West Bank and Gaza – Economic Updates – IMF report

West Bank and Gaza – Economic Update¹

May 24, 2012

The slowdown of growth in the West Bank continues as indicated in the March 2012 IMF report.² Unemployment in the West Bank increased to 20.1 percent in 2012Q1, while unemployment in Gaza increased to 31.5 percent. In January-April 2012, issuance of new business licenses was down 15 percent (year-on-year), while cement imports (in West Bank and Gaza) were down 8.1 percent in that period. In addition the exports from West Bank and Gaza declined in January-February by about 2 percent (yoy). The slowdown is related to fiscal retrenchment, shortfalls in donor aid that lead to arrears accumulation, the lack of progress in lifting Israeli restrictions, and continued political uncertainty.

Available indicators suggest that in Gaza real GDP continues to grow at a high rate. Official imports into Gaza (measured by number of truckload) increased 3.7 percent in 2012Q1 (yoy). Gaza’s growth is mainly on account of a booming construction sector that benefits from lifting of some Israeli restrictions on imports and Gaza’s tunnel trade that benefits from easing of restrictions owing to political change in Egypt.

The fiscal situation of the Palestinian Authority remains very challenging. Clearance revenues increased 13 percent in 2012Q1 (yoy) while domestic tax collection increased 17 percent. Total gross revenue collection was still 2 percent under pro-rata budget targets in 2012Q1. Wage and non-wage spending were in line with the budget in 2012Q1 (with nonwage spending unchanged from last year in nominal terms), while net lending exceeded the pro-rata budget. The recurrent budget deficit was NIS 1,031 million, NIS 126 million above the pro-rata budget. The PA received NIS 739 million in recurrent budget support and NIS 54 million in development support channeled through its treasury. This is far less than needed to finance the deficit and as a result the PA accumulated NIS 632 in arrears to suppliers (recurrent and development), the pension fund and taxpayer refunds. The PA did not borrow from the domestic banking sector in 2012Q1. An agreement with Israel’s Ministry of Finance to improve the collection of clearance revenue is yet to emerge.

Private sector credit growth slowed partly owing to a slowdown in growth in the West Bank. In the West Bank it declined to 16.6 percent in 2011Q4, from 30.3 percent in 2011Q1, while in Gaza it increased to 46.7 percent. Total private sector credit in West Bank and Gaza growth slowed to 13.3 percent in March 2012 from a peak of about 30 percent in the first half of 2011. Private sector deposit growth in the West Bank and Gaza slowed moderately to 4 percent in March (yoy).

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¹Prepared by Udo Kock and Hania Qassis. This note is based on data released through May 23, 2012. IMF reports and notes on WBG are published in English and Arabic at www.imf.org/wbg.

²“Recent Experience and Prospects of the Economy of the West Bank and Gaza”, Staff Report Prepared for the Meeting of the Ad Hoc Liaison Committee Brussels, March 21, 2012.