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"As is" reference - not a United Nations document

Source: Israel
21 September 2010






Measures Taken by Israel
in Support of Developing
the Palestinian Economy
and Socio-Economic
Structure


Report of the Government of
Israel to the Ad Hoc Liaison
Committee (AHLC)

New-York, September 21, 2010


Chapter One

Economic Growth in the West Bank and Israeli Measures

ECONOMIC SITUATION IN THE WEST BANK

General


1. During the first half of 2010, the West Bank continued to undergo significant economic recovery. The macroeconomic situation continued to improve in the West Bank and Gaza, with solid economic growth registered so far in 2010. Real GDP growth in the first half of 2010 (compared to the first half of 2009) is estimated by the IMF at 9 percent for the West Bank and 16 percent for Gaza.1 The continuation of the positive trends reported in 2009 and 2008 is also due to measures taken by Israel to support economic activity, improvements in the security situation in the West Bank, the continued financial support of the international community to the Palestinian Authority and increased foreign investment.

2. The following indicators reflect the growth in economic activity:






Employment

3. General

Figures on employment in the West Bank demonstrate a positive trend. There has been a continued decline in unemployment. In the first quarter of 2010, unemployment decreased by 3% in comparison to the first quarter of 2009.8 Palestinian estimates regarding the labor market in the West Bank point to a continued improvement in the economy of the area––the unemployment rate declined to 6 15.2 % in the second quarter of 2010, its lowest level in three years. In comparison, it should be noted for example that in the first quarter of 2008, the unemployment rate in the West Bank was 19%.9


4. Palestinian Employment in the Israeli Economy

In the first half of 2010, the increase in Palestinian employment in Israel and the Israeli settlements in the West Bank continued.10 The most notable feature of the increase was the constant rise in the number of Palestinian identity card holders with work permits employed, while employment of Palestinians without permits was at a standstill and even declined slightly. The average daily nominal wage also increased steadily in 2009 and the first quarter of 2010, with a slight drop in the second quarter of 2010 (See table 2 below).11

The increase in the employment of permit holders derives from the increase in permits to work in Israel and may also be partly due to increased use of the permits to work in the Israeli settlements in the West Bank. Nevertheless, the change in the composition of permit holders and non-permit-holders working in the Israeli economy may well explain the increase in the average daily nominal wage that occurred despite the 8% percent drop in the number of hours worked per week between 2008 and the first half of 2009.12






Banking

5. In the first half of 2010, deposits of Palestinian banks in Israeli banks continued to increase rapidly, reaching more than NIS 1.6 billion. This increase was an extension of the upward trend evident in 2007–09. The growth in deposits may be due to the higher level of liquidity in the Palestinian economy and the high interest rate on the Shekel compared with that on other currencies, or it may be due to the increased volume of business between the two economies.14,15

6. The Bank of Israel (BoI) has been working with the Palestine Monetary Authority (PMA) to establish smooth banking relations between the respective economies subject to security concerns and international standards prohibiting the financing of terrorism. These international standards––the implication of which was seen in legal action taken against an Israeli bank abroad for an alleged indirect breach of anti-terrorism-financing regulations––combined with the low profitability of business relations with Palestinian banks, induce Israeli commercial banks to limit their relations with Palestinian banks. Specifically, they do not conduct business with branches located in the territory controlled by Hamas––the Gaza Strip––in line with other financial institutions that comply with the international regulations prohibiting the financing of terrorism.

This situation resulted in large NIS cash surpluses accumulated by West Bank banks, which the BoI and the PMA cooperated in absorbing.

Specifically, since August 2009, the BoI in coordination with the GoI has arranged transfers totaling about NIS 1 billion in cash from the West Bank to Israel as an extraordinary measure. These transfers are evident in the increase in the NIS deposits of Palestinian banks in Israeli banks (Table 3). In addition, the BoI and the PMA are negotiating an agreement whereby certain amounts of excess NIS cash are regularly deposited in Israeli banks. The BoI and the GoI were also involved in finding solutions for other problems that have arisen from time to time in Palestinian banks, such as exchanging worn banknotes.16






Trade with Israel

7. Trade between Israel and the West bank continued to grow in the first half of 2010. The following table demonstrates the levels of trade between Israel and the Palestinian Authority from 2006 to 2010:





8. Trade de facto with the Palestinian Authority during the first half of 2010, compared with the first half of previous years, also indicates growth, as follows:





9. Data regarding the movement of people, vehicles and commercial goods through the crossings between Israel and the West Bank during the first half of 2010 were as follows:
Data from previous years, compiled on a yearly basis, indicate that in 2009, the movement of goods through the crossings amounted to 304,000 shipments. In addition, 6.8 million entries and exits of pedestrians were recorded in 2009.

It should be noted that at the crossings managed by the Crossings Management Authority,22 a 57% increase was recorded in the number of entries of Palestinian pedestrians into Israel in 2009, reaching 6,825,247 in 2009, compared to 4,340,362 in 2008.23

Yearly data from 2010 is not yet available. However, if the current trend reflected in the daily estimates cited above continues, an overall increase is expected in comparison to 2009.

Israeli – Palestinian Fiscal Cooperation24

10. Since mid-2007, there has been close cooperation between the ministries of finance of Israel and the Palestinian Authority. This cooperation includes the regular transfer of tax clearance revenues to the Palestinian Ministry of Finance by the Israeli Ministry of Finance, which has been carried out on a consistent monthly basis since July 200725. These revenues constitute one of the PA’s primary sources of income, and are indispensable, together with budget support provided by donors and local tax collection, in enabling the PA to sustain operations, including payment of public sector salaries and private sector contracts.

11. In the first half of 2010, Israel transferred to the Palestinian Authority 2,299 million NIS, compared to 2,029 in the parallel period in 2009 and 1,865 million NIS in the parallel period in 2008. The estimated amount for the whole year 2010 is 4,598 million NIS, compared with 4,372 million NIS transferred by Israel to the Palestinian Authority26 in 2009, and 3,918 million NIS in 2008. In the beginning of September, Israel transferred an additional 350 million NIS. This increased amount constitutes another indicator of growth in the Palestinian Authority's economic activity. See Tables 6 and 7, below:









Tourism

12. The second half of 2009 and the beginning of 2010 witnessed growth in the tourism sector in the West Bank. Data reported by the Palestinian Central Bureau of Statistics indicate an increase in guests in Palestinian hotels between June 2009 and March 2010. During this period, the number of guests staying in hotels rose by 13.7%, the average number of nights spent in hotels rose 11.8%, and occupancy rates rose 10.6% to 32.7%. During the second quarter of 2010, the total number of guests was recorded at 140,009.30

13. In Bethlehem and Jericho, there was a sharp increase in the number of tourists visiting in the first half of 2010, as reflected in table 8, below:






Economic Conferences and Events

14. Since 2008, there has been a resurgence of conferences and special events in the West Bank, a trend welcomed by Israel, which has taken steps to facilitate the success of these events. Among the events held32:

External Palestinian Trade through the Allenby Bridge

15. In order to increase the import and export of merchandise and the flow of passengers to Jordan, and at the request of the Palestinians, Israel extended the operating hours of the Allenby Bridge crossing for passengers and merchandise, and the crossing is now open continuously from 8:00 through 24:00. The extension of the crossing's operating hours began as a pilot which ran initially until February 2010, and has recently become permanent.

According to official Palestinian sources, by September 2009, the extension of the bridge's operating hours had already saved the Palestinian economy between 50-100 million shekels.33

16. Data regarding the movement of commercial goods and passengers in 2009 and the beginning of 2010 indicate an increase in activity:


Israeli Measures to Facilitate Palestinian Business Activity

17. A number of measures have been adopted by Israel in order to help facilitate increased Palestinian business activity. These measures are designed to enable increased access for businesspeople who generate significant income, and include:

Israeli Measures to Improve Capacity at Commercial Crossings

18. Israel dedicated intensive efforts to upgrade and improve the capacity of the commercial crossings as follows:

Israeli Efforts to Support Infrastructure Projects35


19. A number of infrastructure projects are currently in different stages of implementation in the West Bank. These projects will help improve the standard of living for the local population. The following is a brief description of some of the main projects in this area:

Environmental Infrastructure Projects:

Roads:


Public Facilities:


Energy - Electricity Infrastructure

Upgrading the electricity infrastructure in the West Bank is a priority shared by Israel, the Palestinians, and the international community. Under the Interim Agreement, an ongoing dialogue is held between the parties on energy issues. The Israeli and Palestinian energy authorities hold regular meetings, attended by representatives of the Ministry of Infrastructure, COGAT, and the Israel Electric Corporation, on the Israeli side, and the Palestinian Energy Authority, on the Palestinian side.

An electricity project, funded by the European Investment Bank (EIB) is currently being finalized between the Israel Electric Corporation, the Palestinian Energy Authority and the EIB. Under this project, four electricity sub-stations will be constructed, in Jenin, Ramallah, Nablus and Hebron, at an estimated cost of 100 million Euros. This project will substantially increase the electricity capacities of the West Bank, and will enable development in a wide range of sectors.

Supporting the Palestinian Economy – Israeli Measures to Facilitate Access and Movement 37

20. In spite of continued security threats, and due to Israel’s desire to ease the movement and access of Palestinian civilians on the ground, combined with improved Israeli-Palestinian security coordination, since the end of 2007, Israel has taken a number of measures. Israel has dramatically reduced the number of checkpoints, from 41 in July 2007 to 16 today38, and has removed hundreds of roadblocks. Since April 2008, 409 roadblocks have been removed throughout the West Bank.39 As a result of these Israeli measures, movement between different areas in the West Bank is now smoother and quicker. Palestinians and their vehicles cross through fewer checkpoints, most of them operating as "normally open"40, when moving between key cities and from north to south in the West Bank. The improvement on the ground is reflected clearly by different economic indicators, as reported in the second paragraph of this chapter.

21. Complementary measures have been taken by Israel to facilitate and ease the movement of Palestinians, as follows41:
22. In addition, increased numbers of permits have been issued to ease the movement of Palestinians, as follows:
Chapter Two

Israel's Cabinet Decision on the Civilian Policy towards Gaza – Principles and Implementation

Israel's Cabinet Decision (June 20, 2010) 43

On June 20, 2010, Israel's Security Cabinet adopted a decision signaling a new civilian policy towards Gaza. The text of the Decision is as follows:
"Israel’s policy is to protect its citizens against terror, rocket and other attacks from Gaza. In seeking to keep weapons and war materiel out of Gaza while liberalizing the system by which civilian goods enter Gaza, the Government of Israel has decided to implement the following steps as quickly as possible::

1. Publish a list of items not permitted into Gaza that is limited to weapons and war materiel, including problematic dual-use items. All items not on this list will be permitted to enter Gaza.

2. Enable and expand the inflow of dual-use construction materials for approved PA-authorized projects (schools, health facilities, water, sanitation, etc.) that are under international supervision and for housing projects such as the U.N. housing development being completed at Khan Yunis. Israel intends to accelerate the approval of such projects in accordance with accepted mechanisms and procedures.

3. Expand operations at the existing operating land crossings, thereby enabling the processing of a significantly greater volume of goods through the crossings and the expansion of economic activity.

4.Add substantial capacity at the existing operating land crossings and, as more processing capacity becomes necessary and when security concerns are fully addressed, open additional land crossings.

5. Streamline the policy of permitting the entry and exit of people for humanitarian and medical reasons and that of employees of international aid organizations that are recognized by the GOI. As conditions improve, Israel will consider additional ways to facilitate the movement of people to and from Gaza.

6. Israel will continue to facilitate the expeditious inspection and delivery of goods bound for Gaza through the port of Ashdod. Israel welcomes cooperation and coordination with its international and regional partners in implementing this policy and will continue to discuss with them additional ways to advance this policy.

The current security regime for Gaza will be maintained. Israel reiterates that along with the U.S., EU and others, it considers Hamas a terrorist organization. The international community must insist on a strict adherence to the Quartet principles regarding Hamas.

Hamas took over Gaza and turned it into a hostile territory from which Hamas prepares and carries out attacks against Israel and its citizens.

The Israel Defense Forces will continue to prevent the flow into and out of Gaza of terrorist operatives, weapons, war material and dual use items which enhance the military capability of Hamas and other terrorist groups in Gaza. Israel calls on the international community to stop the smuggling of weapons and war materials into Gaza.

Gilad Shalit is approaching four years in captivity. The international community should join Israel in strongly condemning those who hold him captive and in redoubling their efforts to secure his immediate release.44"


The new policy is based on the following elements:

Immediately following the adoption of the Security Cabinet Decision, Israel commenced the rapid implementation of its different elements, creating a new reality of the ground.

Implementing the Cabinet Decision

The following are a number of steps taken to implement the decision:

1. List of Controlled Items:

Construction materials are to be allowed entry into Gaza only for PA-authorized projects implemented and monitored by the international community. While such items are liable to be used for military purposes by Hamas (building bunkers, fortifying positions and digging tunnels), Israel permits their entry into Gaza so as to facilitate construction projects in Gaza, when they are authorized by the PA and implemented and monitored by the international community.

Items not on the list are allowed into the Gaza Strip freely, with no need for any special permit.

2. Approved Projects:

In a few cases, international projects that have already been approved have difficulty finding funding.

Additional projects will be considered in the future.

3. Projects Implemented:


Coordination between international organizations and COGAT for the delivery of materials and equipment for other projects continues.

4. Commercial Land Crossings:









5. Cooperation with the Palestinian Authority

6. Movement of Passengers

7. Cash Transfers

8. Maintenance of Humanitarian Infrastructures


9. Ongoing Monthly Transfer of International Aid (July - August 2010)56



Notes
1 Source: IMF
Given the uncertain prospect for further easing of trade controls in the remainder of the year, the IMF's conservative projection for real GDP growth for the WBG in 2010 stands at 8 percent.
2 Source: COGAT
3 As reported in a PCBS study of 94 hotels operating at the end of the second quarter of 2010.
4 Source: COGAT
5 After the aforementioned deduction of payments.
1 Source: Palestinian Central Bureau of Statistics
7 Source: Israel Airports Authority
8 Source: COGAT
9 Source: Palestinian Central Bureau of Statistics
10 Source: Palestinian Labor Force Surveys
11 Source: Bank of Israel
12 Another plausible explanation for the increase in the wage is the increase in the wage of residents of East Jerusalem who are included in the average daily wage published by the Palestinian CBS.
13 Estimates of workers with permits and those without include Palestinians with Palestinian I.Ds, and do not include Palestinians with Israeli I.Ds or foreign passports, the great majority of which live in East Jerusalem. The average daily wage published by the Palestinian CBS includes holders of Israeli I.Ds and foreign passports, including residents of East Jerusalem who are not included in this review.
Source: Palestinian CBS, Labor Force Surveys.
14 Source: Bank of Israel
15 The amount of deposits declined in the past, in the first years of the Intifada (2002–03) and in 2005–06, following the third-party claim against the Israeli banks because of intervention in the transfer of terrorist funds. At the same time, foreign currency deposits of the Palestinian banks continued to follow a downward trend, reaching less than NIS 100 million. This low level reflects the switch, in the 1990s, of foreign currency activity by the Palestinian banks from the Israeli banks to direct dealing with foreign banks.
16 Source: Bank of Israel
17 Source: Bank of Israel
18 Source: Ministry of Finance
19 The estimate for 2010 is based on actual sales and purchases during the first half of 2010.
20 Source: Ministry of Finance
21 Source: Land Crossings Authority
22 Most of the crossings, not including the Jerusalem area.
23 Source: Crossings Management Authority
24 Source: Ministry of Finance
25 Payments due to Israeli companies for utilities including water, electricity and sewage, as well as healthcare, which are provided to the Palestinians in the West Bank and Gaza by Israeli companies, are partially deducted each month directly from the tax clearance revenues transferred. Usually, the timing and amounts of these deductions are agreed in advance with the Palestinians.
26 After the aforementioned deduction of payments.
27 Source: Ministry of Finance
28 The estimate for 2010 is based on actual tax revenues transferred in the first half of 2010.
29 Source: Ministry of Finance
20 As reported in a PCBS study of 94 hotels operating at the end of the second quarter of 2010.
21 Source: COGAT
22 Source: COGAT
23 Joint Economic Committee meeting, September 2, 2009.
24 Source: Israel Airports Authority
25 Source: COGAT
26 Japan International Cooperation Agency
27 Checkpoints and roadblocks have proven to be effective tools for preventing and intercepting terrorist attacks, enabling the confiscation of weapons and the detainment of terrorists and wanted individuals. In many cases, the checkpoints serve as a last line of defense against terrorists, and provide the security forces more time to intercept the attack and stop it before it reaches its civilian target.
28 In June 2009, Israel removed five central checkpoints: in Jericho, Kalkilya and Bir Zeit, as well as a checkpoint connecting Kalkilya, Jenin and Tulkarem with Nablus, and a checkpoint enabling unhindered access from Jericho and the Northern parts of the West Bank to Ramallah. The number of checkpoints as of (the beginning of 2010) had been down to 14, and two new checkpoints were added as a result of the opening of Road 443 to Palestinian traffic.
29 On August 31, 2010, four civilians were killed in a terrorist attack perpetrated on Highway Number 60, a central artery where a number of checkpoints were removed over the past few years.
40 Open around the clock, seven days a week.
41 Source: COGAT
42 Including East Jerusalem.
43http://www.mfa.gov.il/MFA/Government/Communiques/2010/Prime_Minister_Office_statement_20-Jun-2010.htm
44http://www.pmo.gov.il/PMOEng/Communication/Spokesman/2010/06/spokemediniyut206010.htm
45www.pmo.gov.il/PMOEng/Communication/Spokesman/2010/07/spokegaza050710.htm
46http://www.mfa.gov.il/MFA/HumanitarianAid/Palestinians/Lists_Controlled_Entry_Items_4-Jul-2010.htm
47 Source: COGAT
48 Source: Land Crossings Authority
49 Since the month of Ramadan started (August 11) there has been a decline in the number of trucks coordinated by the PA.
50 Source: COGAT
51 Source: COGAT
52 UN Secretary General visited Gaza on March 2010.
53 Source: COGAT
54 Source: COGAT
55 Source: COGAT
56 Source: COGAT

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