A line of Palestinian Authority officials queuing in front of an ATM in Rafah, Gaza Strip, on December 8, 2023. (Photo Abed Rahim Khatib/Flash90)

Analysis: The Gaza War and the Economic Impact on Palestinians

With unemployment soaring and trade and private activity sinking, the World Bank warns: only the end of hostilities in Gaza, the transfer (now frozen) of taxes collected by Israel and international aid can save the Palestinians.

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Manuela Borraccino

(ZENIT News – TerraSanta.net / Gaza, 23.01.2024).- Faysal Shawa, a civil engineer who has headed a construction firm in Gaza for 30 years, saw how the buildings he constructed collapsed as did his home under Israeli bombs, and now he finds himself among the refugees of Khan Yunis.

Osama Amro, photovoltaic systems installer, has not left Ramallah since October 7, fearing the violence of the settlers and not being able to return home due to the increase of road checks in the Occupied Territories. Shadha Musallam, a biologist of Nablus, an expert in agricultural technology, has been unable to leave since October 7, to take part in a competition in Morocco, for which she had classified months before, and has thus seen the possibility disappear of receiving US$500,000 of financing for her newly created business. These are just some of the stories coming from the Gaza Strip and the West Bank, about the economic impact that the Hamas pogrom and the Israeli reaction are having on millions of Palestinians as well as Israelis. According to the International Labour Organization, 468,000 jobs have been lost between the Gaza Strip (192,000, or 66% of the employed), and the West Bank (276,000 or 32% of the employed), compared to the first estimates of 390,000, which spells a loss of at least US$20.5 million of labour income

Palestinians Depend Again on International Aid
The loss of employment of hundreds of thousands of workers will impoverish Palestinians even more, who will again depend on international aid, of which they had progressively disengaged in the last two decades, according to a World Bank Report. The sharp drop in income, the decline in trade and in private activity, the increase of mobility restrictions and the temporal salary cuts will harshly affect consumption, currently the only engine of the Palestinian economic rebound, after the shock of the COVID-19 pandemic. In sum, the current crisis is exacerbating the pre-existent structural weaknesses, of which the 30 years of the international community’s attempt to correct have had little effect.

“Employment and its restrictions have been affecting for a long time the potential and actual growth and the fiscal sustainability, as well as the lack of access to natural resources and Israeli control over a great part of the West Bank territories, including zone C. These conditions imposed bottlenecks to the economic activity and development long before the current conflict. The incapacity of the Palestinian Authority to implement the necessary reforms, starting with fiscal reforms, has hindered the Palestinian economy to develop its potential. The attempts of the international community to address these structural issues have also been insufficient,” states the Report.

Taxation in Crisis
On the fiscal and institutional fronts, the Palestinian Authority is faced with “monumental challenges” to guarantee the basic functions in the absence of fiscal resources. If Israel were to prolong the freezing of the transfer of taxes collected in the name of the Palestinian Authority – or if it were to reduce its flow – “the social contract that binds Palestinians would be seriously affected: the Authority would be unable to guarantee either officials’ salaries or essential services.”

According to estimates, the monthly tax income rises to some US$188 million and, together with international aid, is the main source of financing of the Palestinian Authority: these funds cover the salaries of 140,000 employees of the public sector (including 19,000 security workers of the Gaza Strip those whose tap was cut off when Hamas won the 2006 elections) and of 53,000 pensioners. The World Bank calculates that, due to the recession and decrease in fiscal income, a drop of 13% in income will occur. Even if the Palestinian Authority found a way to pay 80% of the salaries of the fourth trimester of 2023 (unpaid since October), the budgetary deficit in 2023 would continue being US$580 million, around 3.2% of the GDP. Unless there is a change of paradigm, warn economists, the Palestinian Territories will end up suffering structural crises of liquidity, which will give place an international aid dependency as the only short-term palliative.

Gaza’s GDP Was Reduced by 27% Between 2006 and 2022
Before the conflict, the Palestinian economy was already slowing down: in the first semester of 2023, the contraction was of 3% in the Palestinian Territories, and of 4.4% in Gaza, due to the sharp decline in agriculture and fishing, after Israel introduced new restrictions to the sale of products of Gaza to the West Bank in August 2022. Today, after more than 100 days of bombings, the magnitude of the damages is unprecedented: over 60% of the telecommunications infrastructure and of health and educational installations are destroyed, as well as 70% of commercial premises, together with more than half of the roads. Since the end of October, there has between a 90% collapse in the Strip’s capacity to produce: Israeli bombs have not even spared bakeries. The only active mill remaining in the Strip, point out World Bank economists, does not work for lack of electricity, which has driven more than 1.5 million people to hunger. Poverty was already endemic in Gaza before October 7, with a 45% rate of unemployment and of youth unemployment of over 60%. Between 2006 and 2022, Gaza’s per capita GDP had already fallen by 27%, to US$1,257 annually, one of the lowest of the world: in 2023, according to non-official estimates, 60% of the population lived in poverty and 80% depended on international ai (especially minors, that constitute one third of Gazans).

210,000 Jobs in the West Bank Vanished
While multidimensional poverty grows in Gaza, with 85% of workers now unemployed, the adverse effects on all the basic social services are also felt in the West Bank, where the rate of unemployment has risen from 13% to 25%, with the loss of some 210,000 jobs of Palestinians who work in Israel or in the settlements, annihilated by the collapse of tourism, trade and the olive harvest. These approximately 210,000 constituted 20% of the occupied West Bank. The Israeli repression, with new restrictions to mobility, together with the increase of settlers’ violence, with 300 dead Palestinians in the Occupied Territories since October 7, affect at least 67,000 workers that have been unable to go to work.

The World Bank predicts a loss of 3.7% of GDP for the Palestinian economy in 2023, which corresponds to a drop of more than US$1,500 in workers’ income, loss of profits for companies and loss of taxes. According to economists, this decline will imply the annulment of the benefits achieved in the West Bank since the end of the pandemic with the programs of social protection, now on its knees due to the fiscal crisis: poverty in the Territories will exceed the rate of 26.5% reached in 2020 at the peak of the restrictions of the pandemic.

To mitigate this tragedy and the unprecedented effects on the economic fabric, economists are calling for the cease of hostilities to save lives and begin the reconstruction, the immediate payment of back taxes to the Palestinian Authority’s coffers, the elimination of obstacles to private activity in the West Bank and Gaza, massive international aid during and after the current humanitarian crisis to address the budgetary hole of US$580 million, and to support the Palestinian Authority.

Blinken: The Gulf Countries Will Not Reconstruct Gaza without a Palestinian State
Outside of the World Economic Forum, held these days in Davos, U.S. Secretary of State Antony Blinken reiterated that the Gulf monarchies will not take on the reconstruction of Gaza without a plan for the creation of a Palestinian State and with the risk of seeing the Gaza Strip destroyed again by Israeli bombings a few years after its reconstruction.

Translation of the Italian original into Spanish by ZENIT’s Editorial Director and, into English, by Virginia M. Forrester

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