The Palestinian economy is declining and becoming more dependent on foreign aid, as the Israel-imposed economic restrictions have increased, the World Bank said in a report released on Wednesday.

In the 65-page monitoring report prepared for a conference of donor countries in the United States later this month, the World Bank said the International Monetary Fund (IMF) notes a 0.5-percent drop in gross domestic product (GDP) of the Palestinian territories in 2007.

"With a growing population and a shrinking economy, real per capita GDP is now 30 percent below its height in 1999," the report said, adding that if the Palestinian economy had kept the average growing pace recorded from 1994 to 1999, 6 percent per year, the GDP per capita would have nearly been 85 percent higher than the current figure.

Meanwhile, the report said as the Palestinian economy declines, it is becoming increasingly aid-dependent. The World Bank said the Palestinian National Authority (PNA) has received 1.2 billion US dollars so far this year to support its operating budget, yet a total of 1.85 billion dollars is needed for the whole year.

"Thus, external aid will be at least 32 percent of GDP" in 2008, said the report, which also cited the IMF as predicting that the GDP would grow moderately by 0.8 percent this year.

The fiscal crisis has persisted despite the fact that the PNA has carried out "profound" fiscal reform and has also taken efforts to enhance its public financial management, said the international body, adding that the PNA must continue on that path.

As of 2009, the PNA calls for 1.3 billion dollars in budget support, yet "it is questionable whether the current level of budget support can be reduced," said the report.

Israeli restrictions increased?

The report said, reason for it being questionable is the growth-restraining restrictions imposed by Israel.

Although the Jewish state has announced a series of measures to support the Palestinian economy, and although it has removed some traffic barriers in the West Bank, indicators show that economic restrictions have increased, said the report.

"Beyond a few that yielded positive results in terms of movements of goods and people," the obstacles that have been removed were found "to be of minor or no significance," said the report, adding that a most recent survey found "a slight deterioration in access because of the increased number of barriers."

The report stressed that the economic restrictions "involve more than roadblocks and checkpoints... and extend to a system of physical, institutional and administrative restrictions that form an impermeable barrier against the realization of Palestinian economic potential."

"With due regard to Israel's security concerns, there is consensus on the paralytic effect of the current physical obstacles placed on the Palestinian economy," said the report. It explained that such restrictions prevent the Palestinians from gaining access to economies of scale, access to natural resources and access to an investment horizon.

Turning to the Gaza Strip, the report said that the closure policy Israel imposed a year ago continues to erode the industrial backbone of the Hamas-ruled enclave, and is resulting in the collapse of the municipal sector.

Although an Egypt-brokered truce has took effect since mid-June, little progress has been made so far toward improving the living conditions of the population in the poverty-stricken territory.

Other factors curbing the Palestinian economic growth include that Gaza has been essentially excluded from the economic revival efforts, and that the aid has been largely ad hoc, leaving the PNA with little ability to plan finances, said the report.

"The challenge moving forward with the removal of economic restrictions is to go beyond isolated gestures towards a profound revision in the fundamentals of the Palestinian economy," the World Bank said in its conclusion.

(Xinhua News Agency September 18, 2008)