The Palestinian economic recovery that began in 1998 came to an abrupt halt with the start of the Intifada in September 2000. The severe disruptions of economic life caused by the ever-intensifying confrontations, and the imposed restrictions on the movement of goods and people, have significantly reduced living standards among the Palestinian population. Poverty has become widespread, with an estimated 40-45 per cent of the population living below the poverty line of $2 per person per day. The average per capita income amongst the Palestinian population is lower today than it was at the signing of the Oslo accords in 1993. Rapidly increasing unemployment rates have been driving the economic decline. By the end of 2000, unemployment levels had reached 28 per cent.
Adding to this are the extensive physical damages incurred as a result of the conflict. The costs of the damages to houses, schools, hospitals, roads, commercial properties, agricultural land, irrigation systems and other infrastructure, had by the end of November 2001 reached approximately $165-175 million.
The Palestinian Authority (PA) no longer has the financial means to assure basic services to its population, being effectively bankrupt. Tax revenues have dwindled to a quarter of their previous levels, and customs and VAT collected by Israel on the PA's behalf, under normal circumstances accounting for two-thirds of Palestinian revenue, have not been paid by Israel since December 2000. The fiscal collapse of the PA has been prevented by monthly donations in budget support from the Arab League (through the Islamic Development Bank) and the European Union, as well as borrowing from commercial banks, delaying the payment of bills, cutting salaries and squeezing operating costs.
The ESSP is a $105 million initiative that was developed by the Palestinian Authority. Other donors who have pledged funding for the program include the European Union, the United Kingdom, Italy, Sweden, Denmark, the Netherlands, Finland and Greece. The Project will enable the Palestinian Ministry of Finance to fund specific contracts for delivery of social services by ministries, municipalities and non-governmental organizations during the crisis.
"The ESSP will help schools and health clinics to continue working in the midst of conflict," says Qaiser Khan, Senior Human Resources Economist in the World Bank's Middle East and North Africa Region. "It will also support municipal services that the Palestinian population is no longer able to pay for due to the sharp increase in poverty and unemployment since September 2000, which has, in turn, placed great strain on municipal budgets."
Insofar as educational services are concerned, the ESSP will finance rent and other costs of running school facilities, as well as purchases of school equipment and technical training materials. In the health sector, the loan will enable the Ministry of Health to purchase medicines and medical supplies, and to contract NGOs and the private sector to deliver health care services. Basic municipal services such as solid waste disposal, maintenance of roads, electricity and water services will also be supported under ESSP financing.
Useful links: For more information on the World Bank's work in West Bank Gaza, click here.