For use of information media - Not an official record

Geneva, Switzerland, 4 October 2001

The widespread economic crisis that has crippled the Palestinian economy since October 2000 provides the focus for the UNCTAD secretariat´s annual report on UNCTAD´s assistance to the Palestinian people (see TD/B/48/9). The report, to be reviewed by the Trade and Development Board (1-12 October), examines the impact of the Palestinian economic crisis in the context of structural constraints and imbalances. While recognizing the development challenges which the crisis poses for Palestinian Authority (PA) economic policymakers, the secretariat reasserts "confidence in the realistic hopes for a better development future for the Palestinian people".

The report shows that the critical developments in the Palestinian economy during 2000-2001 have highlighted and aggravated long-standing weaknesses that continued to characterize economic performance during the 1994-1999 interim period. Pursuing a recovery begun in 1997, the economy had enjoyed vigorous growth in 1998-1999, with real gross domestic product (GDP) estimated to have grown by 6% in 1999, while real per capita gross national income (GNI) growth was estimated at 3.5%. This growth trend had been projected to continue in 2000, and it appeared in mid-2000 that the economy was set on a more sustainable path of growth.

The interplay between chronic imbalances and the recent crisis

However, the report states that such an impressive performance masked chronic imbalances, which were evident even before the recent crisis, namely a high and volatile rate of unemployment, a persistent trade deficit and a widening gap between investment needs and national savings. Unprecedented restrictions on the flows of goods, labour and financial resources since October 2000 have aggravated these imbalances, taking a mounting toll on the Palestinian economy.

Direct losses in national income assumed an accelerating trend, estimated at over $2 billion in the six-month period from October 1999 to March 2000 alone, according to different sources. In addition, indirect losses are estimated at least at $200 million for the same period. With domestic output cut by almost half in the last quarter of the year, per capita GNI is estimated to have declined by at least 20 per cent in 2000. Unemployment grew sharply, with over a third of the labour force (some 300,000 Palestinians) reported jobless in 2001. More than 1 million Palestinians are now living under the poverty line of $2.10 a day and the income of around 64 per cent of Palestinian households has fallen below $400 a month.

While the crisis has eroded the benefits reaped from development efforts since 1994, less apparent is how the economy will recover and how long that will take. The crisis has diverted the donor community´s attention away from development projects that were designed to improve the economy´s supply capacity for emergency job creation and budgetary support, notes the report. The PA budget deficit is expected to reach $524 million in 2001, or around 25 per cent of the year´s emergency budget, and its debt obligations have also risen notably.

Policy priorities for the future

Without prescribing solutions or predicting how the economy will fare in the future, the report highlights the feasibility of achieving a smooth recovery once stability is re-established. UNCTAD signals some policy priorities that could help the economy absorb the latest shock and begin to recover. In addition to the provision of social welfare support to households rendered desitute by the crisis, a significant impulse to stimulating aggregate demand would come from removal of restrictions imposed on trade and labour since October 2000.

Of equal importance is the elaboration of a recovery and reconstruction programme in the context of a sustained economic policy formation process. The secretariat report suggests "targeted efforts, aimed at encouraging viable employment opportunities in the domestic economy, beginning with those sectors which had to release labour during the crisis, as well as other branches whose potential contribution to growth, exports and job-creation had already been established". Referring to a recent quantitative investigation by the secretariat, the report underscores the possibility of setting the economy on a sustainable development path through responsive policies, which target long-standing structural weaknesses. The secretariat assessment concludes that "following a decade of economic crises and recoveries, high expectations and unmet promises, the recent crisis has in fact reaffirmed the strong interdependence between development and peace".

The need to maintain a long-term perspective was behind UNCTAD´s decision to proceed with three new technical assistance projects in mid-2001, despite still-uncertain field conditions (See Note to Correspondents No.12 of 28 June 2001). The report provides an update on ongoing UNCTAD projects, including those that support Palestinian debt management, customs administration and enterprise development. At the same time, initiatives have been made to implement components of a separate package of urgent technical assistance activities in response to the crisis. Conceived by UNCTAD and ITC earlier this year, these activities aim to assist the PA in formulating policies to address new challenges in the areas of trade logistics and infrastructure, market diversification and trade policy support.