Economic Challenges to the Palestinian Authority

(2005)

• Since September 2000, the beginning of the current Intifada, the Palestinian economy has deteriorated sharply. Real GDP per capita has fallen by almost 40% and unemployment has almost tripled reaching 29% in the mid 2004. Nearly 26% of the unemployed come from the public sector.
• The World Bank estimates that 21 percent of the population was living in poverty (with less than $2.1 per day) at the start of the Intifada. The number increased to 45 percent in 2003, coupled with a high rate of population growth of 5 percent in 2003.
• The private sector has suffered the most from the effects of the Intifada on the Palestinian economy. The on-going conflict has particularly injured private agriculture and commerce.
• Israel is the main supplier, competitor and market for Palestinian products. About 90% of the Palestinian trade relies on Israel.
• The Palestinian economy remains heavily dependent on labor exports to Israel. According to the World Bank, Israel provided jobs to 9% of the employed Palestinians in 2003 compared to 22% before the start of the Intifada, thus contributing to 25% of the Palestinian wage income.
• Private sector credit has declined from over $1 billion in September 2000 to about $794 million by August 2003. The private sector suffers especially from high interest rates, collateral requirements, and poor access to long-term loans. These constraints are greater for small and medium enterprises than for larger businesses. In addition, banks are challenged by the absence or lack of implementation of an appropriate legal framework to guarantee creditors' rights.
• Palestinian firms are not globally competitive, leading to low exports and a loss of local market share to imports.
• Frequent border and internal closures and curfews have dramatically increased investment risk, along with transportation costs, leading to higher production costs and prices.