EXECUTIVE SUMMARY
The course of the Palestinian economy since the Second Intifadah has
left per capita GDP in 2006 ($1,130) at 40% less than in 1999, and has altered an already-fragile economy from one driven by investment and private sector productivity, to one sustained by government and private consumption, and donor aid.
Reversing this downward cycle requires parallel actions by the
Palestinian Authority (PA), Israel and the donors. Reform and development of the Palestinian economy and its institutions must proceed immediately. To succeed, these reforms must be implemented with determination by the PA, underwritten by donors and supported by Israeli actions. In the same vein, Israeli policies that impact the Palestinian economy and Palestinian actions on security to reinforce these policies must proceed in parallel.
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An economic scenario analysis shows that the successful implementation of
Palestinian commitments alone, with partial donor funding and continued
movement and trade restrictions, will fall well short of the intended targets. Achieving 5% growth rates will depend critically on the commitment of the international community to fill the total fiscal gap over the next three years, as well as on the revival in the private sector as a result of concrete steps by Israel on settlement growth, and movement and access restrictions. Even with full funding but no relaxation in the closure regime, growth will be slightly negative, at around -2% per year.
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Under every foreseeable scenario, the short-term viability of the Palestinian economy will be driven by aid. Even under the most optimistic scenarios significant aid will continue to be required for the medium-term. Clearly, the ability of the private sector to resume its place as a driver for growth will have a major bearing on the sustained health of the Palestinian economy and thus its aid requirements, which will therefore be even larger in the absence of improvements in movements and access restrictions.
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