APN COVID Report #6: The pandemic’s economic effect on the West Bank

As the West Bank begins to reopen, having had no recorded cases for two days, it is important to look ahead at what the future holds for the economy of the area. This is a useful endeavor for two reasons – it shows how crucial maintaining strict infection prevention measures is and allows us to start considering how the long-term economic impacts can be managed.

 The World Bank has estimated that the Palestinian economy will constrict by 2.5% following the current trend, or be as high as 7% if there is a spike in infections and is not controlled quickly. This makes clear that in the coming weeks a fine balance must be struck between allowing the economy to reopen and maintaining strict social distancing. If allowed to open too quickly, without sufficient infection control measures, not only could this risk a catastrophic effect on the already weak Palestinian economy but could lead to thousands of deaths. Having obtained less than 15% and around 10% of the target figures from the Palestinian Authority (PA) for ventilators and facemasks respectively, the Palestinian health system will not be able to cope with a large outbreak. The World Bank cites Palestinian workers not being allowed into Israel and reduced tourism as the main reasons for a large downturn in coronavirus cases. A second large outbreak would prolong these strains greatly so reopening must be done with care.

If the PA manages this difficult task of reopening without a second spike, attention will then turn to how to mitigate the economic impacts of the crisis so far. A shrinking of the economy of 2.5% would still be devasting. The socio-economic effects are already being felt with poor families expected to increase by 100,000 across the West Bank and Gaza, according to the Ministry of Social Development. The agricultural sector will be particularly hard hit which will be detrimental to food security and the jobs the sector provides.

Additionally, the response to COVID-19 is estimated to increase the deficit of the PA by around $1 billion. The lack of full financial control for the PA that comes from limited autonomy and no independent currency means the usual tools such as fiscal stimulus and external borrowing are not available. This leaves the Palestinian economy more vulnerable to the effects of the virus since the PA cannot respond in ways other governments could.

UN special coordinator, Nicolay Mladenov, recently spoke to the United Nations Security Council stating that for the next four months Israel should transfer no less than $137 million in clearance revenue to the PA to allow for some economic response. He said that arrangements had been made to ensure this would take place and the international community must be vigilant to confirm it does. This, as well as ensuring a safe reopening to prevent a second spike of coronavirus infections, is crucial. Without an effective response to both these issues, Mr. Mladenov warned “the damage to the economy risks the very existence of the Palestinian Authority.” 

Prepared by Thomas Sweeney, APN Intern

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