JERUSALEM -- The Palestinian economy could shrink by as much as 11% in the coming year as the coronavirus pandemic inflicts yet another blow to the Palestinian Authority's already shaky finances, the World Bank said Monday.
The economic deterioration comes as tensions with Israel soar ahead of Israel's plans to annex large parts of the occupied West Bank, which would make it virtually impossible to create a viable Palestinian state.
In a separate report, the U.N.'s Mideast envoy warned that unilateral actions by either side — such as Israeli annexation and Palestinian withdrawal from past agreements — would “most likely trigger conflict and instability” in the region.
The reports were both released ahead of a meeting this week of international donor nations that support the Palestinian Authority, the internationally recognized entity that governs autonomous areas of the West Bank.
The World Bank said the Palestinian economy grew by just 1% in 2019 and is projected to shrink by 7.6% to 11% in 2020, depending on the speed of the recovery and whether a second wave of infections forces a return of some restrictions.
The Palestinian Authority is meanwhile expected to face a funding gap of over $1.5 billion this year, up from $800 million in 2019, the World Bank said.
“The Palestinian Authority has acted early and decisively to save lives,” said Kanthan Shankar, the World Bank director for the West Bank and Gaza. “However, several years of declining donor support and the limited economic instruments available have turned the ability of the government to protect livelihoods into a monumental task.”
The Palestinian Authority imposed sweeping measures to contain the coronavirus outbreak in March and April. It succeeded in limiting the total number of cases to fewer than 400, with just two fatalities.
But the closures hurt a local economy already weakened by decades of military occupation, a recent financial dispute with Israel and President Donald Trump's suspension of nearly all aid to the Palestinians.
In Gaza, authorities have reported around 60 cases, all of them in quarantine facilities near the border. The coastal territory has been under an Israeli and Egyptian blockade since the Islamic militant group Hamas seized power from rival Palestinian forces in 2007.
More than a quarter of Palestinians lived in poverty before the virus. The World Bank says the figure has likely risen to 30% in the West Bank and 64% in Gaza.
Palestinian President Mahmoud Abbas said last month he was cutting off all ties with Israel and the United States, including security coordination, over Israel's plans to annex the Jordan Valley and Jewish settlements in line with Trump's Middle East peace plan.
The Trump plan strongly favors Israel and was rejected by the Palestinians.
Israeli Prime Minister Benjamin Netanyahu is expected bring his annexation plans before the government as early as July 1.
In his report to the donors, U.N. envoy Nickolay Mladenov said the coronavirus crisis has underscored that the economic status quo is unsustainable.
He also warned that any unilateral annexation by Israel or Palestinian withdrawal from bilateral agreements “would dramatically shift local dynamics and most likely trigger conflict and instability in the occupied West Bank and Gaza Strip.”
“All sides must do their part in the coming weeks and months in order to preserve the prospect of a negotiated two-state resolution to the conflict," Mladenov said.