IMF mission meeting with Prime Minister Rami Hamdallah 

The International Monetary Fund (IMF) anticipated that the Palestinian economy will continue to experience weak levels of growth, projected at 3.5% over the medium term, despite the Ministry of Finance’s efforts to decrease the deficit in the budget for the third consecutive year.

The IMF, whose mission led by Christoph Duenwald concluded its visit to Palestine, said in a statement, “We estimate that the fiscal deficit declined by close to one percentage point of GDP, reflecting strong revenue performance and successful efforts to contain spending on the wage bill and in non-priority areas.”

Based on the Palestinian Government’s 2016 budget, the IMF expected that this improvement in the public finance will continue during 2016.

The IMF advised the PA to take the necessary measures to narrow the financing gap since such a gap is expected to increase if donor aid remains at the same level as 2015.  One of the IMF’s suggested measures is to contain the increase in the wage bill to below 2 percent.

In its assessment of the Palestinian economy, the IMF said, “2015 was another difficult year for the Palestinian economy. Growth in the West Bank slowed to an estimated 2.8 percent, as investment remained weak, donor aid declined sharply, and the suspension of clearance revenue transfers in the early part of the year undermined confidence. While reconstruction efforts following the Israel-Hamas conflict in 2014 provided some boost to the Gazan economy, the pace of recovery was hampered by slow aid disbursements and restrictions on imports of construction materials, and the humanitarian situation remains dire. Unemployment remains stubbornly high in the West Bank and higher still in Gaza, where two-thirds of young people are without a job.”

It anticipated that uncertainty will continue to cloud the economic outlook in 2016, which will lead to a weak growth in the economy.

The IMF warned that the opportunity for growth will diminish if the current “wave of violence” escalates and turns into a “security crisis.” It will also lead to shortfalls in donor aid and further spending pressures including in Gaza.

The IMF concluded its statement, saying, “Despite the increasingly precarious political situation, enhanced economic cooperation between the PA and Government of Israel is critical to improve the prospects for fiscal sustainability and economic development. A good initial step would be a transparent audit of electricity sector claims which could help reduce unilateral deductions from clearance revenue transfers.”

(Palestine Economy Portal, Wafa)