing on fiscal sustainability, public financial management, and infrastructure development.
• Donor Support: Donors play a critical role in supporting the PA through budget support and external financing, especially as the PA exhausts its domestic options.
• Political Uncertainty: The political context, including the upcoming Israeli elections and potential changes in the PA, remains uncertain and may affect private sector investment and trade sentiment.

Annex Highlights

• Fiscal Sustainability: The PA's fiscal sustainability is at risk due to the ongoing standoff and reliance on external financing.
• Economic Development: A revised National Policy Agenda (NPA) is expected by early 2020, focusing on employment creation and vocational training.
• Gaza Reconstruction: The report emphasizes the need for collaboration with the GoI and donor support to address infrastructure deficits and improve service delivery in Gaza.

Conclusion

The Palestinian economy is in a fragile state, with the clearance revenue standoff severely impacting liquidity and public spending. While the PA has managed to avoid an outright recession through emergency measures, long-term sustainability requires comprehensive reforms and sustained donor support. The financial sector is also under pressure, with increased exposure to the PA and rising NPLs. Political and institutional challenges, along with the ongoing restrictions on movement and access, continue to hinder economic growth and development.