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<p><strong>Geopolitical turbulence and concerns for the peace process are more elevated than in recent memory.</strong> Views of the international community have diverged following the United States’ recognition of Jerusalem as Israel’s capital. Despite renewed calls to revive the peace process, so far there is no agreed path forward. In the meantime, rigid border constraints, spending cuts, and threats of further donor funding declines have compounded the already perilous humanitarian conditions in Gaza, severely impacted the local economy, and increased the potential for unrest. Although progressing slowly, moves toward reunification offer a potential bright spot.</p>
<p><strong>Reunification offers genuine, albeit limited, prospects for economic betterment, </strong>provided the associated challenges are handled well. In Gaza, growth could rebound in the near term to the high single digits and stabilize over the medium term at more than 5 percent per annum. These improvements could gradually reduce poverty and unemployment. However, without progress toward reunification, the Palestinian economy would stagnate at around 2⅓ percent growth, too little to generate enough jobs or meaningfully improve living standards. </p>
<p><strong>These circumstances require a transformational, rather than transactional, approach to reforms and engagement.</strong> This means comprehensive reforms by the PA tailored to the circumstances of Gaza, and focused on enabling private sector-led growth and jobs more broadly. While reunification can provide impetus for reform, policies to contain fiscal imbalances, rebuild critical infrastructure, improve public service delivery, and ensure a financial stability remain equally important if reunification is slow or shallow. Given the substantial and heavily front-loaded costs of reunification, success also rests on securing additional donor financing, making tangible progress toward reducing fiscal leakages, and ensuring easier cross-border transactions. While economic prospects improve under reunification, there are also elevated risks if reunification fails to launch or proceeds without sufficient preparation.</p>
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