The World Bank issued a report yesterday warning that the recent growth in the Palestinian economy is unsustainable over time, since it is too reliant on foreign aid. “The Palestinian Authority has made steady progress in many years towards establishing the institutions required by a future state but the economy is currently not strong enough to support such a state,” said the author of the report, economist John Nasir. A report by the International Monetary Fund last year concluded that Palestinian financial institutions were ready for statehood. Despite annual growth of 7.7% in GDP over the last five years, manufacturing and agriculture have declined sharply in the same period. According to the report, the Palestinian economy must encourage a stronger private sector and concentrate on international trade in order to sustain recent growth. Israeli relaxations on movement and access in the West Bank are positive, but not sufficient, the report noted, calling for the resumption of direct talks in order to reach a peace agreement. Mohammed Shtayyeh, an economic advisor to the PA, credited the report as “realistic”, saying that reports of 9.8% economic growth in 2010 were an “air bubble” caused by dependency on foreign aid.
Palestinian prime minister Salam Fayyad, speaking to the Independent yesterday on the eve of a visit to London, admitted that running the Palestinian economy was ‘crisis management’, and that ongoing regional upheaval has resulted in a drop in aid from Arab countries. The Palestinian economy is currently facing an acute financial crisis due partly to a shortfall in donor aid, and is struggling to pay employee salaries. Israeli and Palestinians officials revealed earlier this month that the IMF turned down a request by Israel to loan the Palestinians $1 billion. Despite the difficulties, Fayyad strongly opposed calls from some Palestinians to dismantle the Palestinian Authority.