IMF Staff Concludes Visit to West Bank and Gaza

IMF News, February 13, 2017

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IMF mission led by Karen Ongley visited East Jerusalem and Ramallah from January 31 to February 9, 2017.
Press Release No. 17/46, dated February 13, 2017.
Mission met with Prime Minister Rami Hamdallah, Finance Minister Shukry Bishara, Governor Azzam Shawwa, and other Palestinian officials.
Statement reflects views of IMF staff and does not necessarily represent the views of the IMF’s Executive Board; the mission will not result in a Board discussion.

GDP growth estimated to have increased from 3.5 percent in 2015 to 4 percent in 2016.
Unemployment rose to more than 28 percent in September.
Consumption remains the primary driver of growth; political uncertainties and access restrictions inhibit private sector investment across the West Bank.
Donor-funded reconstruction in Gaza continued, but aid disbursements were delayed and humanitarian conditions remain dire as provision of public services worsens.
Growth projected to hover at little more than 3 percent in the medium term.
Outlook risks: possible lower donor support and slower than desirable reconstruction of Gaza.

Strong revenue mobilization efforts contributed to a marked reduction in the 2016 fiscal deficit.
Discussions between the PA and Government of Israel contributed to the payment of past obligations to the PA; these one-off factors helped to increase tax and non-tax receipts by about 2 percentage points of GDP.
The sharp increase in total revenue saw the recurrent deficit decline to 5.6 percent of GDP in 2016 from 9.6 percent of GDP in 2015.
A further decline in donor budget support contributed to a financing shortfall and the accumulation of arrears.
The 2017 budget prudently assumes lower donor support and no additional one-off transfers from Israel.
The recurrent deficit is projected to widen by about 2 percent of GDP.
With another 15 percent decline in donor budget support, this would result in a financing gap of almost 6 percent of GDP.

Build on recent revenue mobilization efforts and explore mitigating options given medium-term fiscal strains.
Near-term contingency measures could include limiting the increase in the wage bill to inflation (the wage bill is the largest expenditure item).
Finalize and implement the new Public Financial Management (PFM) strategy to enhance spending efficiency and promote lasting fiscal improvements.
Develop an action plan of well-prioritized PFM measures to provide a strong basis for increased donor engagement and support for the government’s priorities in the context of the 2017-2022 National Policy Agenda.
Prioritize civil service and pension reform; adopting a strategic approach to the wage bill would free up resources for priority public investments.
Reverse the decline in donor support and continue discussions with the Government of Israel on enhancing and improving the predictability of revenue transfers.
Timely finalization of the recent electricity sector agreement on a transparent and equitable basis is important, paying close attention to the budgetary implications of successfully implementing the agremeent.

Efforts to maintain financial stability are important to ensure the financial sector can support sustained economic progress.
A key risk is the possible withdrawal of Israeli correspondent banking relationships.
The Palestine Monetary Authority (PMA) remains committed to strengthening the anti-money laundering and combating the financing of terrorism (AML/CFT) framework, in line with international standards.
PMA has a constructive working relationship with the Bank of Israel.
PMA recently accepted a request for a comprehensive AML/CFT evaluation by MENAFATF and plans to continue AML/CFT-related reforms, with technical support from the IMF and other development partners.

IMF Communications Department — Press Release No. 17/46, February 13, 2017.