As poverty increases in Palestine, World Bank continues to link aid to austerity measures

25 March 2008

Donors, led by the World Bank, still insist on linking aid for the Palestinian Authority to the removal of subsidies from basic services, in spite of a recent Bank study that highlights increasing poverty and unemployment rates in the West Bank and Gaza. The suggested cuts in the wage bill in the security, health and education sectors could further hinder Palestine's ability to achieve the Millennium Development Goals (MDGs).

Despite the commitment of donors who pledged over $7 billion for the Palestinian Authority (PA) to implement its three-year Palestinian Reform and Development Plan (PRDP), a recent study by the World Bank predicts a sizable gap of $1.25 billion for current expenditures of the PA. The study highlights the downward trend of the Palestinian economy and its impacts on the Palestinian, especially Gazan, population.

Presented in December 2007 at a Paris Pledging Conference, the PRDP laid out the key policy priorities that will be implemented over the next three years, which emphasizes expenditure containment, particularly through reducing the numbers of public employees in the security, education and health sectors. These aspects of the PRDP were fully supported by the World Bank, which has taken the lead in creating and managing a mechanism to help accelerate the transfer of funds to the PA.

Poverty in the West Bank and Gaza has grown significantly, and nearly all of the government’s spending is devoted to the payment of salaries and operational costs. Having the government remove the subsidies from basic services such as electricity could further exacerbate poverty rates, particularly considering the continued growth of settlements, persistent closures of borders, and the denial of direct aid to Gaza.

While the PRDP remains important for the PA to improve its budgetary performance, the prohibitive measures it contains stand as an obstacle to mobilizing sufficient resources to address poverty and to meet the MDGs by 2015.

Resources

• Palestinian Authority to cut spending on wages and electricity to access donor funds, December 17, 2007 (BIC website)
• West Bank and Gaza: Economic Developments and Prospects, March 2008 (World Bank website)
• World Bank Note on Palestinian Reform and Development Plan Trust Fund (World Bank website)