World Bank warns of dire outlook for economy

WASHINGTON (AFP) — The Palestinian economy risks implosion from an Israeli crackdown and threatened cuts in foreign aid following the election victory of Hamas, the World Bank warned Thursday. In the worst-case scenario, it said in a report for donor countries, unemployment among Palestinians will jump to about 40 per cent this year and the percentage of those living below the poverty line will rise to 67.

The World Bank outlined four scenarios, with the worst and most likely being that Israel continues to withhold tax revenues owed to the Palestinian Authority (PA) and that Western governments cut their budget support. Even under the best and improbable scenario of no abrupt change in funding for the PA, “Palestinian economic prospects are not good,” the report said. It noted that donor countries believe that growth in Palestinian gross domestic product (GDP) must reach 10 per cent a year just to bring rampant unemployment down to acceptable levels.

But even with the most optimistic projections, the Bank sees growth in Palestinian GDP per capita falling from 6.3 per cent last year to 4.9 per cent in 2006, and then turning negative in subsequent years.

The Israeli blockade of PA customs revenues would reduce the authority’s budget resources to $700-750 million this year, compared with its draft 2006 budget of $1.9 billion.

“A fiscal outlook of this nature is incompatible with continuity in essential government operations,” the report warned.

Both the United States and European Union have threatened to cut their funding if the Islamist movement Hamas does not commit itself to nonviolence and recognise Israel’s right to exist before it forms a new government following its January election victory.

Hamas has brushed off the threats, saying it will look to other Arab and Muslim countries to meet any shortfall in funding.

Israel’s decision in February to freeze the customs duties, worth around $50 million a month, has already led to delays in payments to PA employees.

James Wolfensohn, the special envoy of the diplomatic “Quartet” on the Middle East, warned Wednesday that if it cuts aid, the international community risks “increased radicalisation of Palestinian society.”

The World Bank report highlighted the diplomatic headache as the West seeks to isolate Hamas without plunging ordinary Palestinians even deeper into poverty, six years into the latest anti-Israel Intifada or uprising.

The report said the Israeli freeze has hit as much as two-thirds of the PA’s revenues. Restrictions to trade, such as enhanced security checks and limits on the flow of Palestinian workers into Israel, would also hurt.

It said that foreign assistance to the PA came to $1.3 billion last year, or about 22 per cent of its gross disposable income.

Of the total, 38 per cent was for emergency humanitarian aid, 35 per cent covered development aid and 27 per cent was extended as budget support.

Donors have largely stressed that the humanitarian aid portion is not in question, being channelled for the most part through United Nations agencies.

So any reductions in foreign assistance would hit the $800 million provided for development aid and budget support, the report said.

But it cautioned that it is hard to separate out the three categories, and warned it would be tough to increase emergency aid sharply if donors insist on new procedures to check the money does not end up with Hamas.

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