The evolution of the economy of the occupied Palestinian territory (oPt) has been largely determined by the occupation policies introduced by Israel in 1967. These policies weakened the commercial and economic links within the oPt as well as between the oPt and the rest of the world, and bred economic dependence on Israel as a destination for exports, a source of imports and an outlet for excess labour.
Following the signing of the Israeli-Palestinian peace accords and the establishment of the Palestinian Authority, the Palestinian economy's development path has been mainly shaped by the 1994 Protocol on Economic Relations (also known as the Paris Protocol) between Israel and the Palestine Liberation Organization, representing the Palestinian people. As stipulated by the Protocol, the Israeli-Palestinian economic relationship takes the form of a quasi "customs union", but it also has features of an economic union, whereby the two economies use, more or less, the same currency and same monetary and trade regimes.
The period 1994-1999 witnessed significant improvements in the Palestinian economy's performance, which was remarkable by historical standards. However, these imporevments brought to an end with the outbreak of the second popular uprising, or intifada, in September 2000, and in response, the tightening of the Israeli closure policy in the oPt and the construction of the Separation Barrier in the West Bank.
The lack of economic policy tools to respond to economic challenges under prolonged occupation has been undermining the Palestinian Authority's ability to assume a proactive role in brimming economic prosperity. As explained in the secretariat's 2008 annual report on assistance to the Palestinian people, the Palestinian economy's performance indicators reflect multiple challenges, including:
- Soaring unemployment: 29 per cent in 2007;
- Widespread poverty: recent indicators show 60 per cent of the population living below the poverty line, 44 per cent in absolute poverty;
- Daunting fiscal problems with a shrinking tax base and limited tax collection capacity, and growing pressure on the Palestinian Authority to act as an employer of last resort in an economy with limited employment abilities;
Growing trade deficit: 67 per cent of gross domestic product (GDP) in 2007. With extraordinarily high trade dependence on Israel, export performance has been weak while imports have been large and unpredictable.
The Palestinian Authority has signed preferential trade agreements with Arab countries, the United States, Canada, Turkey and the European Union, but the closure policy impedes their potential benefits;
- Unbalanced economic structure: while the services sector, including the public sector, accounts for more than 60 per cent of GDP, the industrial, agricultural and construction sectors' contributions are in the range of 16 per cent, 10 per cent and 5 per cent, respectively.
Nonetheless, the Palestinian Authority continues to formulate and implement development and reform programmes, including, most recently, the Palestinian Reform and Development Plan for 2008-2010.
Basic Economic Statistics: