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UNITED
NATIONS
TD

        United Nations Conference on Trade and Development
Distr.
GENERAL
TD/B/55/2
15 July 2008

Original: English

Trade and Development Board
Fifty-fifth session
Geneva, 15 September–26 October 2008
Item 10 (b) of the provisional agenda

Report on UNCTAD assistance to the Palestinian people 1

Prepared by the UNCTAD secretariat 2 3

Executive summary

The economy of the occupied Palestinian territory stagnated in 2007 and failed to recover from the 2006 contraction. As a result, gross domestic product (GDP) per capita continued its downward trend and poverty deepened. If it were not for the resumption of foreign aid in the second half of 2007, GDP would have contracted for the second year in a row. The construction of the separation barrier, the Israeli closure policy and the erosion of productive capacity continued to prevent recovery and entrenched “de-development”. The economic gap between the West Bank and Gaza has widened as a result of recent political developments and the tight closure imposed on the Gaza Strip.

The Palestinian Authority announced significant reforms aimed at achieving fiscal sustainability. Reforms, rehabilitating the productive base and lifting the closure, while necessary, are not sufficient conditions for recovery and sustained growth. To put the economy on a path of sustainable development and self-sufficiency, they need to be complemented by empowering the Palestinian Authority with the appropriate policy instruments to carry out economic policies suited to the specific needs of the Palestinian war-torn economy. In addition to expanding the Palestinian Authority’s policy space, there is an urgent need to strengthen its capacity to formulate and implement development policies and to provide sound economic management for their implementation.


UNCTAD continues to respond to the emerging needs of the Palestinian economy by intensifying assistance, in coordination with other United Nations and international organizations and in close consultation with Palestine. However, funding shortfalls threaten efforts to build on previous achievements and reach the hoped-for results. Improved extrabudgetary funding remains critical to achieving UNCTAD’s mandate of responding to the evolving needs of the Palestinian economy.



Introduction

I. A degraded economy under continued closure

A. Economic stagnation with persistently high unemployment

Table 1. The Palestinian economy (West Bank and Gaza Strip): key indicators a
1995
1999
2002
2003
2004rev.
2005rev.
2006prl.
2007est.
Macroeconomic performance
Real GDP growth (%)
6.1
8.6
-3.8
5.8
6.0
6.0
-4.8
0.0
Gross domestic product - GDP ($ million)
3 276
4 517
3 156
3 624
4 077
4 478
4 533
5 045
Gross national income - GNI ($ million)
3 779
5 454
3 546
4 105
4 534
5 017
5 068
5 620
Gross disposable income - GDI ($ million)
4 200
5 853
4 985
5 395
5 951
6 583
7 108
8 001
GDP per capita ($)
1 400
1 590
999
1 108
1 203
1 191
1 165
1 261
GNI per capita ($)
1 615
1 920
1 122
1 255
1 337
1 334
1 303
1 405
Real GNI per capita growth (%)
7.9
4.1
-8.9
6.2
1.5
-1.0
-14.9
-0.7
Population and labour
Population (in millions)
2.34
2.84
3.16
3.27
3.39
3.76
3.89
4.0
Unemployment (% of labour force) b
26.6
21.2
41.3
33.4
32.5
29.0
29.6
28.9
Total employment (in thousands)
417
588
477
564
578
696
621
665
In public sector
51
103
115
119
131
145
164
159
In Israel and settlements
50
127
49
55
50
63
64
63
Fiscal balance (% of GDP)
Government revenue
13.2
23.8
8.2
20.6
23.4
27.5
25.4
23.6
Current expenditure
15.3
22.5
27.6
29.4
32.8
35.9
42.8
39.8
Total expenditure
25.5
29.8
28.2
35.2
37.5
44.5
50.2
50.3
Recurrent balance
-2.1
1.3
-19.4
-8.8
-9.4
-8.4
-17.4
-16.2
Overall balance
-12.3
-6.0
-20.0
-14.6
-14.1
-17.0
-24.8
-26.7
External trade
Net current transfers ($ million)
421
399
1 439
1 290
1 417
1 566
2 040
2 381

Exports of goods and services ($ million)
499
892
465
465
535
587
535
595
Imports of goods and services ($ million)
2 176
3 805
2 536
2 844
3 279
3 596
3 558
3 960
Trade balance (% of GDP)
-51.2
-64.5
-65.6
-65.6
-67.3
-67.2
-66.7
-66.7
Trade balance with Israel ($ million)
-1 388
-1 766
-1 149
-1 370
-1 618
-1 920
-1 876
-2 119
Trade balance with Israel (% of GDP)
-42.4
-39.1
-36.4
-37.8
-39.7
-42.9
-41.2
-42.0
PA trade with Israel/total Israeli trade (%)c
3.7
3.7
2.1
2.2
2.2
2.3
2.1
2.2
PA trade with Israel/total PA trade (%) c
78.8
58.4
58.6
59.2
59.6
65.7
64.2
69.0
Source : Data from PCBS, World Bank, IMF, ILO and the Israeli Central Bureau of Statistics.
a
As PCBS has only limited access to East Jerusalem, data reported in this table exclude East Jerusalem.
b
Unemployment rates include “discouraged workers”, according to the ILO “relaxed definition”.
c Total Palestinian and Israeli trade data refer to goods and to non-factor and factor services.


B. Poverty deepens

C. Stifled local economy in Gaza

D. Fiscal challenges

E. Weak external sector and continued dependence

II. Policy space for economic recovery and sustained growth

A. Limiting economic policy framework

B. Expanding the Palestinian Authority’s economic policy options





Table 2. Impact of policy space on GDP and unemployment
Policy scenario
GDP
Unemployment
Improvement in 2015
(in millions of 1997 $)
Rate (%)
Increase
Reduction in
unemploym’t rate
2008
2015
2008
2015
in GDP (%)
Baseline forecast
6 019
8042
15.6
19.1
--
--
Labour
6 096
8208
10.3
12.3
2.1
6.8
Fiscal
6 114
8376
14.7
16.7
4.2
2.4
Trade: most favoured nation
6 189
8539
13.9
16.0
6.2
3.1
National currency
6 342
8861
12.8
14.1
10.2
5.0
Policy package
6 610
9942
5.3
0.5
23.6
18.6

Figure 1. Impact of policy space on GDP
(
in millions of 1997 $ )




Figure 2. Impact of policy space on GDP/capita (1997 $)



Figure 3. Impact of policy space on unemployment rate (%)

C. Capacity development for expanded Palestinian policy space

III. UNCTAD assistance to the Palestinian people

A. Framework and objectives

B. Operational activities under way

1. Trade policy and strategy

2. Trade facilitation and logistics 3. Finance and development 4. Enterprise, investment and competition policy

C. Coordination, harmonization and resource mobilization

References

Beidas S and Kandil M (2005). Setting the stage for a national currency in the West Bank and Gaza: The choice of exchange rate regime. Working paper 05/70, New York, International Monetary Fund.

Cobham D (2004). Alternative currency arrangements. In: Cobham D and Kanafani N eds. The Economics of Palestine: Economic Policy and Institutional Reform for a Viable Palestinian State . London, Rutledge.

International Labour Office (2007). Report of the Director-General, Appendix: The situation of workers of the occupied Arab territories. International Labour Conference, ninety-sixth session 2007.

Naqib F (1999). The economics of currency boards: the case of the Palestinian economy in the West Bank and Gaza Strip. Paper presented to the sixth annual conference of the Economic Research Form, mimeo, University of Waterloo.

OCHA (United Nations Office for the Coordination of Humanitarian Affairs) (2007). The barrier gate and permit regime four years on: humanitarian impact in the northern West Bank. OCHA Special Focus, November.

OCHA (2008a). OCHA-oPt socio-economic fact sheet. April.

OCHA (2008b). The Humanitarian Monitor. No. 23, March.

Oxfam (2007). Palestinian families facing a $1 billion debt burden since aid embargo started. Press release, 13 June.

PNA (Palestinian National Authority) (2008). Palestinian Reform and Development Plan 2008–2010. Ramallah.

UNCTAD (2006a). Integrated simulation framework for Palestinian macroeconomic, trade and labour policy (UNCTAD/GDS/APP/2006/2).

UNCTAD (2006b). Report on UNCTAD’s assistance to the Palestinian people (UNCTAD/TD/B/53/2).

UNDP (United Nations Development Programme) (2007). The Gaza Strip: A private sector in decline. UNDP/Programme of Assistance to the Palestinian People.

World Bank (2008a). Implementing the Palestinian reform and development agenda. Economic monitoring report to the Ad Hoc Liaison Committee, West Bank and Gaza Resident Mission, May.

World Bank (2008b). West Bank and Gaza country brief. http://siteresources.worldbank.org/INTWESTBANKGAZA/Resources/WBG-ENG_2008SMpdf.pdf.

Notes

1The designations employed and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. In accordance with the relevant resolutions and decisions of the United Nations General Assembly and Security Council, references in this report to the occupied Palestinian territory (or territories) pertain to the Gaza Strip and the West Bank, including East Jerusalem. Use of the term “Palestine” refers to the Palestine Liberation Organization, which established the Palestinian Authority following its 1993/94 accords with Israel. References to the “State of Palestine” are consistent with the vision expressed in Security Council resolution 1397 (2002). Unless stated otherwise, data on the Palestinian economy in this document apply to the Gaza Strip and the West Bank, excluding East Jerusalem.

2 This document was submitted on the above-mentioned date as a result of processing delays.

3 The information in this document should not be quoted by the press before 8 September 2008.

4 In 2006, for an average household of six individuals in the occupied Palestinian territory, the relative and the absolute poverty lines were drawn at monthly incomes of $518 and $414, respectively.

5 This is probably why the issue has received little attention in the literature, though Naqib (1999), Cobham (2004) and Beidas and Kandil (2005) have done some pioneering work in this field.

6 “Seigniorage” is the public revenue derived from issuing money. It has no inflationary consequences if the increase in money supply is in line with economic growth and the increase in demand for money. Sometimes Governments issue even more currency to raise revenue instead of collecting taxes; the resulting inflation is referred to as the “inflation tax”.

7 “Policy space for Palestinian sustained development and State formation”.

8 These assumptions are discussed in detail in UNCTAD, 2006a.

9 However, this exercise cannot quantify the structural impact of the separation barrier, or of its possible dismantlement.

10 The assumptions underlying the alternative policy scenarios are discussed in detail in the study mentioned in footnote 4.0

____________

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