A LI A Quarterly Publication of the -WEIN i~ STI BAN~ ii K West Bank and Gaza Office AND GAZA November 2000 UPDATE 'F / The World Bank Group 225 1 4 The- Impact of Prolonged Closure on Palestinian Poverty At the end of October 2000, the externally except by advance on September 1, 2000 including: areas of the West Bank and Israeli permits which generally the truck convoy systems; limited Gaza under Palestinian were not available. movement at Rafah, Erez and Authority (PA) jurisdiction Allenby Bridge; no free access to (WBG) were subject to a tight Based on information available, external markets and continuing, closure. The approximately continued tight closure (as it but moderate restrictions of 125,000 Palestinians previously exists at end of October 2000) movement between and within working in Israel (with and will have dire consequences for parts of the West Bank and very without permits) were prevented the Palestinian economy with limited movement between West from leaving WBG to their jobs declining production and trade Bank and Gaza and to/from in Israel and all work permits and steeply rising unemployment Jerusalem. were canceled. Further, for and poverty rates. The closure We use available information on Gaza, the only point of entry for has demonstrated that in the labor creation in WBG, public commodities was Karni, through absence of external access and expenditures, workers' remit- which goods could enter only freedom of internal movement in tances, and public assistance to after security checks and back to the WBG, various measures estimate GDP and per capita back loading/unloading from referred to as closure or income growth until June 2000, Israeli trucks. Construction 'gseparation' are likely to have and apply a set of conservative materials were not entering as of negative economic conse- the last week of October, and quences, with increasing poverty passage of other commodities in the enclosures. ' Labor suppll is expected to remaiii at its was limited. Palestinian trucks observed level of June 2000 until December could no longer leave Gaza. In This article sets out a quantitative 2000, and grow by 5percent in 2001; nominzal the West Bank, roadblocks exercise aimed at measuring the government eApen7dittures are expected to grow throughout thie West Bank, economiiic impact of the closure z aswell by 5 percen t anrnuall;, worker.s around villages and munici- on poverty in the PA areas. The atnnually: foreign assistanzce remains palities and around greater exercise takes as its "Base Case" uncbaenged. Jerusalem prevented movement the situation existing in early of goods and people. September 2000. The Base Case CONUNTS PAGE Palestinians in PA areas of the assumes (i) access to Israel for The Peace Facilitv 5 WBG had difficulties moving about 60,000 permitted and between the PA enclosures and 65,000 unpermitted Palestinian RecentEconomic Developments 7 could not travel to or from employees and (ii) the Bank Group Operations 11 Jerusalem or Israel or exit movement restrictions in place Bank Group News 18 FILE COPY assumptions' to extrapolate After this initial period, 25,000 In 2001, response to continued observed economic trends until workers only will be allowed to closure under the Worst Case December 2001. work in Israel. The remaining would stabilize into a low 100,000 workers who used to equilibrium, with producers, Over the period January 1999 - work in Israel would have to seek consumers, and workers adjusting June 2000, the Palestinian domestic employment after their behavior to the new economy continued the recovery Ramadan. economic situation. Households commenced in 1997. GDP grew would reduce their savings rate. by 6.1 percent during the year For commodities, we presume The 2001 shortfall in GNP would 1999 and during the first half of movement restrictions similar to reach $US 1.7 billion. Income per 2000, job creation in WBG those in effect in late O)ctober capita would decrease by 27 continued to increase significantly, 2000, with back-to-back loading percent with respect to the level it both in public and private sectors, in Gaza and limited movement in would have been in the Base Case with an increase of 8 percent in the West Bank. We presume that scenario. The poverty rate would the number of working days in with such severe restrictions and reach 43.7 percent. Gaza would comparison to 1999. Even if job cuts to external markets, be particularly hard hit, with even creation did not continue growing transaction costs would increase higher poverty rates and at this pace during the second half by 50 percent until the end of unemployment rates reaching 50 of 2000 and in 2001, GDP was still Ramadan, and then by 30 percent percent or more. projected to grow at the average in 2001 with respect to the June annual rate of 5.2 percent between 2000 levels. Productivity levels in Precise conclusions on the 1999 and 2001. Thus, by 1999, trade and transport activities potential economic impact of the WBG had recovered from the would then decline by the same prolonged closures would be economic decline during the early relative amounts. Labor and capital difficult to draw now, because we peace process years of 1993-1997. productivity in the other sectors do not yet have precise would decline by 25 percent and quantitative measures of what has Under the Base Case, due largely 15 percent during the same happened in September and to demographic pressure, real periods. October. Projecting to the future, income per capita was expected it is possible that there would be to stagnate between 1999 and Using these assumptions we variations in restrictions. Our 2001, with a possibly small decline estimate that the impact of recent assumptions regarding the exact of 0.4 percent. The poverty rate confrontations and closures during increase in transaction costs, or the had been expected to reach 21.7 the period 28 September - 27 severity of external/internal percent of the population in October 2000 has caused an closures are therefore subject to December 2001 (against an estimated shortfall in national adjustment. We therefore perform estimated rate of 21.4 percent in income (GNP) of US$ 210 million, a sensitivity analysis below in December 1999). which is comparable to the order to measure the impact of estimate provided recently by such assumptions on the predicted UNSCO for a shorter period. poverty rate. The following tables If prolonged until the end of 2000, report estirated poverty rates for Impact of Prolonged the Worst Case closures would December 2000 and 2001 under Closures in October - induce severe economic damage. different scenarios. We estimate that the shortfall in December 2000 and Until GNP for 2000 could reach US$ 630 December 2001 million, and that income per capita could decrease by 11 percent with For this exercise, we make a set respect to the level it would have of assumptions in order to quantify reached in the absence of such the impact of prolonged severe severe closures. The share of closures. For the "Worst Case" we population living below the presume that until the end of poverty line will increase from Ramadan (early January 2001), all about 21 percent to about 28.3 Palestinian workers will be percent at the end of the year. prevented from working in Israel. November 2000 2 Estimated Poverty Rates. December 2000 External Closure Base Case Small Medium Worst Case Internal Closure Base Case 21.1 22.1 23.2 24.8 Small 22.0 22.9 24.7 26.0 Mledium 22.8 24.2 25.7 27.4 Worst Case 23.6 25.3 26.9 28.3 Internal Closures: Base Case Business as of September 1, 2000. Small 20 percent increase in transaction costs; 10 percent decrease in productivity. Medium 35 percent increase in transaction costs; 20 percent decrease in productivity. Worst Case 50 percent increase in transaction costs; 25 percent decrease in productivity. External Closures: Base Case Business as of September 1, 2000. Small 1 month full closure - no workers permitted in Israel. Medium 2 months full closure - no workers permitted in Israel. Worst Case 3 months full closure - no workers permitted in Israel. Estimated Poverty Rates. December 2001 Extemal Closure Base Case Small Medium Worst Case Internal Closure Base Case 21.7 26.0 29.8 34.4 Small 26.6 28.8 33.0 38.2 Medium 29.3 31.9 36.5 42.5 Worst Case 29.7 34.4 40.9 43.7 Internal Closures: Base Case Business as of September 1, 2000. Small 10 percent increase in transaction costs; 5 percent decrease in productivity. Medium 20 percent increase in transaction costs; 10 percent decrease in productivity. Worst Case 30 percent increase in transaction costs; 15 percent decrease in productivity. External Closures: Base Case Business as of September 1, 2000. Small 100,000 Palestinians allowed to work in Israel. Medium 62,500 Palestinians allowed to work in Israel. Worst Case 25,000 Palestinians allowed to work in Israel. The "Small" and "Medium" Cases presume intermediate levels of restrictions. November 2000 3 Impact on Private Investment and Job Creation6: While the closure immediately impacts on development, the "engine of growth" needs unemployment and trade, its most damaging impact substantial repair just to get it back to where it may be on prospects for economic growth through was - barely working. job creation and private sector development. A still unpublished World Bank survey of private In agriculture, the situation is dire, since October businessmen and investors indicates that is the season for cultivating olives, guava and uncertainty remains the chief obstacle to strawberries. Given the tight movement restrictions investment. Private investment has been stagnant around Palestinian villages, many are not able to throughout the 1993-2000 period. Investors note reach their fields. For these who do, bringing a the closures, high transaction costs, limited access crop to market is extremely difficult and sometimes to the lowest cost inputs, restrictions on access to dangerous. While the scope of these problems markets, the physical separation of the small are uncertain and subject to constant change, the Palestinian market, and an uncertain Palestinian fact of their existence imposes a chill on any legal and institutional framework as obstacles to investor's plans. investment. Agriculture is a means for many unemployed to Productivity levels are less than 30% and firms in supplement their incomes, especially during times the Gaza Industrial Estate (as elsewhere in the of closure. If the closure and other measures also WBG) are experiencing a severe liquidity crunch, impact adversely on workers being able to work just as transaction costs escalate. For investors, the fields, plant and bring crops to market, it is the message is that despite years of progress and obvious that such closure policies impact most donor assistance, uncertainty remains an severely on the unemployed, the marginal and unquantifiable factor. Thus, private sector the poor. November 2000 ~~~~~~~~~~~~~~~~~~4 Proposed (Holst II) Umbrella Facility for Donor Assistance to the West Bank and Gaza Background is a more developmentally sustainable, but still flexible, vehicle for donors who are interested in In the last six years, the Holst Fund has been an providing such support to the Palestinians. These extremely valuable mechanism for providing budget operations are already being supported by a number and emergency employment support. However, as of bilateral and multilateral donors and are designed the donor community moves away from providing to expand to accommodate additional donor emergency reconstruction assistance and budget contributions as available. The PA is currently seeking support, the Holst Fund is nearing the end of its additional financing for CDP II. A CDP III is under usefulness in its present form. The donors agreed at design to meet new emergency needs. the AHLC meeting on February 4, 1999 that the Holst Fund would wind down this year and that the World Finally, in terms of visibility and accountability, the Bank would explore the modalities for a new Holst Fund was not designed to track the flow of multidonor fund which could help mobilize donor individual donor contributions, but rather pooled donor financing for emerging development and emergency funds. This was a fully satisfactory arrangement when challenges. the Holst Fund was used for budgetary support, but is not the most efficient way to meet the increasing In exploring the possible modalities for a new umbrella requests of bilateral donors to use their funds for program structure, it is useful to take a brief look at operations targeted to the current closure crisis. the original Holst structure and its limitations. The Hoist was originally conceived as a mechanism to provide emergency budgetary support for the new the PEACE Facility - A New Project Palestinian Authority (PA). Later, when violence and Finance Umbrella for New ChaUenges closure marred the evolving peace process in early 1996, the donors responded to the resulting economic The PEACEFacilitywould be ready as a vehicle where crisis by transforming the Hoist Fund into an instrument donor funds could be quickly contributed and for employment generation. In April 1996, the disbursed to meet Palestinian needs. Emergency Employment Generation Program (EEGP) came into being, and at its height in June 1996 employed the equivalent of some 20,000 people per Activities Supported by The PEACE Facility month. Since 1997, most of the contributions to the Hoist Fund have gone towards the EEGP. To meet these needs, the Bank is setting up Te PEACE Facility as a type of "umbrella" facility -- simply a The budget support function, happily, is no longer structure that provides a common link to each necessary nor desirable on a regular basis. Since contributing donors' funds and activities financed under August 1997, no Holst funds have been used for it. Unlike the Holst Fund, under The PEACE Facility budgetary support. In terms of emergency umbrella, donors' funds would be held in individual employment, there are now better-targeted trust fund accounts, thereby allowing donors to earmark instruments. In 1997, experience from the EEGP funds for specific activities, be they technical assistance informed the design of the Bank, OPEC Fund and or specific project financing. Such an arrangement Canadian-financed Community Development Project was not possible under the Holst Fund, where monies (CDP) where small-scale, labor-intensive works were were commingled. Administrative fees and associated chosen and supported by the local communities. The program costs -- such as auditing, Bank supervision Second Community Development Project (CDP II) and oversight -- would be shared by all the donors in which became effective in April 1999, concentrates the program. Internally, a single Initiating Brief for a on the poorest communities, inclucing refugee camps Trust Fund (IBTF) would be created for The PEACE in the West Bank and Gaza, thus refining earlier project Facility umbrella and would cover all subsequent implementation techniques, expanding the scope of deposits by individual donors. This would be quite the program and better targeting the projects to the important in reducing the time and cost to the Bank in neediest communities. While the EEGP responded administering donor funds. to the needs at the time, a program such as the CDP November 2000 5 The PEACE Facility would serve the following four would be accepted, unless contributions were for a purposes, but, in general, the funds would be handled general, unspecified TA trust fund. There would in the same manner regardless of the use: not be a restriction on the recipient or implementing agency, but all funds would flow from the Bank, 1. Emergency Needs. Political events are uncertain through the Ministry of Finance and then to the and the establishment of The PEACE Facility would recipient/ implementing agency. allow the Bank and other donors to react quickly to emerging needs. The necessary legal, accounting and reporting requirements would be established Implementation Arrangements now so that when/if the need arose for donors to move funds quickly into the Palestinian economy The PEACE Facility would likely be a grouping of donor for either technical assistance or operational work, specific accounts with sub-accounts for different 7he PEACE Facility could quickly be called into activities. This would allow donors to make action. One of the early criticisms of the Holst Fund contributions either individually or jointly for specific was that it took too long to get started. activities defined by the PA and the donor(s) rather than pooling contributions for general purposes. 2. Financing of Projects without Bank Involvement. Donors who want to use The PEACE Facility would In some cases, donors may prefer to channel funds enter into an agreement with the Bank on the occasion through the Bank for specific operations that are of its first financing. A Framework Agreement would not also Bank-financed. The PEACE Facility could be prepared by the Bank's Legal Department for each be used to fund these operations. Grants would donor. The agreement could then be modified for have to be for an amount of us $500,000 or more subsequent project financing by a simple Letter of and could not be tied to national procurement. An Agreement. Because funds would not be pooled, administrative fee would need to be set/agreed with extensions and modifications would be tailored to the each donor on a case-by-case basis. This individual donor and would not require the mass arrangement would be necessary given that the Bank mailings and approvals required under the current Holst would incur the same responsibilities and liabilities Fund arrangements. Income generated from the whether the operation was a Bank design or not. investment of donor contributions would be used to The objective in setting the fee would be for the cover, in whole or in part, the Bank's administrative Bank to be reimbursed for actual costs based on a costs. Alternative arrangements would need to be well-prepared budget. agreed upon in instances where investment income does not cover the Bank's costs. A flexible fee structure 3. Cofinancing with Bank projects is done through is proposed to accommodate the anticipated range of individual agreements between the Bank and the different PEACE Facility activities. donor and the Bank and the Palestinian Authority. If a donor requests it, however, The PEACE Facility The Bank's Legal Department would also prepare the could be used to provide cofinancing for Bank- initial Grant Agreement between the Bank and the financed operations. Donors who wish to provide PA, again with the indication that future contributions funds under the current cofinancing arrangements by the donor could be made and that the Grant with the Bank (i.e., not under The PEACE Facility) Agreement would then be modified by a simple would, of course, be free to continue to do so and exchange of letters between the Bank and PA. may find the existing arrangements preferable. Funds would be kept in separate accounts organized 4. Financing for Technical Assistance Activities. Often by donor and activity, and disbursements would be a specific technical assistance activity needs made by the Bank into special accounts for project financing, but donors do not have an appropriate implementation as appropriate. The Bank's Trust Fund vehicle through which to quickly channel funds. Department would provide quarterly unaudited The PEACE Facility would allow donors to finance financial statements , as well as annual audits of donors' TA either singly or with other cofinancing partners. accounts. A general report on The PEACE Facility We would expect this would cover donor activities would be provided to all donors bi-annually. contributions for specific activities, although a general fund would be useful and could be created Actual project implementation could be with or through if there were sufficient donor interest. Funds for the Bank or in cooperation with PECDAR, UNDP, a PA different activities would be kept in individual donor agency, or whatever agency the donor prefers. sub-accounts. No grants less than US$500,000 November 2000 6 Recent Econoniic Developments In agriculture, which accounts for slightly less than 10 percent of output, there are indications that olive yields in * Economic Output. The economic situation in West Bank 2000 are significantly higher than in recent years. As a result and Gaza has changed dramatically for the worse since the of the closures, the high yields may, however, be off-set by last issue of the West Bank and Gaza Update. PA controlled difficulties in harvesting and subsequently processing the areas are currently - by end-October - under tight closure. olives. All approximately 60,000 work permits for Palestinian workers in Israel and Israeli Settlements have been * Private Consumption and Investmenit. The domestic withdrawn. And only a very limited number - if any - of the private sector's contribution to growth in WBG has been usual approximately 70,000 non-permit holding Palestinians weak since 1994. Investment in productive capital has been have been able to go to work. Trade flows have been suppressed in favor of residential construction. Total private severely disrupted as restrictions on movements of goods investment amounted to approximately 27 percent of GDP, have been tightened. The domestic economic activity is of which residential investment accounted for more than spiraling downwards as demand is dropping and producers half. Further, data for new licensed construction indicates are unable to keep up production because of lack of inputs. that the growth in residential investment also in 1999 Official statistics for labor market developments cover only outpaced that of non-residential. The current situation is the first half of the year 2000. They do therefore not take extremely damaging for the business investment climate, into account the latest developments. Estimates of the and it must therefore be expected that investnment in economic impact of these developments must therefore be productive capital will be further depressed. based on a number of assumptions. With respect to private consumption, households will try to counteract the drop in incomes by running down savings. Assuming, as a base case, that the tight closures recently This strategy is, however, not sustainable in the longer imposed on the Palestinian economy had not been in effect term, and of course not an option for households without at all, and further making a conservative assumption of savings. If the situation does not improve quickly, most only limited increase in employment both within WBG and households would have to seriously reduce consumption for Palestinians working in Israel in the second half of 2000 pushing a significant share of the population below the and in 2001, it is estimated that GNP per capita would have poverty line. decreased by 1.3 percent and 1.7 percent in 2000 and 2001, respectively. Thus in the base case, despite solid growth * ExtenIal Trade. Palestinian foreign trade is extremely during the last couple of years, average incomes would one-sided with around 3/4 of all import originating in Israel still only be approximately at the level of 1994. and 95 percent of its export destined for the Israeli market. The current severe restrictions on movements of goods are if the severe closures currently in effect are continued, a huge threat to Palestinian export. In the short run exporters however, the results for the Palestinian economy would be suffer considerable losses, and in the longer term there is a damaging. A continuation until the end of 2000 is estimated great risk of losing market shares as demand for Palestinian to result in a loss in GNP of approximately US$ 630 million, goods will be met by other suppliers. equivalent to a drop in GNP per capita of 12 percent compared to the base case. Such a decrease in average * Labor Mlarkets. The Palestinian labor market is incomes would have significant impact of the share of the characterized by a very high growth in the labor force. population living below the poverty line. (See the article Since the third quarter of 1995, which was the first quarter on The Impact of Prolonged Closure on Palestinian Poverty.) the Palestinian Central Bureau of Statistics (PCBS) published Services, both private and public, dominate the Palestinian their quarterly labor force survey, the labor force has production accounting in total for more than 60 percent of increased by 34 percent, corresponding to some 168,000 total output in 1999, see Figure 1. The service sector, persons. see Figure 2. In the 2nd quarter of 2000 the labor especially tourism, faces great difficulties as a result of the force was estimated at 659,000 (excluding the part of East current closures and unrest. Jerusalem administered by Israel). Figure 1. Sectoral Contribution to GDP in 1999 The growth in the labor force was primarily driven by the underlying demographic trends, notably an average annual Agriculture increase in the working age population of 4.5 percent, adding 114,000 persons to the labor force since 1995Q3. The average labor force participation rate is rather low in West Bank and Gaza, although some increase has been Manufacturing evident over the last five years. The latest available figure, covering the second quarter of 2000, puts it at 42.3 percent Private compared to 39 percent in the third quarter of 1995, Services corresponding to an additional increase in the labor force Construction of 54,000 persons. Public Services November 2000 7 Figure 2. Increase in Labor Force Figure 4. Change in 1,000 Persons Employment Compared to 1996 180 1,000 Persons 160 120 140 100 Q 120 100 8 80 60 60 ~~~~~~~~~~~~~~~~~~~~~~40 409 236Q07Q9 29 4809-49Q20230 20 4 iQ 30 10 -20 3 Demographic Development * Total Increase in Labor Force Ep in sael it WBG EWBG Employment in Israel *Within WBG Since 1997 unemployment, until recent closures, has dropped steadily, the latest figures from PCBS, covering Employment growth within WBG was very strong in the 2000 Q2, reporting an average unemployment rate of 9.0 2nd quarter of 2000, +7e2 percent in the number of job percent, see Figure 3. The unemployment rate is higher in compared to the 1v s quarter of 2000, reversing the trend Gaza than in the West Bank. The impact of closures in over the previous 3 quarters of declining growth rates, see 1995 and 1996 was felt strongly in both Gaza and the West Figure 5. The increase was particularly strong in the West Bank, evinced e.g., by the sharp increase in unemployment Bank, we here the number of employed persons incad in the 2nd quarter 1996. 8.2 percent. In Gaza the increase was 5.1 percent. Figure 3. Unemployment Rate Figure 5. Quarterly Employment 40% - Growth Within WBG 35% - ~~~~~~~~~~~~12%- _________________________________________ -10% 30% . 6 25%M 6% 4% 20% 2% 15% -,0% 10% -2% 5% -~~~~~~~~~~~~~~~4 0% -8% (0 to (0 (0 (- 0- 0-- (0 (0 (0 (0 0 ) ) 0 00 00 0 ) 0 00 00 0 o 0 0 CD -10% 0) C'4 0) " 04 0) 04 0 c - 04 0 O oao a CY a a aY a aa a aCoy Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 98 98 98 99 99 99 99 00 00 WB -U-G * WBG + WB -_-G The drop in unemployment is both the result of increasing employment within West Bank and Gaza - both private * Prices and Wages. The close ties between the Palestinian and public - and increased access to jobs in Israel. and Israeli economies are reflected in the parallel movements in Palestinian and Israeli consumer prices, see Employment of Palestinian workers in Israel has increased Figure 6 The high import content of Palestinian production by 50,000 since end-1996, see Figure 4. The majority and consumption, originating mainly in Israel, means that (approximately 100,000 out of a total of 130,000 in 2000Q2, Israeli price changes quickly feeds into price developments according to PCBS) of Palestinian workers working in Israel in the West Bank and Gaza'. come from the West Bank, where the porous border creates easier access for non-permit holding workers. Jobs created within West Bank and Gaza has added some 108,000 persons I Analvses sutggest that uitbin the same month as much, as 25 percent of to employment, of which approximately 32,000 are a change in Israeli cornsumerprices are reflectec in consumerprices in attributable to the expansion of the PA payroll. the West Bank acnd Gaza. November 2000 8 Figure 6. Consumer Price Figure 8. Annual Increase in Index, February 1996 = 100 Average Daily Wage 130 _____________________________________________________ 20% 130 18% 125- 16% 14% 120 -12% 10% 115 -8% 6% 110. 4%- 2% 105 - 0% Agric. Manuf. Constr. Comm. Transp. Service 100- W|W1WsW ( (0 N- N - N- 00 (0 XO 0 0) 0 0) 0 , )8 1998 01999 32000 0) 0) 0) 0) 0) CD 0) 0) 0) 0) >)0 )0 )0 0 18699 20 66 6 0 ( Z > Note: 2000 refers to the first 6 months, compared to the same period in 1999. +WBG Israel Higher wages is the main motivation for Palestinian workers The Palestinian economy has benefited from the Israeli to seek employment in Israel, see Figure9 On average, the commitment in recent years tobenfited .from rael daily wage for a Palestinian working in Israel is of 10-12 percent in 1994-1996 inflation has graduallv been approximately 70 percent higher than if he - the vast majority Palestinians working in Israel are male - had chosen a job reduced to only 5.5 percent in 1999. In the first half of 2000 within West Bank or Gaza. The premium on wages in Israel inflation rates have been even lower. The latest figures report is even more remarkable considering that most Palestinians that the rate of inflation in August was 2.9 percent, see working in Israel are unskilled, emploved predominantly F-igitire 7. in the construction sector. The wage premium has been remarkably stable in the last three years. F4igure 7. Inflation Rates 12 Figure 9. Average Daily Wages for Palestian 10 Employees NIS 8 _ e120 6 - 100 _ 8011- 2 4 - 0, , , , 20 0 EN- ' co N0 - > n 0),, 0) 0 E 20 LL Cy < z0 0) L .. < Z LL < Z L L < * C 0 X) $0 0) 8 --Israel +--WBG CO n n N v CN 0t a4--Isral--4--WB a ~ a a a a a a a ----In WBG -U-In Israel In 1998 and 1999 Palestinian employees enjoyed significant growth in wages, but especially in the first half of 2000, the Fiscal Accounts. The fiscal situation of the PA is grow7th rate has been declining. On av7erage, daily wages *FiclA oltThfsaliuton ftePAs increased by 6.1 percent in the first 6 months of 2000 fundamentally fragile as it is squeezed from two sides. The compared to the same period last year. Accounting for the potential for further increases in revenues is limited and concurrent increase in consumer prices of 3.4 percent, real the pressure on expenditures are not likely to abate in the wages increased by a modest 2.4 percent - less than half near future. Part of the pressure on expenditure is self- the increase in 1998 and 1999. Wage growth in the commerce inflicted, namely the seemingly uncontrolled public hiring. and service sectors lagged behind, see Figure 8. But the demographic development will also increase pressure on public expenditures, e.g., through necessary expansion of the educational system. November 2000 9 In the current situation, restrictions on movements of persons within WBG will further undermine the fiscal situation, by making it more difficult to enforce tax collection. Further, as was the case during the periods of severe closure in 1995 and 1996, there can be expected public pressure on the PA to cushion some of the adverse effects by expanding public employment. The experience from these years is that it is very difficult subsequendy to reverse the trend of expanding the public payroll. An additional factor affecting fiscal accounts is Israel's decision to slash purchase taxes on a wide range of goods. While the economic effects of the reduction in the highly distortionary purchase taxes undoubtedly will be beneficial, the immediate effect for the PA is loss of revenue. The expected revenue from an agreement on the purchase tax was not explicitly included in the Budget for 2000, but nevertheless there was an expectation of some revenue from this source on the part of the PA. The PA has enjoyed substantial support from the international donor community. In the period 1994-1999 a total of approximately US$2.8 billion has been disbursed. The largest share of the donor financing has been devoted to public investment, of which the share of donor financing in every year since 1995 has been 100 percent. In recent years, donor support has added approximately 30 percent to the revenues of the PA, seeFigure 10. According to figures from MOPIC, total disbursements in the first half of 2000 amounted to US$183 million, as compared with US$464 in 1999 as a whole. %ofGDP Figure 10. Total PA Revenues 35%/, 30% 25% 20% 15% 10% 5% 1994 1995 1996 1997 1998 1999 OCurrent Revenue *Foreign Aid November 2000 10 Bak GrupOpr- Budget Allocation: US$100,000; (6)the have been built and the schools have Banmk Group Opefaidons Palestinian ITT Center - Budget been fully furnished. Under the Saudi Allocation: US$930,000. The value of Grant in the Nlest Bank, construction of A. Multi-Donor Fund current activity under the TATF is US$6.7 all of the planned eight schools has Adminiistration million. The closing date of the TATF is been completed and the schools have June 30, 2001. been fully furnished. Three new schools * Holst Fun7d. As of September 2000, are ready for tendering. In Gaza, the Holst Fund has received pledges of B Investment Projects construction of all of the planned three US$269.2 million from 26 donor countries, schools has been completed and the of which US$269 million has been paid As of September 2000, the World Bank schools have been fully furnished. in and US$259 million has been disbursed Group has 20 projects under imple- Construction of two new schools is by the Bank to the Palestinian Authority mentation, three completed projects, and complete. Under the first Italian Grant in (PA). Of the total disbursed, US$213 six projects under preparation through the West Bank, all of the planned million was for recurrent budget support the World Bank, IGA and IFC construction of six schools and one and US$46 million for employment Programs. sanitary unit has been completed. generation projects. Since the initiation Curricula have been established by the of the Employment Generation Program Curriculum Center. Under the second (EGP) in 1996, over 700 microprojects World Bank Ongoing Projects Italian Grant in the West Bank, have been completed. One of the g Educatiol and Health Rehabilitation construction of four schools and three activities being undertaken under the Project (EHRP). [US$20 million credit community centers is progressing well. EGP, in partnership with the Danish from the International Development Furniture, books, and laboratory Government funded project, is the Association (IDA); US$20 million grant equipment are being supplied. Under the infrastructure rehabilitation of the middle from Saudi Arabia; three grants totaling Australian Grant, strengthening of policy- areas of the Gaza Strip - Bureij, Maghazi, US$8.65 million from Italy; and US$0.40 making, planning, and research capacity and Nusairat. While all funds have been million grant from Australia]. The Project within the Ministry of Education, committed, the completion of works and is well advanced and is progressing establishment of a school mapping disbursements of the remaining funds will satisfactorily. The IDA Fund is looo,,b database, and a maintenance scheduling continue through the second half of 2000. committed and 98% disbursed; the Saudi system for the Ministry have all been Accordingly, the Holst Fund closing date Grant is 82% committed and 58% completed. has been extended to the first quarter of disbursed; the Italian Grants are 54% * Health System Development Project calendar year 2001. committed and 28% disbursed; and the (HSDP). (US$7.9 million credit from the * Technical Assistance Trust Fund Australian Grant is 100% committed and World Bank.) The development objectives (TAmP). As of September 2000, the TATF 100% disbursed. The Project is being of the Project are to enhance the has received donor contributions of implemented through PECDAR, the management capacity of the Ministry of US$24.4 million, of which a total of US$20 Ministry of Health, and the Ministry of Health (MOH) and improve access to million has been disbursed to the Education. high-quality and affordable services for Palestinian Authority. The objectives of the Health Component: Under the IDA primary healthcare (PHC), especially in TATF are. (a) to assist in building Fund in Gaza, all of the planned 10 clinics rural and underserved areas. The Project Palestinian institutions and to enhance the have been built, furnished, and the components are: Palestinian capacity for self-government; software programs installed. Under the Compotnent 1 will: (i) develop the (b) to facilitate the implementation of Saudi Grant in the West Bank, one clinic funlctional standards for Level 11 PHC investments in the Palestinian authorities; has been built, fully furnished, and facilities (small clinics that can ser-ve the (c) to assist the Paledtiman autporities an equipment installed. The construction of basic needs for approximately 8,000 to the des(ign of tntegrated polictes and the extension for Rafdia Hospital and 12,000 people); (ii) build MOH's capacity programs; (d) to assess the feasibiYty of Yatta Hospital is in progress. In Gaza, to plan and design PHC clinics; and (iii) proposed physical investments for the three clinics have been built, fully replace approximately 40 substandard longer term; and (e) to encourage the furnished, and equipment installed. The PHC facilities, including equipment and growth of the private sector. The World construction of one community hospital fumiture, with clinics that meet the quality Bank and PECDAR jointly administer the and the Ministry of Health's department standards. TATF. building is progressing well. Contracts for the supply of equipment for the hospital Component 2 will establish a Health The TATFchasirecently initiateda number are being awarded. Under the Italian Information Center (HIC) that would of newv activities. New activities under Grant in Gaza, the Ministry lhas approved support the development and maintenance contract are as follows: (1) Financial the final version of the Pilot M,aster Plan of the Management Information System Intermediation Training (FIT) - Contract for Al Nasser Hospital in Khan Younis. (MIS) functions of MOH, and provide Value: US$250,000; (2) Youth Summer The rehabilitation works for the existing technical assistance for the development Camps Institutional Capacity Building hospital, the existing sewage system, and of a basic clinical infom-ation system and Project - Budget Allocation: US$100,000; the construction of a corridor link a unified health insurance information (3) Mleteorological and Climatological between the existing and the new hospital system. The clinical information system will Services Development Project - Budget will soon commence. also provide the monitoring tool for the Allocation: US$100,000; (4) The Ministry activities of the Quality Improvement of Transport Driving Licensing Project - Eduication Component: Under the Prograni (QIP) supported in Contract Value: US$200,000; (5) IDA Fund in Gaza, 11 new schools and Conpn1?ezt3 Publication of Technical Studies Facility the extensions for 11 existing schools Nkr_,.tht 211 Component 3 will expand the scope information system for municipalities in Water Authority (PWA), to support of the QIP in order to establish quality the WBG was awarded and is in the implementation and monitoring of the standards and introduce quality implementation stage. A Geographic Project, and to provide independent improvement measures for selected Information System (GIS) is under auditors to monitor the Operator's priority health interventions. Technical implementation for Gaza municipality technical and financial performance. The assistance will also be provided to and under RFP preparation for Hebron implementing agency is the PWA. Some promote rational drug use and improve and under tendering for Nablus of the main achievements after four years both quality and expenditure controls in municipality. A state-of- the-art computer of implementation of the Project as terms of contracts with overseas center and network have been audited by an independent auditor are: providers. The QIP will also include the completed for Gaza municipality, are in over 1,200 km of pipe have been development of clinical and operational the implementation stage for Jenin surveyed for leaks and over 16,000 illegal standards for PHC services. The Project municipality, and in the awarding stage connections identified; over 22,000 is being implemented by MOH. for Rafah municipality. service connections have been replaced, over 20,000 meters repaired, and a total * Municipal Infrastructure Develop- * Second Municipal Infrastructure fover 0,000 m etersrreplacd; ment Project (V1IDP). (US$40 million Project (61IDP II). (US$26 million total Unaccount3edFor Water (UFW) hpas been credit from the World Bank; US$1.74 Project cost, lUS$7.5 million credit from redce ounde4F % to 30%; relibe million from Greece; and EURO3.67 the International Development disufectant (96% of water samples have million from Italy.) This Project aims at Association (IDA) and US$5.0 million positie chone residual). hes woko rehabilitating high priority municipal grant from Saudi Arabia). This Project positive chle esityaof the worktal infrastructure networks and svstems in has been approved by the World Bank creating the legal entity of the Coastal Water Utility in Gaza started in January the West Bank and Gaza (WBG) through Board on June 20th, 2000 and is in effect. 1999 and is ongoing. Disbursements are working directly with five selected The main objective of MIDP II is to approxinatelv US$23.4 milhon and municipalities (Gaza Nablus Hebron improve infrastructure services (roads , , : . . . .. .. ~~~~~~'. commitments are nearly US$24.8 million, Rafah and Jenin); the Ministry of Local water, and drainage), including high representing about 99% ofthetotal credit. Govemment (MLG); the Ministry of Public priority sections of the regional road Works (MoPW); the Palestinian Water network and rehabilitation of village and * Southern Area WVater and Sanitation Authority (PWA); and PECDAR. The municipal water networks in WBG. The Improvement Pro ect (SAWSlP). (US$21 implementing agencies are MLG, Project will also provide support to the million from the World Bank and EURO30 PECDAR, MoPW, and PWA. Focus is on Ministry of Public Works to establish a million in parallel financing from EIB). initiating institutional reform and capacity road maintenance management system The Project consists of: (a) the provision building at the local government level. for the first time in the Palestinian of an international Operator [General des So far, 85% of available funding has been Authority. In addition, it will continue to Faux, Khatib & Alami (GEKA)] under a committed to 247 physical sub-projects, provide support to the Ministry of Local four-year performance based including 166 micro-projects. A total of Government for an accounting system management contract to implement a 234 physical sub-projects have been and institutional reform, and will extend service improvement program for the completed, including 165 micro-projects. the capacity building component of MIDP Govemorates of Bethlehem and Hebron US$1 million was taken from the Project I to six additional municipalities in WBG in the West Bank; (b) the provision of for the preparation work for Bethlehem including: Jabalia, Khan Younis in Gaza, operating investment funds for the 2000. So far, approximately 220 km of Tulkarem, Jericho, Tarqumia, and Al Ram Operator built into the management roads and about 100 km of water and in the West Bank. This subcomponent contract, to finance essential operations sewage pipelines have been constructed. will provide support to improve and maintenance expenditures not Also, upgrading of three neighborhood municipal investment and development covered by the revenues collected and areas in Gaza City have been completed. programming. The Ministry of Public which are required to achieve the yearly All other components with the Ministry Works, Ministry of Local Government, and performance targets in the management of Local Government and the five selected the Palestinian Water Authority will contract; (c) the provision of funds (by municipalities for capacity building are implement this Project. FIB) to finance design, implementation currently active. A contract for a unified * Gaza Water and Sanitation Se aices and supervision of capital improvements accounting system for 13 municipalities ProGect (GWSSP). (US$25 million credit such as system rehabilitation and has already been signed and the software f t . B improvement of water supply services, delivered. Preparation for implementing t W a ' million in bulk transmission mains, distribution this system is under way. Three-year parallel financing from FIB '/FU.) The systems restructuring and rehabilitation, invetmen plns hve ben ompltedProject consists of: (a) the provision o ytm etutrn n eaiiain invetmet pans avebee comletd a intrnaionl Opratr [yonnisedesas well as an investment in rural water for Hebron municipality, andc for Gaza an international Operator [Lyonnaise des supply; and (d) the provision of technical municipality, are under the awarding Faux, Khatib & Alami (LEKA)] undoera assistance to support strengthening the stage for Rafah municipality, and under i eou ma agement contra t institutional capacity of PWA and WSSA, RFP preparation for Jenin and Nablus implement a service Improvement to support implementation and municipalities. Diagnostic studies in progam; (b) the pnrovison of operatig monitoring of the Project, and provide Rafah municipality and in Jenin investment funds for the Operator built independent auditors to monitor the municipality have been completed. into the management contract, essential Restructuring and strengthening a to fund goods, equipment, works and performance. The implementing agency Capacity Building Unit (CBU) within the services requirec for improvig services, is the PWA. It is still too early to report Ministry of Local Government is under and attainment of performance targets; on the Operator's achievements. tendering. A revenue management and (c) the provision of technlcal However, unaudited data indicate that assistance to strengthen the Palestinian there is progress. As an example, around November 2000 12 400 unregistered connections were from the World Bank and US$0.3 million meet service obligations on time and detected in Bethlehem. Many surveys from the Netherlands.) The PEPP in full. He is also responsible for and procedures are being implemented supports the recruitment of expatriate identifying the Department's staff to identify and correct weakness in the Palestinians to key management and training needs and strengthening its existing water and wastewater systems. senior technical positions in PA capability through training and Disbursements as of June 30, 2000 are institutions as an institution-building introduction of new techniques and approximately US$2.6 million, while total measure. Since beginning in late 1997, technology in recording, processing, commitments are around US$5.1 million, 16 persons have been successfully and reporting accounting information. representing 24% of the total credit recruited for positions at 10 ministries and Finally, he is responsible for analyzing amount. Commitments, however, are agencies of the Palestinian Authority, and recommending alternative expected to pick up significantly over the including: the Ministries of Agriculture, proposals for external loans and next few months, with disbursements Education, Finance, Health, Higher guarantees. following suit, as the Operator is Education, Housing, the Palestine scheduled to let out US$5.0 million vworth Broadcasting Corporation, Palestine Dr. Mohammad Absy is a Palestinian of contracts to be financed from the Monetary Authority, State Information expatriate from France who has been credit. Service. and the Bethlehem 2000 working at the Ministry of Health since Committee. Qualified persons have been April 2000, under the auspices of the * Tbe Second Community Development identified for numerous other positions PEPP ProgramnDr. Absy is presently the Project (CDP II). The success of the first but recruitment has not been Nephrologist (kidney specialist) at the CDP has resulted in the PA requesting a consummated. Current political Alia Hospital in Hebron. His follow-up project. The CDP II is funded developments are seriously affecting the responsibilities include: (a) conducting through the World Bank (US$8 million), capability of current participants in the a needs assessment at the hospital, (b) OPEC Fund (US$8 million), and EIB program to continue their work upgrading the structure and function (EUROIO million) and has been under effectively and have caused others to of the existing five kidney dialysis implementation since June 1999. Over 65 defer starting work until conditions centers in Gaza and the West Bank; projects, focusing on infrastructure become stable and the future outlook (c) assisting in developing two kidney rehabilitation in small villages and clearer. dialysis centers for children; (d) municipalities, are under various stages training and continuing medical of implementation. The menu of projects PEP Prjc xaraePoie education for nephrology in Palestine; includes rehabilitation of: roads, clinics, (e) developing local capacity to schools, water supplies, and sanitation Mr. Farouk El-'Asali is a Palestinian prepare patients for kidney transplants, networks. In addition, the new Project expatriate from Austria who has been including development of a post- pays special attention to targeting the working at the Ministry of Finance operative follow-up system for patients poor and marginalized communities, since December 1999, under the with kidney transplants; (f assisting including funding projects in refugee auspices of the Palestinian Expatriate in developing an effective system for camps within West Bank and Gaza. Most Professional Program (PEPP).Mr. 'Asali medical records in nephrology and; (g) of the funds financed through the World is presently the Manager for the Debt assisting in developing a mnodem Bank and OPEC Funds have been Management Department at the library for nephrology services in committed. A mid-term review of the Ministry of Finance in Gaza. In this Palestine. Project is expected to be undertaken in position, he is responsible for January 2001. designing, building, and managing a * Legl Deelopent rojet (IP~).system to record and monitor all U Palestinian N1G0 Project. (US$10 (U mllon met World Bank, liabilities undertaken by ministries and million grant from the World Bank and paallfnacn fUS$1. million for heWrd ak agencies of the PA in connection with US$4.5 million in co-financing by, Saudi paralelfinncin ofUS$ milionfordonor-financed projects. His major Arabia and Italy.) Managed by the Project legislative drafting from the United accountabilities are to establish a Mngmn raiain(M) Kingdom.) The Project is a start to a long- systematic procedurelt-obtaincurrent Welfare Association Consu term process of assisting the PA to yteaiprcdrtooticurn WlfeAscainCnotum modernize and harmonize existing inputs and continuous updates from The Project consists of 105 sub-projects legislation, to give rise to a legal all PA mninistries and agencies implemented under the Development framework adequate to support a modem concerning these liabilities and Grant Scheme (Cycles 1, 2, and 3). 88.2% market economy, and to encourage the contracts, and to ensure the design of of the allocated funding for the first two growth of the private sector. The Project a computer-based system to identify, cycles has been disbursed. 26 of the 39 also supports the training of judges and record, and monitor all local and sub-projects financed under Cycle 1 of court personnel in order to increase the foreign liabilities which have been the Development Grant Scheme has efficiency and transparency of the judicial agreed between any ministry or agency successfully been completed (96.4% of process. The Project is well underway. of the PA and private sector, or official cvcle allocation disbursed). In July 2000, As part of the overall program of legal lenders and donors. In addition, he 31 grants were awarded under Cycle 3 development in WBG, construction of monitors the Government's debt of the Development Grant Scheme for a two courthouses is planned--one each in service obligations, reviews the total value of US$2.2 million; of which the West Bank and in Gaza, to be funded balance and status of various funds/ 21% has been disbursed to date. The first by the Kingdom of Saudi Arabia. accounts, and works with the Central cycle of the Block Grants is progressing Budget, Accounting and Treasury well with seven Block Grants Mvanagers * Palestinian Expatriate Professional Departments in the MoF to ensure that awarding US$3.5 million in the form of Program (PEPP). (US$3 million credit there are sufficient funds available to grants to small community-based November 2000 13 organizations for a maximum value of under MIGA's Cooperative Underwriting are mainly due to the substitution effect US$25,000 (40% of cycle allocation Program. During FY99, on behalf of the of other donors (as noted above). It is disbursed). Two additional Research Trust Fund, MIGA issued its first Contract expected that these balances will be fully Grants will be awarded next month, one of Guarantee (US$5 million) in the West committed by November 2000 and that to assess the effectiveness of the Block Bank Gaza to Phoenix International all works will be completed by March Grant Scheme in reaching the poor and Limited of the United Kingdom. The 2001; (2) Water: the components here (all marginalized, and the other to identify project involved the establishment of a IDA) are 100% complete; (3) Cultural the scope and quality of NGO capacity cultural center for tourists and business Heritage: three of the four sub-projects building programs in the West Bank and visitors. In addition, since the inception are completed. The fourth has been Gaza, as well as existing needs. The latter of the Fund, nearly 20 applications have delayed pending a clarification of the study is commissioned in preparation of been received for almost US$400 million availability of Austrian co-financing. the Project's, second phase (see below). in investments in WBG's infrastructure, New B2000 Business Plan. A revised In late October 2000, the level of manufacturing, real estate, services, and Business Plan has been prepared. This disbursement for all cycles combined tourism sectors. revised Plan provides the basis for the reached U,S$6.3 million or 58% of thereidPlnpodsthbasfrte reached1 US.68 3 million cormmitte the * Bethlehem 2000 Project (B2000). B2000 Project Authority's work for the US$10.8 million committed to [US$25 million credit from the remainder of the project. Development and Block Gr-ants under the International Development Association MncplCpct ulig fe Project. (IA S1mlinpefAScain Municipal Capacity Building: After Project. ~~~~~(IDA), US$1 million grant from Norwaysoedlyprgssinwbigma. In view of the success of the current and US$2 million grant from Italy]. The some delay progress isnowbeig made Project, the continued need for NGO IDA Fund is 66% committed and 66% An implementation workshop was held support to the disenfranchised, and the disbursed; the Norwegian Fund is 1000/0 In August 2000. Dscusslons are now opportunities for enhancing the conmmitted and 88% disbursed; and the ongoilng tith Bethlehem area contribution of Palestinian NGOs through Italian Fund is 100% committed and 82% municipalities to help them establish the additional technical support and disbursed. The Bethlehem 2000 Project dneceslsary thworkhng groups in ortder to financing, the Bank decided to carnv out Authority, the Ministry of Local eveop te ree-year nvestment a second phase of the NGO Project. It is Govemment, the Ministry of Tourism and program. expected that the Bank will continue to Antiquities, and the Ministry of Culture Cultural Heritage Reform: Little finance the Project up to US$7 million, are implementing this Project. progress has been made, mainly due to while an additional US$10 million will Celebrations S. port The B2000 weaknesses at the Ministries of Tourism be sought in the form of co-financing. Project AuthoritvwPas effectively and Culture which have joint ureparatyons for PNGO are already consolidated under the leadership of Dr responsibility for implementation. An prsntedwaton the Broardt byhAprld 2001 Nabil Kassis and has performed very well. implementation workshop was held in presented to the Board by April201 However, the sponsorship, marketin August 2000. At this workshop, it was Building on the service delivery lessons aid p st g, agreed that one ministry should take the leamed under the current Project, Phase efnfdectrivealtye setdeandtment wmeureh newvaesr lead and that managerial assistance would II will place greater emphasis on civel se D t h be sought from UNSCO. strengthening NGO capacity and the achieved here. Despite the above b ogtfo NSO professional credentials of the sector by celebrations were effectively mounted. * Electric Sector Investment and providing opportunities for voluntary And while these fell short of potential Management Project (ESIMP3. (US$15 proessional association within thesector and initial plans as noted above, they million from the World Bank, US$38 and with th PA. were successful. In retrospect it seems million from EIB, US$35 million from possible that initial expectations were too Italy, and US$3 million financed by * MIGA Investment Guarantee Fund. high, and that in the circumstances the beneficiaries.) The objectives of this (US$10 million from the PA through a achievements have been very substantial US$91 million project are to rehabilitate credit from the World Bank and US$11 and, hopefully, larger lasting and more the power distribution systems in the million from EIB and Japan.) This Fund, sustainable. Efforts are now underway central and southem West Bank and to which is administered by MIGA, provides to consolidate these achievements by: (1) address the institutional structure for guarantees in the form of insurance institutionalizing key elements of the longer-term sector management. The against political risk for private events program on an annual basis; (2) Executive Directors of the World Bank investments in WBG. Under the terms mobilizing the private sector to approved the Project on August 31, 1999 of the Fund, investors who are nationals consolidate and build on the and the Trust Fund Credit Agreement of, or companies incorporated in, a MIGA improvements that have been made; and (TFCA) signed at the time of the Bank/ member country, or who are Palestinian (3) embarking on a realistic marketing IMF Annual Meetings. A full-fledged residents of WBG, are eligible to obtain program in coordination with the Ministry supervision mission took place in July guarantees, provided that investment is of Tourism. 2000. A technical assistance package for brought in from outside WBG. The Fund infrastr^cture Works: (1) Roads the JDECO, the electricity distribution currently has the capacity to issue planned IDA components are now 100% company serving the central West Bank, guarantees for up to US$5 miillion per ccmplete. The Artas Road co-financed has been procured under International insurance capacit , when requested by with Italy is complete. The Shepherds Competitive Bidding procedures. insurance capacity,whenrequestoedby Field Road co-financed by Norway is U Solid Waste and Environmental the project sponsor(s), iIGA will explore complete, with some landscaping work ManagementProject(SWEMP). (US$9.5 the possibility of obtaining reinsurance to be undertaken from a small remaining million from IDA; US$3.25 million grant underwriters, including coinsurance balance. The IDA balances remaining from the EU; US$1.25 million is November 2000 14 anticipated from the PA.) The proposed Commitments and Disbursements' USS14 million Project's objective is to finance interventions in solid waste DisbursementsUnderWordBankProjects (inUS$million)-AsofOctoberl7,2000 collection, transfer, and disposal of waste Current Allocated Amounts Disbursed Total for the district of Jenin. The Project will Project TFGWG Joint TFGWG Joint Disbursed also assist in institutional-building within EHRP 20.00 29.10 20.00 16.86 36.86 the Ministry of Environmental Affairs (MIENA). The Project feasibility studies MIDP 40.00 5.41 35.00 2.92 37.92 and conceptual design for the solid waste GAZA WAER component have been completed. & SANITATION 25.00 0.00 23.48 0.00 23.48 MICROENT. 5.00 0.00 2.26 0.00 2.26 In addition to activities in the Jenin HOUSING 25.00 0.00 0.70 0.00 0.70 District, the European Investment BankHOSN250 0 070. 00 (FIB) is keen to finance solid waste LEGAL 5.50 15.00 2.11 0.00 2.11 management interventions, including PEPP 3.00 0.32 1.01 0.32 1.33 construction of a landfill in the Hebron NGO 10.00 4.60 7.28 2.74 10.02 District. The World Bank is working in GIE 10.00 0.00 2.69 0.00 2.69 partnership with the European BETH. 2000 25.00 2.91 19.47 2.62 22.09 Investment Bank, the European Union, CDPII 8.00 0.00 4,39 0.00 4.39 and the Italian Cooperation in assisting SAWSIP 21.00 0.00 3.45 0.00 3.45 the Palestinian Authority prepare the ES7iP 15.00 0.00 2.85 Project. The proposed Bank-financed HEALTH 15.00 0.00 2.85 0.00 0.41 Project for the Jenin District has been HEALTH 7.90 0.00 0.41 0.00 approved by the Board of the NWorld Bank MIDP II 7.50 5.00 0.00 0.00 0.00 and signed on October 10, 2000. Capacity SOLID WASTE 9.50 0.00 0.00 0.00 0.00 building activities as part of project COMPLEED PROJECTS preparation is already under ERPI 30.00 71.24 30.00 71.24 93.48 implementation and is being funded MIGA Fund 10.00 0.00 10.00 0.00 10.00 through a multi-donor TATF managed ERPII 20.00 3.57 20.00 3.86 23.53 jointly by PECDAR and the World Bank. CDPI 10.00 2.81 10.00 2.73 12.73 The Hebron Project is expected to be TOPI 307.0 213 10.10 129 12730 appraised. TOTAL 307.40 139.95 195.10 103.29 290.30 Multi-Donor Trust Funds Funds Admiiistrated Donor Total By the World Bank Allocation Disbursed World Bank Completed Projects HOLST FUND 262.52 262.47 Emnergencv Rehabilitation Project TATF 22.77 20.84 (ERP D). (US$30 million from the World TOTAL 285.29 283.31 Bank and US$63.5 million in co-financing US$3 million of the Saudi funds for the Legal Development Project are to date unallocated. by Saudi Arabia, Denmark, Switzerland, ' These Figures do not include parellel and IFC financing. and Kuwait.) The Project (that was implemented by PECDAR) financed a total of 140 infrastructure projects, resulted in building 418 classrooms, paved 260 km of roads in cities and constructed. An implementation World Bank Projects Under villages, constructed approximately 410 completion report for the Project has been Preparation km of water supply pipelines, 80 km of completed. * FinancialInstititnionalDevelopment sewer lines and stoir water lines, and * Coninun iyv Development Project Project (FIDP). This Project aims to assist (CDP I). This community infrastructure with the development of the legal, * Secontd Emergenccy Rehabilitatione rehabilitation program was started in institutional, and regulatory framework Project (ERPII). (US$20 million from the 1997, and as of June 2000, over 250 for more efficient financial intermediation. World Bank and US$3.5 million in co- infrastructure microprojects have been The Project seeks to expand the pool of financing bv the Italian Government.) All completed. In addition to the US$10 assets that can be used as collateral, available funding has been committed to million financed by the World Bank, the thereby improving access to credit for 77 sub-projects in the road, water, Project has been successful in attracting small- and medium-size businesses. It wastewater, and school sectors (including co-financing of nearly US$13 million. The would also support measures to 42 labor-intensive microprojects). All sub- Canadian and World Bank-financed modernize and expand land survey and projects have been completed. The components have been completed and registration, particularly in central urban Project, closed on June 30, 1999, was the Project has been closed. The OPEC- areas where property values are high. implemented through PECDAR in funded projects are expected to be closed Banks operating in WBG and the PMA coordination with the municipalities in by the end of the calendar year. have pledged nearly US$1.5 million in the West Bank and Gaza. Approximately equity in the Banking Sector Services 123 km of roads and about 110 km of Company to provide electronic banking water and sewage pipelines have been November 2000 15 services. Negotiations and presentation treatment plants. Soft loans and grants Housing Corporation (PMHC) which is of the project to the World Bank's Board from EIB, USAID, and KFW will finance designed to facilitate the flow of private of Executive Directors is stalled waiting these investments, totaling about US$340 capital into the housing sector in WBG. for a return to peaceful conditions in the million for 2000-2005. The World Bank loan was declared WBG. Presentation to the World Bank's * E A Pj. effective in March 1998 after which, Board of Executive Directors is likely to illiducationf IDA) ThPrjecltiUS$7 private investors, including IFC, decided be delayed from November 2000. Ministryo EDuAt he reqestei to provide equity to PMHC. PMHC will Ministrv of Education has requestedOprtthogtw afiaeste * Institutional Development Project project support to reinforce the work oLuperate through two affiliates, the (IDP). The proposed Project will be already undertaken in the development funds for lending by banks and other demand-driven and will provide a flexible of a Five Year Plan and the development primary mortgage lenders in WBG, and instrument to respond to a variety of of a long term education strategy. Over the Mortgage Insurance Fund (MIF) different PA ministry/agency capacity- the next three years the Project will tg.I building needs. Its underlying objective support planning for, and the lenders Cpanada Mskcoverage forupsnmary is to further the development of a implementation of, five year plan Corporation is the technical partner for transparent, efficient, and lean public activities. The Project has two thePMHCand haspreparedthe business sector by reducing transaction costs and complementary components, plus Plan ase as muchaof the oeainal creating a regulatory environment that is support for the Project Management Unit. documentation Final instpitutional conducive to private sector development. The first component provides support to documentare unal indtPMHC strteges hatasistpolcy akig,arrangements are underway and PMHC The Project is on hold until such time as strategies that assist policy making, is expected to commence operations the discussion on the Public Management planning, and budgeting across ministry shortly. The borrower has also requested Review and Comprehensive departments;, the second supports that a portion of the Bank loan be applied Development Framework (CDF) has been specific investments in education. The thathe porting theisank Fund whied completed with the PA, at which point Project is designed to complement efforts to the Housing Assistance Fund which the scope of the Project will be finalized being made by the Ministry and the assistance to low- and moderate-income in consultation with the PA. Preparation Donor Community to make the best use h work is not expected to start until late of available funding for the education residence. Restructuring of the Project to 2000. sector. accommodate this request is presently * Gaza Water and Sanitation Services Activities in component one include: (a) being processed. Another component of Project (GWSSPII). (US$25 million from computerizing the financial management the Project, the Institutional and Policy the World Bank). It is a follow-up to the system; (b) further developing an EMIS Development Program, addresses issues ongoing GWSSP, which is currently system; (c) a vertical extension to the related to the functions and structure of scheduled to close on December 31, 2000. MOE building to rationalize space; and the Ministry of Housing, in addition to its The development objectives of this (c) technical assistance and training to technical, administrative, and managerial Project are: (a) to develop a sustainable support the above activities. Other capabilities. institutional structure of the water and investments include: (a) a program to * Gaza Industrial Estate (GIF). [US$10 wastewater sector in the Gaza Strip by provide school- based grants to be used million from the World Bank for off-site supporting the functional establishment for training and management infrastructure and public institutional of a Coastal Municipalities Water Utility development; (b) studies to develop development, US$9 million in equity (C\MWU) under the ownership of the local standards for head-teachers, and design (USS1 million) and loans (US$8 million), governments representing those a prototype credential for head-teachers; and up to US$7 million in syndicated communities, as well as by enhancing and (c) the development of pilot secondary loans from IFC to the developer/operator deepening the involvement of the private vocational curriculum and the EIB and USAID parallel financing, and sector through a competitively bid construction of additions to existing the PA long-term lease on the land operating contract, and strengthening the general secondary schools to increase amount to a further US$65.5 million.] The regulatory and institutional capacity of the opportunities for both boys and girls m GIE, on a n0 hectare site at Al-Muntar in Palestinian Water Authority (PWA); and a combined general/vocational education the northeast of Gaza (adjacent to the (b) to continue improving the water and system. Israeli border), is the first largely export- sanitation services by rehabilitation, The Project will be carried out by the oriented industrial estate, established to upgradi and exPansi of the e istng Ministry of Education over three years generate sustainable employment and sYstems and facilities. This Prolect is (2001-2004). Following negotiations, it stimulate industrial development in Gaza. runesteay for pre-q puaiation for is anticipated that the Pproject will The Project is expected to attract foreign prospective international operators has become effective in early 2001. and local investment, and to facilitate joint prospenlaunctived intnan l operatorse hs ventures between Palestinians and others. been launched and will close on The GIE is managed and operated by December 17, 2000. Like the GWSSP, Palestine Industrial Estate Development this Project is part of a larger parallelPaetnIdurilEaeDvlomt capital Prograi pto irove wlater pandllel world Bank and IFC Joint Projects and Management Company (PIEDCO), a capital program to improve water and private sector company. Regulatory sanitation services in the Gaza Strip. The * Housing Project (US$25 million oversightp as well as offsite infrastructure program includes substantial investments credit from the World Bank, up to US$19 is provided by the Palestinian Industriau in the establishment of a bulk water million in equity and loans from IFC.) Estate andFree Zone Authorityn(PIEFZA)l supply network connecting the various The largest component of this Project The GIE is being developed in three municipalities in the Gaza Strip, in the supports the creation and initial phases PhaseIIconstructioniscurrently sewerage network, and in wastewater operations of the Palestine Mortgage and p NVovember 2000 16 well underway, which should double IFC Projects the industrial sites available for lease at IF the GIE by the end of the year 2000. CPortfolio Some 34 firms have leased space at the Including the joint-projects above GIE to date, filling all space made under the Mainstream Program, available under Phase I; of these, about eight projects, worth US$75.78 million, 30 firms are now operating. About have been approved to date. Under the 1,200 people are currently employed Extended Reach Initiative, which at the GIE, with a further 200 or so supports projects in the US$0.25-5 occasional workers. More information million range, IFC has met strong on firms operating at the GIE can be demand for long term loans from small found at "www.piedco.com" . private sector enterprises since the * Microeuzterprise Project. (US$5 program began in WBG MIarch 1997. million from the World Bank; US$7.5 To date, seven projects have been million credit from each, the IFC and approved under Extended Reach, for the participating banks; US$3 million US$7.42 million (total project cost worth from the Netherlands). The Project US$32.40 million). Of this amount, initiated a program to finance US$7.42 is committed and US$4.92 microenterprises in WBG through the million is disbursed. banking system in order to: (a) promote See previous issue for details on IFC employment through private sector Projects, and the Bank Group News development; (b) achieve commercial section for the Summary on the viability and sustainability for Status of IFC Portfolio Projects in microenterprise lending: and (c) build West Bank & Gaza. capacity in both the participating banks and the microenterprises by providing technical assistance. As of June 30, 2000, over 847 projects for approximately US$9.6 million were approved, of which 795 projects for approximately US$9.0 million were disbursed. The disbursed loans created over 1,300 new full- and part-time jobs. In November 1999, IFC secured an extension for one year from the Dutch Trust Fund for technical assistance to the three participating banks. The extension will enable the resident advisors to train the banks' staff in portfolio supervision and default procedures, and gradually relinquish responsibilities to their local counterparts. November 2000 17 BANK GROUP NEWS New Projects STAFF NEWS * Workshops for the Second * The Proposed Integrated * KanthanShankarReturnstolHQ. Municipal Infrastructure Develop- Conmnunity Development Project. Mr. Shankar has been working in the ment Project. (Proposed budget: US$10 million from WBG office since April 1996. As a Task On July 29th, 2000 a Workshop was held the World Bank and co-financing by Manager, he was responsible for the for the Second Municipal Infrastructure other donors.) management of the Holst Fund, the Development Project (MIDP 2) at the The overall project objective is to Community Development Projects I and World Bank office in the West Bank. implement an integrated community II, and the Solid Waste and This Workshop addressed the issues of development project in poor and Fnvironmental Management Project. municipal reform and capacity building, marginalized areas of the West Bank and After four years working on projects and was attended by mayors, engineers, Gaza. This objective would be pursued directed towards rehabilitation and and financial managers from the through identification of target areas, development of Palestinian towns and selected municipalities under MIDP 1, and the development and villages, Mr. Shankar returned to HQ in MIDP 2, and Bethlehem 2000. implementation of a multi-sectoral Washington, DC where he continues to program which would include technical manage these projects and works on On July 31st, 2000 a Workshop was held assistance. The Project will include the the formulation of a new project entitled at the World Bank office in the NWest following proposed components: "Integrated Community Development Bank to officially launch the Second (a) community infrastructure upgrading; Project for WBG". Infrastructure Development Project (b) natural resources management (MIDP 2). The Workshop addressed the including agricultural components; (c) ILFC NEWS main objectives of the Project, the roles technical assistance to local govemment and responsibilities of participating units in integrated development Since September 29, 2000, the agencies, and re-emphasized the need planning; and (d) introduction of Palestinian cities and towns in West to work toward meeting the conditions information technology in communities Bank and Gaza (WBG) have been of effectiveness of the Project. through provision of community centers placed under a strict Israeli military Workshop participants included: the with hardware and software facilities. closure, which has restricted the Minister of Local Government and mobility of people and goods to and deputies; the deputy Minister of Public * Education Action Project from, as well as within WBG. At the Works and senior members of the (See details under Bank Group same time, violent clashes have Ministry; the Deputy Head of the Operations/World Bank Projects Under occurred and are continuing around Palestinian Water Authority; and the Preparation; p. 15). Palestinian cities, towns and villages. Mayors of the selected municipalities This situation has severely impacted for the Project. * Projects Related Documents private sector development and, while Available at the World Bank Public most companies are open, actual * Implementation Workshops. Information Center. business activity is either very slow or The Bank organized several (a) The Project Information Report is on hold. IFC projects were impacted, Implementation Workshops in August provides a brief factual summary of the but it remains difficult to quantify the 2000 on Municipal Capacity Building main elements of the evolving project: magnitude of the impact. and Municipal Finance. In addition, objectives, expected components, costs several follow-up meetings took place. and financing, environmental and other In one industrial project located in the During the workshops and meetings, issues as appropriate, procurement West Bank city of Nablus, production discussions were held with Palestinian arrangements, studies to be undertaken was cut to 10% of normal levels counterparts, the Ministry of Local and the implementing agency. because: (i) it was difficult to transport Govemment, the Ministry of Finance, (b) The Staff/Project Appraisal Report raw materials to the company's facilities- and with the Bethlehem Area will also be publicly available after (ii) its employees, who live outside the Municipalities on the future steps and Board approval. The SAR describes the city, were unable to reach their work actions necessary to activate these project, analyzes its merits from several stations or were injured in the clashes; components and to proceed with their different points of view, and determines (iii) its facilities and equipment were implementation. its suitability for Bank financing and, if damaged due to their proximity to so, on what conditions. The Bank looks confrontation areas; and (iv) the In August 2000, under the Bethlehem at each project in the framework of the company was short of cash due to non- 2000 Project, the Bank organized an whole economy and of the sector in payment by its clients. Implementation Workshop on Cultural which the project would form a part. In tourism, projects in WBG are Heritage Reform. During the Workshop, Thus, the appraisal assesses how experiencing total paralysis. One IFC discussions with the Ministry of Tourism effectively the project would contribute projec. is completely closed, while the and Culture took place regarding the to the achievement of the country's other is operating with minimum implementation arrangement and the development objectives. staffing. With no income coming in, future steps necessary to be taken to tourism companies are reducing their expedite implementation of the overhead costs by slashing salaries by component. up to 50% and giving unpaid leave to .November 2000 18 non-essential staff. contains three volumes. for regional and income groups. This In the financial sector, banks have either Governments need accurate, current, year's report includes the external debt stopped their lending operations or and relevant data from household obligations of the Republic of Korea, a reduced them considerably and are surveys to make sound economic and high-income country. Charts on pages closely monitoring their portfolios. IFC's policy decisions. Analysts need the data ix to xi summarize graphically the financial markets projects with to model economic behavior, which can relation between debt stock and its Palestinian commercial banks are either provide answers to important policy components; the computation of flows, on hold or are being reviewed. questions. aggregate net resource flows, and The current situation is very unfortunate For many countries, however, the data aggregate net transfers; and the relation and, in part, is dramatic. It is likely to are incomplete, unreliable, or out of between net resource flow and the take a long time to rebuild the damage date. This handbook was developed to balance of payments. Exact definitions that has occurred to the private sector remedy the situation. It is a of these and other terms are found in in WBG. comprehensive treatise on the design the Sources and Definitions section. of multitopic household surveys in Would you like to get information developing countries. It draws on 15 * World Development Indicators by EMail on recent World Bank years of experience from the World 2000. (STATS KN20372 2000) publicationS, please send your EMail Bank's Living Standards Measurement This is the fourth annual edition of the address to: Study surveys and other household World Bank's statistical reference. It 1Imkoussa@worldbank.org'. surveys conducted in developing provides an expanded view of the world countries. The handbook covers key economy for 148 countries with topics in the design of household chapters focusing on world view, NEW BANK PUB1CATIONS surveys, with many suggestions for people, environment, economy, states customizing surveys to local and markets, and global links, as well * Trade Policy Developments in circumstances and improving data as introductions highlighting recent the Middle East and North Africa. quality. research on major development issues. (KT 20322 2000) The book serves several audiences: This edition includes some key This book is published by the Bank on survey planners from national statistical indicators for 1999. This edition aims behalf of the Mediterranean and planning agencies; universities; to make statistics lively and Development Forum (MDF) partnership think tanks; consulting firms; and comprehensive-to paint a picture of the of 10 Middle East and North Africa international organizations; those world and its people. The numbers in region (MENA) think tanks, and the working on either multitopic or topic- this edition tell the reader that people World Bank Institute. specific surveys; and data users; who in most places are living longer, but that will benefit from understanding the in countries gripped by the HIV/AIDS The focus of the contributions in this challenges, choices, and tradeoffs in epidemic, life expectancies are book is on trade and trade policy. data collection. declining. Average incomes continue to Contributors review recent trends in rise for most developing countries, but trade performance, assess current trade * Global Development Finance: some of the poorest have slipped and investment regimes, and discuss 2000. VoLl: Analysis and Summary backwards subjecting millions more to some of the emerging microeconomic Tables; Vol.2: Country Tables. extreme poverty. It can also be seen policy challenges that confront (STATS KN20730 2000) that the developing countries are governments and firms seeking to Global Development Finance was becoming more important participants expand trade. Topics addressed include: formerly published as World Debt in the global economy. But the picture the need for and scope of using regional Tables. The new name reflects the is flawed because too often the data integration and economic free zones as report's expanded scope and greater are incomplete or unreliable or entirely a tool of development; mobilization coverage of private financial flows. The unavailable. Recognizing the many tax bases to offset revenue losses as report consists of two volumes: flaws in the statistical system and the tariffs are lowered; establishment of (a) Analysis and Summary Tables need to address them directly by more efficient mechanisms to enforce contains analysis and commentary on improving the capacity of countries to product standards to ensure health and recent developments in international produce statistics, a consortium of more safety of citizens; and implementation finance for developing countries, with than 90 countries and international of modem information technologies to particular focus on the global financial organizations has come together and expedite customs clearance. crisis. Summary statistical tables are pledged to increase the resources for included for 150 countries; statistical capacity building in * Designing Household Survey (b) Country Tables contains statistical developing countries. Hence, future Questionnaires for Developing tables on the extemal debt of the 137 editions of this report may prove even Countries: Lessons from Fifteen countries that report public and public more useful. Years of Living Standard guaranteed debt under the Debtor Measurement Study. (STATS KN Reporting System (DRS). Also included * Risks and Reconstruction: 20731 2000) are tables of selected debt and resource Experiences of Resellers and A copublication of the World Bank and flow statistics for individual reporting Refugees. (MY 20358 2000) Oxford University Press: 2000. The set countries, as well as summaries tables The magnitude of population November 2000 19 displacement and its consequences Contact Numbers Gaza Office: have placed the issues of reconstructing Coordinator the livelihoods of those displaced on West Bank Office Numbers: Husam Abu Dagga the world's development agenda. Addressing these issues from a novel Administrator perspective, Risks and Reconstruction Samira Hillis offers a comparative analysis of the two Switchboard 02 - 2366500 Tel. 07-2823422, 07-2824746 largest groups of the world's displaced Fax 02 - 2366543 Fax. 07-2824296 populations: resettlers being uprooted by development programs and refugees Country Director International Finance Corporation fleeing military conflicts or natural Joseph Saba 02-2366517 calamities. The book explores the 02 S22366506 condition of being "displaced," the risks of impoverishment and social Country Coordinator disarticulation, the rights and External Affairs & Aid Tamara Lansky entitlements of those uprooted, and Coordination most importantly, how these groups can Ma'moon Sbeih West Bank and Gaza Update reconstruct their livelihoods. It uses a 02 - 2366511 common set of concepts, derived from edital team the impoverishment risks and Economic Department Ma'moon Sbeih - Editor reconstruction model. Sebastien Dessus Sebastien Dessus The purpose of Risks and Sebastien DesAus Reconstruction is twofold: first, to 02 - 2366549 Claus Astrup analyze the risks faced by these Joumana Asso populations and to disseminate Private Sector Development Mary Koussa problem-resolution approaches, good Judith Press With special thanks to Mary Saba safeguarding practices, successful 02 - 2366505 reconstruction and development experiences; second, to explore the Infrastructure Development For further information contact: possible synergies between refugee Kingsley Robotham Ma'moon Sbeih research and resettlement research and 02 - 2366522 Tel (972) 23646511 deepen understanding of these issues. 0262l. (972)w23646511 email: msbeih@Dworldbank.org * A Market-Oriented Strategy for Projects Disbursments Small and Medium Scale Adel Odeh Enterprises. (IFf 40 2000) 02 - 2366515 The 'West Bank and Gaza Update' The paper examines the economic can also befound on the Internet rationale for intervention in support of Information Technology at small and medium scale enterprises Abdallah Nasr bttp.//uww. worldbank.org (SME), on both theoretical and empirical 02 - 2366527 grounds. It argues that the justification for SME interventions lies in market, and institutional failures that bias the size Mission Coordination distribution of firms, rather than on any Fifi Antar inherent economic benefits provided by 02 - 2366507 small firms. The role of the state is mainly to provide an enabling business Accounting environment that opens access to Samira Hemsi markets, and reduces policy-induced 02 - 2366503 biases against small firms. Govemments can accelerate the development of Public Information Center markets for financial, and non-financial services suited to SMEs by promoting Mary Koussa innovation in products, and delivery 02 - 2366529 mechanisms, and, by building institutional capacity. Improving the development impact of SME strategies will require much more attention to the monitoring and evaluation of intervention outcomes. November 2000 20 ^ 49l 1 ejji J, j~~~~~~~~~~~~i r-- 9 . j9 j i (MY 20358 2000) i 851g ,s * ~~~~~~~~~~~~~~~:.JW L) O200 ju+ 4, D jz, W1t, rv yG ) ,lJ?_1a_ sIXE L OL>!;! /! - 1S .921 H ^ Ss i ,>JX :) :N.e ~~~~~(STATS KN 20731 2000) J.,,zl>Ji es jz 6v Je 4 1jLq jjt JjLL L.2, S ,1 Zx6, A J- t* 1 c!sX9J rl< }_J5 Z, sPu 4;.;eS vL . EJX 1 d9^nS 4 -J- LD.,, ;i il\ $! 46J ZJ> tJi_\ _ti1 i;J58 i1 a-! 59 b! ;25Ss @ S41 J L LJJ ? !M ja~ L-1 ,, 'a } a, -J M i2J - !A . > J8^1oJyil._JOt 0S~~~L Z.JC ULL9 .a^Jl )1JofYJJL- i r j U~ Qa1! 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