JERUSALEM -- The Palestinian economy is expected to contract by about 8% in 2020 as it copes with the effects of the coronavirus pandemic, an already struggling economy and a political standoff with Israel, the World Bank said in a report Tuesday.
The report showed how the pandemic has accelerated the trends of sluggish growth and high unemployment plaguing the Palestinian economy in recent years. After clashing with the Trump administration, which cut off hundreds of millions of dollars in aid, the Palestinians are hopeful that improved ties with the incoming Biden administration will help give a lift to the economy.
In its report, the World Bank said the economy contracted by 3.4% in the first quarter of the year, before the pandemic arrived, compared to the same period in 2019. Things only worsened after the internationally backed Palestinian Authority imposed a two-month lockdown in the Israel-occupied West Bank in March. In Gaza, whose economy has been battered by an Israeli-Egyptian blockade since the Islamic militant group Hamas seized power in 2007, authorities are also struggling with a coronavirus outbreak that began in August.
The bank forecasts a contraction of about 8% for the overall Palestinian economy, with the poverty rate at 27.5%. While those figures did not include breakdowns between the two areas, the report said unemployment in the West Bank is at 18.2% and 48.5% in hard-hit Gaza.
Adding to the struggles, the Palestinian Authority refused to accept monthly tax transfers from Israel beginning in May to protest Israeli plans to annex occupied West Bank territory. Israel subsequently put the annexation on hold as part of its diplomatic agreement with the United Arab Emirates, and the Palestinian Authority last week agreed to begin accepting the transfers again. The absence of those revenues this year forced the Palestinian Authority to slash salaries of tens of thousands of employees.
The World Bank said the restoration of those transfers should give a lift to the Palestinian economy, but it nonetheless forecasts a budget deficit of $760 million for the year. It suggested that Israel and international donor nations work with the Palestinians to help close the gap. Otherwise, the cash-strapped Palestinian Authority will have to cut spending further, potentially worsening the economic contraction, it said.