4 Takeaways on the Palestinian Economy – February 2012

Ma’an is a Palestinian news agency, based in Ramallah. Today, Thursday, it carries two seemingly contradictory headlines. On the one hand, Gaza could “fall into darkness” in 72 hours if it does not receive fuel. Conversely, it notes that Israel has just delivered yet another 200 truck loads of supplies to the area.

Palestinians will argue that Gaza is under siege from the ‘wicked zionists’, often a euphemism for a more sinister phrase. Israelis note that most of Gaza’s electricity comes from Egypt. What’s going on? Who to believe? Who to blame?

1) Who gets paid a salary and by whom in the Palestinian territories?

The IMF and World Bank have repeatedly complained that public sector employment in the Palestinian is too high to be consistent with economic growth. That said, according to another Palestinian news agency, Wafa, “the European Union and Sweden  contributed €24.7 million to the payment of the January salaries and pensions of around 84,300 Palestinian
civil servants and pensioners.”

Yes, in a small economy, maintaining the circulation of money is essential. Some commentators have wondered how Brussels can release such sums so readily, yet haggles over saving Greece and Euro.

What may be more relevant is that this income stream derives from public funds, European taxpayers. They pay the wages of civil servants in Gaza, many of whom are Hamas operatives. And Hamas is officially designated a terrorist organisation. Maybe the money should go into building up a firmer tax collecting structure, which could release the EU from such double standards?

2) Just how poor is the Hamas government?

For all the latest attempts at rapprochement between Hamas and Fatah, the rulers of Gaza and the West Bank appear to be searching for a unity solely based on a common hatred of Israel. They are separate regions with different family tribes. The proof is locked in the gaps in economic performance, where Gaza always loses out.

That said, Hamas have managed to secure a budget for the year 2012, which is 22% higher than 2011. Significantly, for an organisation whose initial strength was in forging alliances in poor neighbourhoods, “main areas of expenditure are security, public order, social services and education, which represent around 62 percent of the total budget”.  

Where the extra revenue comes from is uncertain? Certainly there are calls for outside help. Israeli papers have noted that Iranian involvement has been stepped up in the past year. Smuggling and associated incomes remain lucrative.

3) Will and can Palestinians pay higher taxes to fund shortfalls?

Prime Minister Fayyad has an outstanding record international banking. His recent statements show that it is quite clear that he intends to tackle a public sector deficit that has almost trebled since 2010. The Palestinians finally seem to have a politician, who openly refuses to rely upon false promises from Arab countries.

But raising taxes is not so simple. It is not just that debt collection is so weak – no structure, internal lawlessness, corruption, etc. Signs of the “Arab Spring” appear to have reached the West Bank.

Fayyad’s attempts to double income tax rates are unlikely to go through in full. And the financial shortfall will be further exposed if the American Congress cancels its aid support programme in response to President Abbas uniting with Hamas.

4) Is there hope for the Palestinian economy?

Israel took control of Palestinian areas in 1967. In the year 2000, the Second Intifada broke out and 125,000 workers from Gaza lost their jobs overnight.

The World Bank economist, Dessus, has tracked the period 1969 to the beginning of the outbreak of fighting. He found that annual average GDP growth was 5.5%, one of the highest rates in the world for that period. European contributions for most of that period were minimal. Arab countries did not step in. At least six universities were set up. Life expectancy lept from the low 60s.

Time for a different takeaway from the Palestinian spokespersons?

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