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 are suffering the adverse effects of the regional conflict and the global economic crisis. After contracting 0.7% in 2020, the economy grew an estimated 1.3% in 2021 (Coface) also thanks to the end of military hostilities between Gaza and Israel in May 2021 and the progress of the vaccination campaign. The positive performance was mostly driven by the West Bank while Gaza’s economy remained subdued. The business environment is expected to gradually return to normal and growth should accelerate in 2022 (projected at 1.7%).

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. The domestic debt stock rose from USD 2.3 billion in December 2020 to USD 2.5 billion as of August 2021 (latest data available), with the overall debt-to-GDP ratio estimated at 44.5% at the end of the year. Moreover, a lack of additional financing may force the authorities to reduce social spending, resulting in a contraction in domestic demand. The government budget was negative by 7.7% of GDP in 2020 and 2021 and is expected to decrease only marginally this year (7% - Coface). As per inflation, it picked up to 1.3% in 2021, driven by increased energy prices. Coface expects the rate to rise to 1.7% over the course of 2022. According to the World Bank, priorities include increasing electricity supply and upgrading infrastructure and networks to improve economic growth and enhance public services.

The humanitarian situation has worsened in recent years, particularly in Gaza where nearly 80% of residents depend on some form of aid. Poverty increased to nearly 29% in 2020, equivalent to around 1.4 million people. The conflict between Israel and Gaza in May 2021 added significantly to the region’s poverty, estimated to affect 59% of its population in 2021. Unemployment, which has risen steadily in recent years, disproportionately affects residents of Gaza. Due to the COVID-19 pandemic and the drop in production, the unemployment rate increased further from an already high level of 23% in 2019 to 27% as of the end of Q3 2021. Although it should gradually decline, its level is expected to remain high in the upcoming future.

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: February 2023