Palestine: Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to adress the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

The territories under the administration of the Palestinian Authority have been suffering the adverse effects of the regional conflict and the global economic shock prompted by the pandemic, which led to a GDP contraction of 11.3% in 2020. Nevertheless, data from the Palestinian Monetary Authority (PMA) show that, after growing 7% in 2021, the Palestinian economy managed to achieve a growth rate of approximately 3.6% in 2022 despite the significant reduction in external support, the continued deductions of tax revenues decided by Israel and the repercussions from the Russian invasion of Ukraine. In 2022, there was an increase in the value-added across most economic activities: the industry sector had the highest growth rate, with a 6.3% increase, followed by services which grew by 2.9%. The construction activity also increased by 2.3%. On the other hand, the agricultural activity experienced a decline of 2.6%. Increasing concerns about the continued rise in prices, which ultimately led to a decline in real income and purchasing power of individuals, are expected to weigh on growth, which is projected at 2.5% in 2023 (PMA).

Palestine is still bound by the Protocol of Paris signed with Israel in 1994, which gave Israel full control over Palestine's trade and tax revenues for a 5-year period under the assumption such funds would be handed over to the Palestinian National Authority and the agreement would be amended; neither has occurred thus far. The Palestinian Authority's (PA) budgetary freedom of action remains extremely limited. Customs duties are collected by Israel on behalf of the PA before being remitted to the government and it is the primary source of revenue. Coface expects budget performance to remain poor, due to low external aid from Gulf countries, lower EU contribution and high public spending. However, the fiscal deficit contracted to 0.4% of GDP in the first half of 2022 and was projected at 3.5% for the year as a whole by the IMF (from 5.2% one year earlier), thanks to large increases in revenues, well above nominal GDP growth, and restrained recurrent spending (including social transfers). According to the latest data available from the IMF, government debt (including arrears to suppliers and the Palestinian Pension Agency) increased from 34.5% of GDP in 2019 to 48.4% at the end of 2021 and was expected to remain stable last year. Meanwhile, inflationary pressures and global price increases were gradually reflected in the level of domestic prices, especially since Palestine imports most of its consumption of goods and services from abroad, which caused a rise in the general level of prices throughout 2022, with the inflation rate reaching about 3.8% (the highest rate in nearly ten years). For 2023, the PMA forecasts inflation of around 2.2% amid a decline in food prices and low levels of domestic demand in light of the slowdown of economic growth.

The humanitarian situation has worsened in recent years, particularly in Gaza where nearly 80% of residents depend on some form of aid. Estimates based on GDP per capita growth, the World Bank suggests that in 2021 the poverty rate stood at around 27.3%, an increase of nearly 6 percentage points from 2016 (latest available official data). In 2022, the labour market continued to recover as the total number of employees increased by 7.6% compared to 2021. This increase in the number of employees, along with the relative improvement in the level of economic activity, contributed to a reduction in the unemployment rate to 25.7% in 2022, compared to 27.6% one year earlier. Unemployment, which has risen steadily in recent years, disproportionately affects residents of Gaza. According to 2023 estimates by the IMF, Palestine's GDP per capita (PPP) was estimated at USD 6,688.

Monetary Indicators	2016	2017	2018	2019	2020
Israelian Shekel (ILS) - Average Annual Exchange Rate For 1 GHS	0.96	0.82	0.79	0.19	0.18

Source: World Bank - Latest available data.

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Latest Update: September 2023