World Bank: Palestinian territories approaching economic free fall

The World Bank said that "after 11 months of conflict in the Middle East, the Palestinian territories are approaching economic free fall, amid a historic humanitarian crisis in the Gaza Strip." Yesterday, the Palestinian News and Information Agency (WAFA) published a summary of the report, which dealt with the latest developments regarding 'the impact of the conflict in the Middle East on the Palestinian economy.' It highlighted that inflation in the Gaza Strip has exceeded 250%, due to the consequences of the ongoing aggression for about a year, and the worsening funding gap in the Palestinian Authority. Due to its importance, it will be published in detail: severe economic contraction The Palestinian territories witnessed a 35% decline in real GDP in the first quarter of 2024, representing its largest economic contraction on record. Gaza's economy shrank by 86% in the first quarter of 2024, reducing its share of the Palestinian economy from 17% to less than 5%. The West Bank economy is set to shrink b y 25% in the first quarter of 2024, with major declines in trade, services, construction and manufacturing. Humanitarian crisis in Gaza More than 41,000 people were killed and more than 96,000 were seriously injured. The humanitarian situation is exacerbated by the displacement of nearly 1.9 million people, with shelters full and sanitation services inadequate. Severe shortages of food, water, fuel and medical equipment have led to widespread food insecurity and famine-like conditions. Access to humanitarian aid is severely limited, increasing malnutrition and disease. Financial challenges facing the Palestinian Authority The report projects that the PA's financing gap will reach $1.86 billion in 2024, more than double the gap in 2023, particularly impacting public service delivery, and expresses concern that the gap is still largely filled by borrowing from local banks and arrears to the private sector, public employees, and the pension fund. On the positive side, there is an expected increase in don or contributions. Between July and August 2024, both the World Bank and the European Commission officially announced their intention to increase grant allocations to the Palestinian Authority in the near term, as part of a comprehensive reform plan. Rising unemployment and income losses Unemployment rates have reached record highs in both the West Bank and Gaza, and the private sector in the West Bank has shown its resilience by preferring labor shortages to layoffs. 87.2% of workers in the West Bank have seen their household incomes shrink since the beginning of the aggression, due to job losses and shorter working hours. About two-thirds of businesses in the West Bank reported workforce cuts. The annual consumer price index has risen dramatically, by about 250%, due to supply chain disruptions caused by the aggression. The report added that based on a recent report issued by the Palestinian Central Bureau of Statistics and the International Labor Organization, estimates indicate that the unemployment rate in the Palestinian territories reached 50% in June 2024 - the highest rate ever. In the West Bank, the unemployment rate is estimated at 35% due to the sudden loss of jobs in Israel, the settlements, as well as the loss of jobs in the local economy. The destruction or damage of most businesses, coupled with the displacement of both their owners and workers, has left most families without any source of income. The remaining economic activities are mostly informal, with basic commodities sold on the black market at exorbitant prices. Collapse of key sectors Agricultural Economy: According to the latest remote sensing analysis by the United Nations Satellite Centre (UNOSAT), 63% of permanent agricultural land in Gaza has seen a decline in crop health and density (a 9% increase since May 2024). Khan Younis, Gaza City and North Gaza governorates are particularly affected, with nearly 70% of their agricultural land damaged. Education: Nearly 95% of primary, secondary and higher education facilities were d estroyed or damaged; 625,000 children are out of school. The conflict has also severely disrupted education services in the West Bank, with public schools reducing in-person education due to financial constraints and security concerns. Health system The health system in Gaza has been severely damaged, with the destruction of water supply infrastructure and solar panels, combined with shortages of electricity, fuel for backup generators and essential inputs, leaving 80% of primary care centres out of service. As a result of the collapse of the health system, 3 field hospitals have recently been established, only 17 out of 36 hospitals with inpatient capacity are partially operational, representing 53% of the total capacity of inpatient beds, intensive care units and maternity beds before the crisis. There are currently about 1,500 beds available in hospitals across the Gaza Strip, compared to 3,500 beds that were available before the aggression began, and the average bed occupancy is estimated at about 300 %. The spread of poverty and food insecurity Nearly 100% of Gaza's population lives in poverty. Food insecurity in Gaza has soared, pushing nearly two million people to the brink of widespread famine, and almost all of Gaza's population faces severe shortages. The latest Integrated Phase Classification (IPC) analysis indicates that 15% of the population (350,000 individuals) are experiencing famine-like conditions, with near-total food shortages. In addition, a third of the population is living in emergency conditions, suffering from severe food shortages and higher mortality rates. These conditions are particularly severe in the northern areas, Gaza City, and the governorates of Deir al-Balah, Khan Younis and Rafah, with the risk of famine expected to persist until September 2024. Nearly 90% of children under two, along with 95% of pregnant and lactating women in Gaza, suffer from severe food poverty, consuming two or fewer food groups. About 95% of households determine their meals and portion sizes, w ith 2 out of 3 households eating one meal per day. Pressure on the financial sector The aggression has intensified existing challenges and introduced new ones, such as the severe shortage of cash in Gaza, the ongoing economic downturn, the financial woes facing the Palestinian Authority, and the fluctuations in cross-border payments, all contributing to the increased pressures. The severe cash shortage in Gaza is affecting the population's ability to access humanitarian aid, deposits through ATMs, and money transfers through money transfer operators. Maintaining correspondent banking relationships (CBRs) with Israeli banks is vital to prevent systemic economic disruptions. Severing correspondent banking relationships may lead to unregulated financial activities and complicate financial oversight. Proposed measures to mitigate the economic recession: The World Bank believes that there are many key actions that must be taken to mitigate the severe economic downturn, rising poverty rates, and worsening hu manitarian crisis; the most important of which are: stopping hostilities, beginning to restore basic services, and laying the foundation for recovery and sustainable development. 'Cessation of Hostilities': Prioritize the cessation of 'hostilities' to reduce human suffering, enable the restoration of basic services, and socio-economic recovery. 'First and foremost, a 'cessation of hostilities' is essential to mitigate the devastating human toll, begin restoring essential services, and stimulate socio-economic recovery.' Addressing fiscal challenges: Reverse unilateral deductions from clearance revenues to ensure the PA's ability to meet basic budget obligations, such as salaries, pensions, and social services. Increase international support: Urgently engage with the international community to step up funding to maintain public services and plan for long-term recovery and reconstruction. 'At the same time, there is an urgent need for the international community to accelerate funding, to maintain essential public services and begin planning for longer-term recovery and reconstruction.' Stimulating economic activity: Implementing measures to facilitate trade, and promoting private sector activities, in both the West Bank and Gaza, to generate income and employment. 'In addition, measures to facilitate trade and promote private sector activities in both the West Bank and Gaza are essential to stimulate income generation.' Protecting the financial sector: Take immediate action to maintain correspondent banking relationships with Israeli banks to prevent financial isolation, address the cash shortage in Gaza, and ensure access to humanitarian aid and financial services. 'Maintaining correspondent banking relationships (CBRs) between Palestinian and Israeli banks remains vital to prevent systemic economic repercussions.' Focus on humanitarian needs: Prioritize humanitarian relief efforts to address food insecurity, health care, and education shortages, and cooperate with international organizations to facilitat e the entry of essential supplies and aid into Gaza. 'Ongoing hostilities and closures have prevented essential supplies from entering the Strip, leading to widespread food insecurity, severe shortages of water, fuel, and medical equipment, as well as a collapse in service delivery.' Strengthening infrastructure and services: Plan to rebuild critical infrastructure in agriculture, education, and health care to support long-term recovery, and invest in restoring and upgrading water, electricity, and sanitation services to improve living conditions. 'Damage to agricultural infrastructure, including wells and solar panels, has disrupted agricultural activities and increased production costs.' Source: Maan News Agency