UN report draws rosy picture of Palestinian economy
Palestine, Economics, 1/18/2000

The Palestinian economy witnessed significant and promising growth in 1999, according to United Nations Special Coordinator Terje Roed-Larsen. Larsen noted that the Palestinian economy is estimated to have grown by 4.1 percent in 1998 and was expected to grow by 4.5 percent, after adjusting for inflation, in 1999.

The report portrayed a rosy picture of the Palestinian economy in times when most Palestinians complain of the deteriorating economic situation due to the slow pace at which Israel is honoring the economic agreements with the PNA, mainly those reached in the Paris conference of 1995. Commenting of Larsen's report, Palestinian sources said that the situation could have been much better than what was cited by the report "had Israel been honoring its agreements with us in the economic sphere."

A preview of a report from the United Nations indicated that the Palestinian economy, building on strong performance in 1998, continued to generate employment opportunities at a robust pace in 1999, with more than 47,000 new jobs created.

Job growth exceeded labor force growth, leading to a further reduction in unemployment and an increase in the average wage.

Employment in the Palestinian economy grew by over 7 percent in the first half of 1999 relative to the same period in 1998. Most of this growth was in the private sector. Meanwhile, Palestinian labor flows to Israel grew by 18 percent during the same period.

There were positive trends in planned business construction and credit creation by the banking system, as well as relative stability in consumer prices, the report said. However, it noted that other indicators witnessed stagnation. In particular, there was little or no improvement in private investment and exports-- the two most critical variables for sustainable private sector-led employment growth. Also worrisome was the downward trend in public investment, the result of reduced levels of donor disbursements in 1999.

Overall, there were about 47,000 more Palestinians employed in the first half of 1999 as compared to the same period in 1998. About 28,000 jobs-- or 6 of 10 of all the new jobs-- were located in the domestic Palestinian economy. Moreover, the Palestinian private sector accounted for almost three-quarters of all new jobs in the domestic economy.

Private Palestinian businesses and institutions absorbed about 7 percent more employees in the first half of 1999 relative to the same period in 1998. Services, agriculture and construction accounted for most of the growth in private employment. At the same time, public sector employment grew to more than 95,000 persons-- about 9 per cent more than the first half of 1998. Total employment in the domestic economy-- private and public-- averaged about 410,000 in the first half of 1999.

About 19,000 of the new jobs for Palestinians were located in Israel. This raised total Palestinian employment in Israel to over 122,000 in the first half of 1999. At least half of those report to Israel illegally, sneaking through roadblocks or via bypass roads since they have no work permits or licenses to enter Israel. Total Palestinian labor flows to Israel in the first half of 1999 were about 18 percent higher relative to the same period in 1998.

Overall employment growth served to reduce the standard unemployment rate from 15.6 percent in first-half 1998 to 13.8 percent in first-half 1999 and to raise the purchasing power of average monthly wages by almost 3 percent.

There were other positive trends. While overall planned construction activity-- the main component of Palestinian private investment activity-- declined 0.6 per cent in the first part of the 1999, licensing for business construction increased 17.2 percent. The total value of projects approved under the Palestinian Law for the Encouragement of Investment in the first half of 1999 was USD 107.6 million, a somewhat faster pace as compared to 1998. Foreign investment projects accounted for USD 15.1 million or 14 per cent of the total. The total value of outstanding bank credit provided to private businesses reached USD 543.45 million in June 1999, a 16.3 percent increase relative to June 1998.

Credit to the service branches of the private economy-tourism, transportation and financial services-grew at the rapid rate of almost 125 percent in this period while credit for productive branches-- agriculture, manufacturing and construction-- declined by about 2 percent.

Despite the overall positive trends, certain crucial indicators did not improve during the period covered by the report. For example, the total value of Palestinian-Israel registered trade increased only slightly after adjusting for inflation. The already large registered trade deficit with Israel grew to an estimated USD 620 million in the first half of the year as Israeli exports increased and Palestinian exports declined. Higher transaction costs, border and mobility restrictions, limited access to foreign markets, as well as low levels of investment in increasing productive capacity continue to hinder Palestinian export development.

In addition, while the number of newly-registered businesses in the Palestinian economy increased by 35 percent in the first half of 1999 relative to first-half 1998, the vast bulk were private partnerships with small amounts of capital investment. There were only one new public and one new foreign company registered during the first half of 1999, suggesting a limited amount of new larger-scale and foreign investment in the Palestinian economy. Political uncertainty about the shape of a future permanent status agreement and the still weak legal and institutional environment-- particularly from the point of view of foreign capital-- constitute continuing obstacles to investment in the Palestinian economy.

Public investment, funded by donor assistance, continued to decline from relatively low levels in 1998. Total donor disbursements as of mid-1999 were approximately USD 174 million, about 20 percent below the first-half 1998 level of disbursements. While the share of donor disbursements channeled into public investment-- vital for infrastructure and public sector capacity development-- has been on the rise, the level of such spending also declined in 1999.

Larsen emphasized that, given the low levels of private investment, donor assistance for public investment in infrastructure and for strengthening the legal, institutional and governance capacities of the Palestinian Authority, continue to be especially important. Such investment will contribute to reducing business transactions' costs and creating a more stable environment for private investment-- both domestic and foreign-- and to sustaining the significant positive developments in the Palestinian economy during the past two and one-half years.

Previous Stories:
  Palestinian economy records remarkable growth in 1999   (1/17/2000)
  Palestinian labor forces contributes to 25% of Israel's national income   (1/13/2000)
  Discussing establishing a Palestinian airport in Ariha   (1/3/2000)

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