Report: Palestinian economy to grow in 2005

The Palestinian economy will expand by at least 8 percent in 2005 with unemployment expected to fall sharply, but violence and Israeli restrictions could stymie growth, a World Bank report predicted Sunday.

Growth was strong this year, raising personal incomes by an estimated 12 percent, the World Bank said. It attributed the expansion to increased government spending, Israeli demand for Palestinian merchandise and labor and a relaxation of Israeli border closings as violence declined.

Five years of violence have devastated the Palestinian economy. The number of Palestinians living below the poverty line — about USD 2.20 a day — has climbed to nearly two-thirds despite Israel's pullout from Gaza in September and a letup in fighting, according to the United Nations.

The World Bank predicted in its report that the Palestinian economy would grow between 8 and 9 percent in 2005 compared with 2004, and that joblessness would fall to 22.5 percent from 27 percent.

The border closings, usually declared after attacks on Israel, restrict the number of Palestinian laborers entering Israel, cripple Palestinian exports and limit the movement of goods and people inside the West Bank.

Israel freezes convoys' passage

The World Bank said the number of Palestinian workers allowed into Israel each day increased to 64,000 for the first nine months of 2005, compared with 50,000 during 2004. But that number, it said, is less than half of the daily average in 1999, the year before the current round of violence began.

The positive trend halted after the Gaza withdrawal, with the number of Palestinians with permits to work in Israel and the settlements declining by about 25 percent between the second and third quarters of the year, the report said.

Exports of goods increased by 8.4 percent in the first nine months of the year compared with 2004, but slowed after the pullout, it said.

The Palestinian economy should benefit from a November 15 agreement between Israel and the Palestinians that commits Israel to stop closing all border passages if there is terror threat or attack, the report said. Only passages specifically threatened are to be closed.

Israel has also promised to process more exports from Gaza to Israel, and to start escorting truck convoys between Gaza and the West Bank this month. But Israel froze the convoy plans last week after a Palestinian suicide bomber killed five Israelis in a seaside city.

'PA failed to combat corruption'

The World Bank put some blame on the Palestinians, noting its promise of better government has been wanting.

"Of greatest concern is the serious deterioration in internal law and order, which is deterring potential private investment," the report said.

The Palestinian Authority has not done enough to combat corruption and has agreed to salary and pension demands it cannot afford, the report said.

Donor payments this year are expected to reach USD 1.1 billion, up 20 percent from 2004, the World Bank noted, cautioning that donors will not increase payments without visible progress in security, governance and economic management.

The report urged Arab League states to increase their donations, which are expected to total USD 82 million in 2005.