New Delhi: The Palestinian economy had been increasingly struggling and becoming more dependent on Israel for trade, monetary policy, and employment even before the fresh round of violence broke out between Hamas and Israel, a new report by the United Nations Conference on Trade and Development (UNCTAD) has said.
The UNCTAD Wednesday released its report on ‘Developments in the economy of the Occupied Palestinian Territory’, which it has been issuing annually for the past few years. In this report, it analysed the state of the Palestinian economy as of 2022, the latest period for which it had data.
The findings make for grim reading, especially when viewed in the context of the latest violence: real incomes still below pre-pandemic levels, indebtedness rising among the people, and increasingly curtailed employment options.
“Against a backdrop of heightened political tensions, deepening dependency on the occupying power and a stalled peace process, the Palestinian economy continued to operate below potential in 2022 as other persistent challenges intensified,” says the UNCTAD report, accessed by ThePrint.
“These include loss of land and natural resources to Israeli settlements, endemic poverty, a shrinking fiscal space, declining foreign aid and the build-up of public and private debt,” it adds.
The report says that the Palestinian economy shrank by 11.3 percent in 2020, due to the onset of the pandemic. The next year, this low base propelled growth to 7 percent, but this again slumped in 2022 to 3.9 percent. By the end of 2022, per capita GDP was 8.6 percent lower than in 2019.
The report cites data from the Palestinian Central Bureau of Statistics (PCBS) to show that unemployment fell to 24 percent in 2022 from 26 percent in 2021, but that there was a wide variance between the West Bank and Gaza. Unemployment in 2022 stood at 13 percent in the West Bank and 45 percent in Gaza.
“PCBS data show that women are affected disproportionately; in 2022, women’s labour force participation was at 18.6 percent and unemployment was at 40 percent, compared with 71 and 20 percent, respectively, for men,” the report says.
Youth unemployment rates were also significantly higher than average, coming in at 31 percent for the 15-24 year category, and 61 percent among the 25-34 year category. (The percentage of youth (18-29 years) in Palestine was about 22 percent (1.16 million) of the total population in mid-2021, according to the PCBS.)
In other words, in 2022, about three out of every five Palestinians aged between 25 and 34 years — the prime working age category — was without a job.
“The unemployment crisis and the poverty it entails has rendered 2.1 million Palestinians, or 40 percent of the population, in need of humanitarian assistance in 2023, with 58 percent of the population of Gaza and one quarter of the population of the West Bank requiring assistance,” the report says.
It says that, according to the World Food Programme, more than one-third of the Palestinian population is classified as food insecure and 61 percent as ‘severely food insecure’.
“Households respond to the crises and dearth of opportunities through a combination of aid dependency and negative coping strategies, some of which entail long-term costs, including borrowing and reducing the quantity and quality of food, education and health care.”
Increased dependency on Israel
The restrictions imposed “under occupation” on Palestinian trade have created significant non-tariff barriers, which have eroded the competitiveness of Palestinian exports, the report says.
According to the report, World Bank data showed that the average trade cost per transaction for a Palestinian firm was nearly triple that for an Israeli firm, and the average duration of the import process for a Palestinian firm was nearly four times as long as for an Israeli firm.
Further, it says that the restrictions and closures that have been in place since 2007 have broken Gaza’s trade links with the West Bank, East Jerusalem and regional and global markets.
“The barriers to trade with the rest of the world create an uneven dependency on Israel as the dominant trading partner,” it says, adding, “In 2022, Israel accounted for 72 percent of total Palestinian trade, and the bilateral trade deficit with Israel reached $5.3 billion, or 28 percent of Palestinian GDP.”
The other manner in which Palestine is increasingly dependent on Israel is in the realm of monetary policy, since the nature of the occupation of Palestine means that the Israeli shekel is the main currency in circulation in the Occupied Palestinian Territory.
“Lack of a national currency and independent monetary policy leaves the Palestinian economy subject to changes in Israeli economic policies and circumstances,” the report says . It adds that this has adverse ramifications for the Palestinian economy because it is structurally different from that of Israel, which is a member of the Organisation for Economic Co-operation and Development (OECD), a grouping of advanced economies.
“Forced dependency on Israel pervades every aspect of the Palestinian economy, yet the payment system linking the two economies is complex and inefficient, and imposes costs and uncertainties for Palestinian economic agents.”
Palestine is also becoming dependent on Israel when it comes to employment options. According to UNCTAD, in 2022, 22.5 percent of employed Palestinians from the West Bank worked in Israel and settlements, where they earned more than twice the average domestic wage in the West Bank, with total earnings in the range of $4 billion, or 25 percent of GDP.
“However, Palestinian workers pay an average of 30 percent of their gross monthly wage to brokers,” it adds. “As noted by the International Labour Organization, adding the cost of transport and meals reduces the net earnings to 44 percent of gross pay.”
UNCTAD says that this payment to brokers, compounded by long commute times, indicates that Palestinians are choosing to work in Israel and its settlements because of the limited employment prospects in Palestine rather than because of greater remuneration in Israel.
“In the years following the Oslo Accords, the small, open Palestinian economy was expected to benefit from integration and free access to the larger and more sophisticated Israeli market, leading to a process of convergence between the two economies.”
“Three decades later, potential convergence has been preempted by the multiple restrictions imposed under occupation,” it adds. “Instead of convergence, the two economies have diverged, with Palestinian per capita GDP currently at just 8 percent of that of Israel.”
(Edited by Rohan Manoj)
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