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Armed with growing global financial aid, the Palestinians in the occupied territories struggled to alleviate years of poverty, unemployment and other economic woes but their efforts have been ruined by Israel's hostility. In such conditions, the aid was only helpful in preventing a human disaster in 2008.
While their economy recorded modest growth rates in 2008, the per capita income has steadily eroded over the past decade, investment has dived, unemployment deteriorated and the farming sector continued to shrink. Several years of concerted peace moves and international promises of a better life for the Palestinians have failed to produce any results, with their economic problems only getting worse and hopes for a recovery continuing to fade away.
Persistent blockades, destruction of trees, closure of factories and other repressive and punitive measures by Israel in the occupied territories have massacred the Palestinian economy, widened unemployment and poverty, and killed hopes of the young generation of any recovery under Israel.
"The suffering of the Palestinian people and economy continued in 2008 mainly because of the Israeli policies and practices. Development in the West Bank suffered from continued Israeli settlements and destruction of its geographic and economic scene. In Gaza, which contributes around 44 per cent of the Palestinian GDP, all economic indicators recorded a sharp decline because of the sustained Israeli siege," the Arab League said in its 2009 economic report.
"Towards the end of 2008, tragedy struck Gaza when Israel launched its aggression against the Palestinians, killing and wounding 6,815 people, including 415 children and 110 women. This led to a serious deterioration in the economy and destroyed all efforts to achieve any quick recovery," the report added.
"Through 2008, Palestinian economic indicators showed further deterioration. The GDP was no longer able to cover domestic demand and the public revenues [excluding foreign aid] could not cover budgetary spending… inflation rates soared and the economy became more fragile. But the intensifying flow of aid from Arabs and other countries largely contributed to preventing a human and economic catastrophe in the occupied territories."
The report showed since 1999, the Palestinian gross domestic product has steadily eroded. Against the backdrop of a rapid population growth, worsening poverty and unemployment, the per capita income shrank and key sectors deteriorated, mainly farming, the backbone of the Palestinian economy.
"What complicated the situation is the split within the Palestinian government, the weakening in the US dollar and the sub-prime crisis given the strong link between the Israeli and US economies. As a result, the real value of global aid to the Palestinians receded since it consists mostly of US dollar, which has declined against the Israeli currency. All these developments have inflicted massive losses on the Palestinian economy over the past years and severely hit the Palestinian private sector, the main driver of growth and employment."
While the GDP in the West Bank and Gaza Strip recorded a growth of around 2.3 per cent in 2008, the real per capita income declined because of high growth in the population and contraction in key productive sectors, the report said.
Real per capita income plunged from about $1,621 in 1999 to nearly $1,284 in 2008 while the per capita of the gross national product dived from nearly $1,959 to about $1,690. Real GNP per capita dipped from $1,707 to $1,108. "Sector-wise, the agricultural sector which is a key component of the Palestinian economy and a major job provider has been severely hit because of the Israeli measures. In nominal terms, it recorded modest growth but real growth was negative mainly because of a sharp decline in olive production. Its contribution to the GDP shrank from about $294.5 in 2007 to $235 in 2008, depressing it share from 6.3 to 4.6 per cent," the report said.
"From 160,000 tonnes in 2007, olive output in the territories dived to only 34,000 tonnes in 2008 as Israel pushed ahead with its policy of land confiscation, uprooting of trees, devastation of farmlands, and closure of export outlets."
The report said closure of factories and workshops within Israel's collective punitive measures also wrecked the Palestinian industrial sector
Although it grew in current prices in 2008, this sector's contribution to the GDP retreated to about 13.6 per cent from nearly 14.8 per cent in 1999.
"Israel has also confiscated factory equipment and spare parts and this has further aggravated the problem in the industrial sector."
The report showed while the construction sector edged up by about 2.2 per cent in 2008 compared with 2007, it was down by nearly 18.4 per cent from 1999. It said the decline was a result of growing investment risks in this sector because of direct Israeli attacks on buildings and other facilities.
As for services, it grew by around 2.8 per cent in 2008 to hit a record 76.8 per cent of the GDP compared with around 61 per cent in 1999.
"This increase was at the expense of productive sectors in the Palestinian areas. It has been a general trend since Israel occupied the Palestinian territories in 1967. While the growth reflects the steadfastness of the Palestinian services sector against Israeli policies, it also illustrates the difficulties faced by the Palestinian productive sectors because of Israel," the report said.
"As a result of the Israeli recent escalation against the Palestinians, mainly in Gaza Strip, international aid gained momentum and this has only prevented a human catastrophe. But the general economic and social situation has remained tragic and there are no hopes for an early recovery thanks to the continuous Israeli repressive and hostile policies, which have aggravated poverty and unemployment problems in the Palestinian areas."
From 11.8 per cent in 1999, the Palestinian unemployment rate surged to 23.8 per cent in 2001 and hit a record high of 31.3 per cent in 2002. It slipped to 25.6 per cent in 2003 and mildly fluctuated to reach 28.5 per cent in 2008.
The report showed Israel's decision to deprive thousands of Palestinians from their jobs in its areas was the main contributor to the worsening unemployment problem. From 117,000 in 1999, the number of Palestinian workers in Israel recorded a sharp fall in the following years to reach one of its lowest levels of around 67,000 at the end of 2008.
"Jobless Palestinians in the occupied territories rose to one of its highest levels of about 249,000. This constitutes the main cause for the poverty problem in Palestine and it illustrates the inability of the Palestinian economy from absorbing its own manpower."
The report showed the unemployment problem was more underscored in Gaza, which has remained under tight Israeli siege for many years. "Unemployment stood at 16 per cent in the West Bank but as high as 49 per cent in Gaza at the end of 2008. The more serious phenomenon is that unemployment is as high as 62 per cent among the youth in Gaza and 27 per cent in the West Bank."
According to the report, the Palestinian nominal GDP steadily shrank between 2000 and 2003 before it started to climb slowly in the following years to reach $5,099 in 2008 compared to nearly $4,178 in 1999. The report showed persistent tensions and Israel's repressive policies have also hurt investments, which plunged from about $1,806 million in 1999 to $1,497 in 2008. Private investment was the main victim as it tumbled from nearly $1,143m to about $809 in the same period.
The decline depressed the share of total investments from 43.2 per cent to 29.4 per cent of the GDP, according to the report.
Turning to trade, the report said the erosion in the farming and industrial sectors pushed down Palestine's exports from $683m in 1999 to about $500m in 2007. Although they recovered to about $737 in 2008, Palestine's trade deficit largely widened from around $2.66bn in 1999 to $3.032bn in 2008 as a result of sharp increase in imports.
The report showed while there was a sharp rise in revenue due to the surge in global aid, spending also recorded a large increase because of government commitments to civil servants, compensations and reconstruction of facilities damaged by Israel attacks and punitive measures.
From about $1.36bn in 1999, public revenue soared to $3.52bn in 2008 while expenditure also leaped from about $1.19bn to nearly $3.13bn in the same period. The bulk of the revenue increase came from international aid, which swelled from $235m to about $1.76bn in 2008. As a result, the budget deficit turned into a surplus of about $393m in 2008 after years of painful deficits. But the Palestinian public debt continued to grow during that period because of previous shortfalls to reach a record $1.439bn at the end of 2008 compared with $391.5bn at the end of 1999.
As for global financial aid, the report showed it exceeded $2bn in 2008, including about $526m from Arab countries, $651m from the European Union, $300m from the US, about $283m from the World Bank and the rest from other sources.
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