## Transcript of a Press Briefing on the West Bank and Gaza

_IMF News, September 20, 2003_

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## Bibliographic details
- Published: September 20, 2003

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### Overview
- Event: Press briefing by Adam Bennett and Karim Nashashibi of the IMF's Middle Eastern Department with William Murray, Deputy Chief of Media Relations.
- Location and date: Dubai International Convention Centre, Dubai, United Arab Emirates; September 20, 2003.
- Purpose of the IMF study discussed:
  - Measure the impact of the conflict on the West Bank and Gaza economy over the last three years.
  - Assess fiscal and budgetary developments during crisis conditions.
  - Document and evaluate the Palestinian reform process reactivated in June of 2002 and earlier reform efforts spearheaded by Minister of Finance Dr. Salam Fayyad.

### Economic impact and resilience
- Aggregate contraction estimates and interpretation:
  - Widespread estimates suggested declines reaching 50 percent of GDP; IMF assessment narrowed this to a decline on the order of 30 percent and possibly less.
- Channels of economic damage:
  - Tourism halted; Palestinian workers largely unable to work in Israel; checkpoints, curfews, and roadblocks fragmented the West Bank and paralyzed trade and economic activity.
- Evidence of resilience:
  - Bank deposits initially declined only by 10/15 percent and then began rising.
  - Cement consumption and fuel consumption indicators showed much smaller declines than some large-estimate scenarios.
  - The Nablus stock market continued to trade virtually every day for a few hours, indicating ongoing economic functioning.
- Social and coping mechanisms mitigating decline:
  - Donor support (see Donor and Arab support).
  - PA employment as an economic shock absorber.
  - Remittances and community solidarity.

### Financial sector and Palestine Monetary Authority (PMA)
- Banking sector performance:
  - Banks weathered conditions relatively well due to conservative pre-conflict lending policies.
  - Functioning banking system allowed daily transactions (deposits, withdrawals, checks) to continue.
  - Nonperforming loans rose to 26 percent of total assets (reported); other text references nonperforming loans reaching 29 percent (ratio of nonperforming loans to total loans).
  - Banks held a large portion of assets in liquid form and assets held outside and abroad, limiting systemic harm.
- PMA role and IMF cooperation:
  - The IMF worked closely with PMA on bank supervision, provisioning, and applying Basel principles amid liquidity pressures.
  - PMA’s role is focused on banking supervision and holding required reserves; it is not a central bank in the full sense.
  - The report includes a PMA balance sheet for reference.

### Fiscal developments, transparency, and reform
- Fiscal execution and revenue flows:
  - Clearance revenues collected by Israelis were initially withheld but were resumed by the end of the prior year, aiding budget viability.
  - Minister Fayyad enhanced openness: budgets and monthly budget execution posted on the Ministry of Finance website.
- Historical diversion of revenues:
  - For the first time the study included a table covering the period from '95 to 2000 outlining diversion of revenue from the budget to a special bank account controlled by President Arafat.
  - Estimated diversion amount: around US$900 million over a period of five years.
  - Tally of PA commercial assets: current assets around US$700 million at today's market prices (previously about US$900 million in '99).
  - Palestinian Investment Fund established to manage and privatize these commercial activities.
- Fiscal reform achievements and outstanding issues:
  - Significant transparency improvements; budget process transparency described as probably equal to the best in the region.
  - Advanced reforms: pension reform (quite well advanced); payment of security forces by bank transfer for about half of security forces.
  - Slower progress: civil service reform (high levels of civil service employment remain a budgetary problem), local government reform and finance, and the need for national and local elections (voter registration inhibited by closures and checkpoints).
  - Judicial reform: abolition of state security courts and establishment of an independent Supreme Judicial Council.

### Reform agenda for market institutions and structural issues
- Legal and institutional reforms in progress:
  - Drafts or pipelines for competition law, company law, securities law, intellectual property rights, and related laws intended to modernize the economy.
- Structural constraints remaining:
  - Land registration is unreliable, impeding use of land as collateral and property transactions.
  - Local government service provision severely affected by resource shortages and requires reorganization and elected local government.

### Donor, Arab, and international support
- Donor financing role:
  - Donor support financed the PA budget and functioned as a shock absorber.
  - Arab contributions: about US$530 million in 2001 and about US$450 million in 2002.
  - Overall donor support cited: about US$500 million in 2001 and US$460 million in 2002 (text references both the $500m/460m and the Arab-specific $530m/450m figures).
- Functional impact of PA employment:
  - PA employs 130,000 people; salaries circulate through the economy and act to arrest decline, with an estimated PA-related spending impact of about US$600-US$650 million mentioned.

### Estimates of financing and reconstruction needs
- Immediate budget gap:
  - Reported PA budget shortfall of the order of US$250 million for the remainder of the year.
- Rehabilitation and reconstruction:
  - World Bank estimate cited for quick rehabilitation work: around US$1 billion.
  - IMF comment adding budget support needs implies a combined figure in the neighborhood of US$1.2 billion.

### Policy implications and scenarios
- Main constraints to recovery:
  - Continuation of closures, checkpoints, curfews, roadblocks, and potential effects of separation infrastructure.
  - Security situation affects the likelihood of lifting restrictions.
- Recovery pathways:
  - Resumption of normal movement and reduced restrictions would lessen need for sustained budget support and enable economic recovery; Minister Fayyad indicated a return to normalcy would remove need for budget support.
  - Even with easing of restrictions, substantial quick rehabilitation financing (US$1 billion) would be required to repair infrastructure and productive assets.
- IMF role and engagement:
  - The IMF provides advice, technical assistance, and institution building in fiscal and financial areas (budget, Revenue Department, tax administration, income tax law).
  - Participation with donors in the Task Force on Palestinian Reform; co-chair of the Financial Accountability Support Group.
  - The IMF works with the Palestinian Authority (not a member country of the IMF) under arrangements envisioned since the Oslo Accords and the Quartet Road Map to assist institution building toward the goal of statehood.

### Key figures and data points cited in the briefing
- Date of briefing: September 20, 2003.
- Estimated economic contraction: 50 percent (popular estimate cited); IMF estimate on the order of 30 percent and maybe less.
- Bank deposits initial decline: 10/15 percent.
- Diversion of revenue to special account (1995–2000): around US$900 million over five years.
- Tally of PA commercial asset value: around US$700 million at today's market prices; about US$900 million in '99.
- Donor support totals cited: about US$500 million in 2001 and US$460 million in 2002; Arab-specific support figures cited as US$530 million in 2001 and US$450 million in 2002.
- PA employment: 130,000 people.
- PA-related spending impact cited: about US$600-US$650 million.
- PA budget deficit (remainder of year): of the order of US$250 million.
- Quick rehabilitation estimate (World Bank): around US$1 billion.
- Combined rehabilitation plus budget support estimate mentioned: US$1.2 billion (approximate phrasing in briefing).
- Relative economies: Israel described as a US$110 billion economy; West Bank and Gaza described as a $5-billion economy.
- Nonperforming loans: 26 percent of total assets (reported by Karim); 29 percent ratio of nonperforming loans to total loans (reported by Adam).

*Transcript of a Press Briefing on the West Bank and Gaza — September 20, 2003.*

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## References

- [Israel and the IMF](http://www.imf.org/external/country/ISR/index.htm)
- [West Bank and Gaza and the IMF](http://www.imf.org/external/country/wbg/rr/index.htm)
- [Transcripts](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr030920_