In This Issue 41964 1. The preconditions for Palestinian Economic Recovery /3 2. Energy Sector Review /4 3. Emergency Municipal Services Rehabilitation II /7 4. Land and Gender Equity /9 5. North Gaza Emergency Treatment Project /10 6. Movement andAccess Restrictions in theWest Bank /12 7. Economic and Fiscal Developments /14 8. World Bank Operations /19 9. West Bank and Gaza Portfolio /22 10.Global Network of Private Sector /23 November 2007 The Preconditions for Palestinian Economic Recovery Contact Numbers West Bank Office Numbers: Country Director Water and Energy Switchboard 02- 2366500 A.David Craig KhairyAl-Jamal Fax:02- 2366543 02- 2366506 08-2823422 Deputy to Country Director Infrastructure Development Faris Hadad-Zervos Ibrahim Dajani 02- 2366549 idajani@worldbank.org Economics & Private Sector Financial Management John Nasir Suhair Mosa jnasir@worldbank.org 02- 2366540 Social development Donor Coordination Mesky Brhane NabilaAssaf 02-2366500 02-2366535 Governance Public Information Keir Prince Mary Koussa 02-2366553 02-2366529 Gaza Office: 08- 2823422/2824746 Fax:08­ 2824296 International Finance Corporation: Investment Officer Youssef Habesch 02- 2366517 Fax:02- 2366521 Free Subscription mkoussa@worldbank.org Newsletter at Internet http://www.worldbank.org/ps The Preconditions for Palestinian Economic Recovery This edition of theWest Bank and Gaza Update comes weeks after the convening of theAd Hoc Liaison Committee (AHLC) meeting on the Palestinian Economy in NewYork on September 24th. At that meeting,theWorld Bank delivered its economic report concluding that,since the previousAHLC meeting in London in December 2005,little or no progress has been made in meeting the three preconditions for Palestinian economic growth. The first of these preconditions involves Israel's security-oriented restrictions on movement and access in theTerritories, which go beyond barriers and checkpoints to a matrix of policies and administrative procedures that combine to stunt Palestinian economic growth. The second precondition involves PA efforts towards law and order, and various public sector reforms to reduce its growing deficit.The PA has taken concrete steps to tackle these issues, but still needs to address the legacy of its past spending practices.The third precondition relates to the international community,whose role in economic growth and the peace process remains as critical as ever. Moving forward, the Bank called for parallel actions by the three sides to create a reinforcing `virtuous cycle'ofgrowthandstability.ThePAwouldimplementbadly-neededreforms,theimpactsofwhichwould be reduced by far-reaching steps by the Israeli Government to loosen the restrictions on the Palestinian Territories and allow the private sector to revive itself.Underwriting this would be a predictable flow of donor aid to match the PA's three-year budget horizon,which in turn should reflect the PA's reform and development plans embedded in the Palestinian Reform and Development Plan (PRDP).As such, aid must be centered around a collective view on broader economic and governance fundamentals. Of course,any discussion on economic recovery and peace is incomplete without a few words about the Gaza Strip. Gaza represents about 40% of the population, and is a core part of the Palestinian territory, economy and identity. All serious options for a private-sector led and export-oriented Palestinian economy must include Gaza, whose vibrant private sector risks complete collapse if the current closure policy continues. We believe today, as we did two years ago, that the three preconditions remain valid. On our part, we remain committed to the principles of sustainable growth in the West Bank and Gaza as a foundation for peace. Since 1993, we have operated continuously in the Territories, seeking to balance meeting emergency and basic service delivery needs,with a long-term focus on Palestinian institutions.In addition to our current portfolio of projects worth almost $120 million,our pipeline for the next 6-8 months aims to address critical needs in the social sectors. We will also continue to provide analytical and policy support to the PA in the design of a comprehensive Palestinian Reform and Development Program,and in addressing specific sectors on which this program will rely.We believe this can and should be a basis for concrete discussions on donor commitments in December.Yet,it is important to reiterate that,in the absence of parallel fulfillment of the preconditions, donor aid will yield few tangible results.All parties will need to expend more resources and assume more risks than in the recent past.This is what it takes to invest in peace. Country Director AZ A G A.David Craig D N A K N A B The Economic Monitoring Report can be found electronically TSE W "www.worldbank.org/ps"and in hard copies at theWorld Bank Public Information Center. 3 West Bank and Gaza Energy Sector Review The World Bank's Energy Sector Review, published in From the energy perspective,West Bank and Gaza is faced May 2007, examines the challenges facing the energy with four key challenges: sector inWest Bank and Gaza. It also addresses how the · How to improve its energy security by diversifying its energy sector can make an effective contribution to the sources of energy from Israel ­ given the possibility that long-term economic recovery and growth. It provides Israel may face strains in meeting its own energy needs recommendations to the Palestinian Authority (PA) for in the future. an effective strategy that addresses the needs of the energy · How to manage its geographic division between market inWest Bank and Gaza. two diverse economies with distinct characteristics, each facing different options for sustainable energy Total energy consumption inWest Bank and Gaza is small development. The West Bank, where a majority of by regional standards, let alone international standards, Palestinian economic activity and population are which limits the scope for achieving economies of scale. located, is landlocked and without its own primary Mostenergydemand(75%)isaccountedforbytheservice energy resources ­ but it does border Jordan which is and household sectors, since there is currently relatively well situated to become a regional transit centre for little activity in manufacturing. YetWest Bank and Gaza energy. Gaza's economy and population are smaller yet has experienced a high growth in energy demand (much still substantial,but it has more favorable energy supply faster than in Israel),reported to be about 6% in theWest potential ­ substantial gas resources lie offshore, it can Bank and 10% in Gaza annually from 1999 to 2005. receive supplies by sea,and it borders Egypt which can Energy supply struggles to keep up with domestic energy become a future major energy supplier. demand. · How to operate and develop its energy systems as well as attract outside investment for its energy sector,given Nearly all energy is provided by electricity and petroleum the constraints of the current conflict with Israel. products,most of which is purchased from Israel. The PA · How to create an institutional set-up that provides imports a small amount of electricity from Egypt to Gaza, incentives for the electricity retailers, especially the and has negotiated an agreement to import some power municipalities and councils, to collect bills from their fromJordantoJerichointheWestBank. Ingeneral,energy customersandtousethesefundstopayfortheirpurchases is lightly subsidized in comparison with most countries of electricity from the Israel Electric Corporation (IEC) in the region, and energy prices reflect costs reasonably and other potential suppliers. Currently, the PA has to well. The only substantial domestic energy resource is the meet outstanding amounts owed to IEC which diverts Gaza Marine gas field located offshore Gaza,which awaits large amounts of funds from other needs outside the development. The electricity system in the West Bank energy sector. consists of numerous isolated distribution systems owned and operated by municipalities and village councils, and Currently, the PA is consolidating the structure of power it has no significant generation or transmission capacity. supply and distribution in theWest Bank into four power Electricity demand in Gaza is partly met from the Gaza distribution companies to join the Gaza Electricity Power Station (GPP) which has an installed capacity of Distribution Company Ltd (GEDCO) that was set up in 2007 140MW,but output from the station is limited to around 2003 to serve Gaza. Three utilities are being added to 70MW by constraints in the transmission network. the existing utility which serves the central area around Jerusalem - the long-established Jerusalem District embervoN Electricity Company (JDECO). Two of the new utilities 4 - the Hebron Electric Power Company (HEPCO) and natural gas, this fuel will play an important role in the the Southern Electric Company (SELCO) ­ have recently futureintworespects.Firstly,discoveryoftheGazaMarine been established to serve the southern area. The third new deposit of natural gas offshore of Gaza should allow the utility - the Northern Electricity Distribution Company PA to benefit from substantial fiscal revenues. However, (NEDCO) ­ is being set up to serve the northern area. the prospects for gas in West Bank and Gaza depend These utilities are taking over responsibility for retail crucially upon regional developments in Israel and Egypt, power supply and distribution from municipalities and since the local market alone cannot justify development councils, who have used some of the revenues obtained of significant gas reserves. The decision on how to from electricity sales to fund their non-revenue earning develop the Gaza Marine deposit is very important for services. The municipalities received shares in the the PA,because it represents a one-off chance to secure a ownership of the new utilities in exchange for transferring significant amount of revenues and because it is the PA's their electricity assets and business to them. The PA needs onlydomesticenergyresource.Secondly,naturalgassupply to put in place arrangements that ensure the utilities use agreements and networks are being developed regionally, their revenues to sustain and improve electricity supply to which will create opportunities for West Bank and Gaza the population as well as pay the IEC and other suppliers to import gas,especially for generation of electricity. for purchases of bulk power. Takingintoaccountthecomplexfactorsfacingtheenergy sector in West Bank and Gaza, the report identifies the The benefits of this undertaking will be three-fold: following priority recommendations for the PA: · The PA should experience a sharp and lasting increase in revenues available for its development and social 1 Develop the technical, financial and institutional expenditures when the utilities are better able to pay capacity of the power utilities. GEDCO and the their bills to IEC, as a result of reducing their costs three new utilities in theWest Bank are small by regional of supplying electricity to consumers and improving ­ let alone international ­ standards. As regional trade collections of bills from consumers. in electricity develops, this structure runs the risk of · Electricity consumers should receive better service over losing benefits from economies of scale that could be time as the utilities use their revenues to fund urgent obtained by forming a single utility to serve the whole of and substantial rehabilitation and development needs. the West Bank. This risk should be mitigated by the PA · Utilities will become more creditworthy and can through a specific policy that focuses on standardization therefore diversify their sources of financing and power of plant, equipment and systems so as to benefit from supply. joint procurement,maintenance,etc. The utilities have to develop the technical, financial and institutional capacity A reliable supply of bulk power supply will be needed for the following responsibilities: to obtain these benefits. Hence, the PA is planning to · Manage the PA's proposed investments in power conclude a long-term commercial agreement for power transmission, distribution and customer supply supply from IEC to meet a portion of the power needs of facilities. These measures are needed to reduce the the distribution companies. This agreement in turn will high level of technical losses in the power networks support investments needed in IEC's supply capacity to and to expand the capacity to distribute more power AZ A fully meet demand for its electricity. to consumers as demand grows. Total investment of G D N AlthoughWest Bank and Gaza do not yet have access to about $200 million will be needed in distribution lines, A K N A B TSE W 5 substations, meters, etc. over the next four years to to long term agreements to import power from Egypt to achieve these aims. Gaza and to increase power imports from Israel to West · Improve the collection of bill payments from Bank and Gaza. These negotiations involve the following electricity users. Improvement in payments has to be options: developedbystrengtheningtheincentivesforconsumers · Construction of a pipeline to import gas to Gaza from to pay their electricity bills through the threat of Egypt. penalties,and the installation of pre-paid meters. · Long term rights to transfer power between Gaza and theWest Bank through Israel. 2 The Northern Electric Distribution Company, · Interconnection of the Gaza power network with the once formed,needs support to develop its institutional Egyptian power system, as well as interconnection of and technical capacity. NEDCO also needs support for theWest Bank power system with the Jordanian power investments to rehabilitate and expand its distribution system. system to form an integrated network across the northern region of theWest Bank. 7 Develop the capacity to regulate and attract private investors and operators to the power and natural gas 3 Convert the Gaza Power Plant to burn natural gas. markets. The PA requires technical,commercial and legal ConversionoftheGPPtoburnnaturalgasinsteadofgasoil support to formulate policies and to regulate electricity would save around US$45 million annually for the PA at service providers ­ whether owned by public or private the prevailing fuel prices and limited level of electricity entities.The PA has already formed its plan for developing production in 2005. These savings are achievable for this capacity and started the process.But two outstanding an investment of less than US$5 million to convert the components remain: the consolidation of transmission plant, and around US$10 million for construction of a networks and functions into a new transmission company gas pipeline to the plant site. Once the conversion of and the establishment of the Palestinian Electricity the plant to natural gas is assured, this investment in Regulatory Council (PERC). combination with associated investments in transmission capacity would create the economic conditions necessary As part of this capacity development, the report for fully utilizing the existing generating capacity of the recommends that the PEA procure technical assistance to GPP. examinethefollowingissues:institutionalarrangementsfor central procurement of bulk power, including security of 4 Relieve the transmission constraint on output from cost recovery arrangements that underpin investments by the Gaza Power Plant. This investment would remove the suppliers;the contractual arrangements for eventually the transmission bottleneck that presently prevents the bringing private management and investment into the plant from running at more than about half of its capacity. new power distribution utilities; drafting regulations and It is linked to the conversion of GPP to natural gas,since directives for the short term,and drafting a new electricity the production of power from the plant based on oil law to support implementation of the PA's policies for the would cost more than imported power. The estimated power sector for the medium and long term;and support additional savings to the PA at current prices and the 2005 for developing the capacity to plan,supervise and regulate level of demand would amount to around US$37 million the development of its natural gas resources and a natural annually,so that around US$83 million can be saved if the gas market. plant is converted to natural gas. 5 Select the best option for developing the Gaza Marine gas field. Development of this field should meet two priorities for the PA. Firstly, gas should be available for use in GPP on advantageous terms for the reasons given above, and secondly revenues from gas production should be maximized. Hence the PA is assessing proposals for developing the gas field. 2007 6 Develop a long term power supply plan for West Bank and Gaza. In principle,the PA has a good choice embervoN of options for increasing power supply toWest Bank and Gaza. Currently the PA is in negotiations that could lead 6 Second Emergency Municipal Services Rehabilitation Project Responding to Emergency NeedsWhileAddressing Medium-Term Development Challenges Background as well as to surrounding areas. Some municipalities trace their establishment back to the 19th century, and despite Not unlike other Palestinian institutions and households, many challenges and crisis situations over the years, have municipalities have been facing a prolonged period of been able to sustain services and respond to the needs financial distress over the past several years. AWorld Bank of their communities. A recent World Bank service municipal finance survey conducted in 2006 showed that delivery survey (2006) showed that among five regional municipal revenues have experienced an overall decline comparator countries, Palestinian citizens gave their over the past four years ranging between 20 percent in municipalities higher scores for service provision across a the West Bank and over 25 percent in Gaza. This is not range of different service areas. surprising in a context of severe economic contraction, alarmingly high levels of unemployment, and increasing TheWorld Bank Response poverty incidence. However, while municipalities have adopted various measures to cope with the situation, Within this context, the World Bank approved in including scaling back to the provision of only the December 2006 the Second Emergency Municipal Services most essential municipal services and cutting back on Rehabilitation Project (EMSRP2) with the twin objectives discretionary expenditures, such adjustment strategies of (i) assisting municipalities to sustain the provision of cannot be sustained over prolonged periods of crisis,such essential municipal services, and (ii) creating temporary as the circumstances that prevail today. job opportunities at the local level through the launching of labor-intensive employment generation schemes. Under normal circumstances, municipal revenues and, EMSRP2 builds on the legacy of achievement of its correspondingly, expenditures are expected to keep pace predecessor project (EMSRP), which closed in 2006. with population growth, as the tax base is expected to In addition to addressing emergency needs, EMSRP expand while demand for municipal services continues to helped to (i) establish an unprecedented level of donor grow. The severity of the municipal financial crisis in the coordinationinthesectorinresponsetotheongoingcrisis, WestBankandGaza(WBG)isunderscoredbythefactthat including mobilization of significant donor co-financing in the face of substantial revenue and expenditure declines,to arrest the decline in service provision,(ii) put in place a the Palestinian population has been growing at one of viable framework to respond quickly to emergency needs the highest rates in the world. Casual observation of the while building the institutional foundation for effective, circumstances inWBG today confirms that municipalities transparent and rules-based municipal finance through the are now unable to meet existing demand for services, let establishmentoftheMunicipalDevelopmentandLending alone that of the expanding population. As a consequence, Fund (MDLF); and (iii) introduce innovative approaches Palestinian citizens today are facing increased exposure to to dealing with the crisis and positioning municipalities to health and sanitation risks, due to mounting solid waste address their longer term development needs. and potential contamination of ground water, as well as safety risks due to damaged roads, traffic congestion and EMSRP2 design consists of three components. unsafe,unplanned alternative roads. Component 1 (Emergency Municipal ServicesAssistance Grants), which constitutes the bulk of the financing at Traditionally,the more than 130 Palestinian municipalities nearly$30millionwouldbeprovidedfortherehabilitation throughouttheWestBankandGazahavefulfilledamyriad and reconstruction of damaged municipal infrastructure of functions and service responsibilities. According to and facilities,as well as the supply of equipment to sustain the Local Authorities Law, they are assigned 22 specific municipal service delivery in addition to covering non- functions, including solid waste management, local wage recurrent expenditures that are direct inputs to the road development and maintenance, libraries, parks and provision of municipal services. This assistance would recreation, slaughter houses, markets, land use planning typically support maintenance and rehabilitation of and development, business and professional licensing, existing municipal water and sewage networks, wells and AZ A environmental health and pest control, and in many G reservoirs; provision of chemicals for water purification; D N cases they build their own schools and health clinics. In repair and maintenance of pumps,generators,vehicles and A K addition, many provide electricity, water and wastewater N spare parts for water services and solid waste collection; A B services both to their own constituents and communities rehabilitation and maintenance of roads, sidewalks, TSE W 7 street lights and safety rails, supply and replacement of The Municipal Development and Lending transformers, electrical panels, cables and poles and fuel Fund (MDLF) to run generators. Allocations are based on a per capita distribution as population has been identified as a good One of the important institutional contributions of proxy for local expenditure requirements. EMSRP has been the support it provided for the establishment of MDLF. While by design, the MDLF The second component of EMSRP2 is focused on labor- is structured as a financial intermediary with the aim intensive employment creation and is expected to cost of channeling donor and central government financial over $6 million with the aim of creating over 300,000 assistance to municipalities through a rational and man-days of temporary employment. This component transparent framework,the MDLF has also demonstrated would support municipalities in developing small-scale a capacity to respond to the emergency assistance needs temporary work opportunities for the unemployed that of municipalities by designing a number of emergency could at the same time address service or city/town programs with donors,including the EU,the Government infrastructure rehabilitation needs. Such activities are of Italy, and the Government of Denmark. Over the likely to include building retaining walls, painting, beach long-term the MDLF and the funds it administers can be cleaning,street cleaning,street and public way tiling with utilized as an important policy instrument in promoting locally produced interlinking blocks. Allocations are made institutional reforms at the local level. Under EMSRP to municipalities based on an unemployment index so as budget reporting requirements were made a condition of to direct support proportionately to the areas in greatest receiving emergency assistance and reporting improved in need of assistance. the sector overall from 25 to over 85 percent. Component 3 supports the MDLF Innovation Window with total financing of $1.20 million to launch a pre-paid Maintaining the Sector Institutional metering scheme to assist municipalities in improving DevelopmentAgenda cost recovery in the provision of electricity services in addition to piloting a local government-NGO partnership In parallel with EMSRP2, the Bank continues to program providing social assistance and activities in administer a project that is playing a critically important support of local communities. This activities is being role in maintaining the longer term institutional agenda in closely jointly programmed with the NGO Development the sector. The Danish-funded,World Bank-administered Center (NDC),which is financed by anotherWorld Bank Local Government Capacity Building Project, which is operation (NGO III Project). implemented by the MDLF, has achieved a number of importantmilestonessinceitsinceptionin2005.Withover Donor Partnerships $10 million equivalent in funding over a four year period, this project focuses on strengthening municipal financial management and planning capacity. Achievements to date World Bank grant financing of EMSRP2 in the amount have included development of the first integrated,unified of $10 million only covers one-quarter of the identified chart of accounts for local governments to improve projectcostofover$40million.Assuch,donorpartnerships the recording and tracking of municipal revenues and have been a key feature of EMSRP2 design in order to expenditures. Municipal budget preparation and review cover this financing gap and reach the more than 130 processes and reporting formats have been developed municipalities that serve over 75 percent of the Palestinian to strengthen Ministry of Local Government (MOLG) population. The Government of the Netherlands was the first donor to come on board with an additional5 million oversight capacity and improve municipal revenue collection and expenditure management. Tenders have (approximately $6.85 million) and, most recently, the just been issued for the design, installation and operation French DevelopmentAgency (AFD) committed a further 12 million ($16.40 equivalent). Taken together, these of the first set of standard municipal financial management information systems at a set of pilot municipalities to be funds would cover over 80 percent of identified needs. rolled out once testing and refinements have been made Additional donor financing commitments are under to the system. The project also supports capacity building discussion with KFW and the Government of Sweden in the area of urban planning and infrastructure service and are hoped to materialize in late 2007. provision. Similar to its predecessor, EMSRP2 is consistent with 2007 the World Bank's assistance strategy in West Bank and Gaza, which aims to respond to emergency assistance needs as they emerge while maintaining the longer term embervoN institutional agenda that is part of the Bank's original rationale for engagement inWest Bank and Gaza. 8 Case Study: Land and Gender Equity Hajjah "Um Sa'ed," age fifty, does not know the new harmony within the family. Such discriminatory social faces that have begun to appear in the village of Qarawa practices will persist unless a standard legal system is Bani Zeid (members of the Land Settlement Committee established to protect the land rights of all people. of the Palestinian Land Authority, private land surveyors and some international consultants). However,she knew The World Bank is supporting the Palestinian Land that there would be a meeting for women on the issue Authority in ensuring equitable land rights in the villages of land. She learned about the meeting from the Public of Qarawa Bani Zeid, Bir Nabala and Beitounia through Awareness Specialist of the Land Administration Project the pilot Land Administration Project. This project is during a visit to Hajjah Um Sa'ed's home to complete developing a standard registration system that provides a questionnaire on social issues.This social research was equal opportunity for all land owners and will enable intended to assess different types of tenure for which them to invest and thereby create real development.The security must be provided, understand how gender, project targets three sites, Qarawat Bani Zaid, Bir Nabala geography and socioeconomic status influence land rights and Beitunia, representing rural, semi-rural and urban and describe how formal and informal institutions may conditions. Project activities analyze the nature of land enhance or constrain land rights. disputes, test the dispute resolution and title settlement mechanisms to be put in place. It also assesses the nature UmSa'edattendedthemeeting,asdidmanyotherwomen of contested rights to land,in order to explore possibilities from the village,and sat listening attentively;looking for a of establishing a simple, fair and transparent system for glimmer of hope that can deliver her of the situation she addressing land related conflict. has suffered for many years. The World Bank and the Government of Finland are "I was married twenty five years ago and ten years ago, my financing the Land Administration Project, as a the first husband suffered an accident that caused permanent disability phase of a long-term Land Administration Program in preventing him from work or movement.I am now suffering from WBG strengthening the capacity of the Land Authority my very difficult economic circumstances. I have three sons and and Ministry of Planning to lead this process.There has I would like to see them pursue their education as they are very been a complete freeze in land registration in the last 50 intelligent and have performed extremely well in school.My sole years.The PA has committed itself to reforming the Land hope was to sell or invest a plot of the land in which I have a Administration and Management Sector, on both the share.But my brothers are not at all interested in this.The land institutional and policy levels.This includes formulating we own has not been divided amongst us so I am not qualified to land administration and management policies, revising make use of my part. I feel embarrassed to demand this division the draft land law, revising the land registration process because women in my village don't ask for their land rights from and potential dispute settlement process through learning their brothers.It is a taboo." by doing and a public consultative process in the on- going pilots. The long-term Plan for Um Sa'ed took out an old piece of paper from her pocket this sector will aim at enhancing that included many stamps and said: "This paper is the economic growth by improving land Certificate of Inheritance that proves that I am a real heiress tenure security and facilitating the to the land that was left to us by our father al-Hajj before his development of land and property death".She continued:"I heard that this project came to register markets. for us the unregistered land and I am here so that you can help me to know what I should do to register my land." Special thanks to Felecia In brief, this story is typical of the challenges women Bargouti, Public Awareness in Palestine face in asserting their land rights. Although Specialist for the Land AZ A Shari'a law allows women to inherit land, this is rarely Administration Project, for G D N practiced due to the fear of women to claim their land her contribution to the A K N rights. Often they forgo these rights in order to preserve article. A B TSE W 9 North TheNorthGazaEmergencySewageTreatment (NGEST) project is the fourth in a series of Bank-funded water and sanitation projects since 1994.The Project consist of two parts: Part A is addressing the immediate and impending health,environmentalandsafetyhazardstothecommunities near the poorly-treated and rapidly growing sewage lake in the Beit Lahia area of North Gaza.And Part B - a long- term solution for the adequate treatment and disposal of wastewater in North Gaza- entails the construction of a new wastewater treatment plant expected to be financed by various donors.Approximately 300,000 people living in North Gaza will benefit from this project.The project overall estimated cost is about US$ 63 million. Beit Lahia Case On March 27th,2007 - a section of the Beit Lahia Sewage Lake (Infiltration Basin) collapsed, flooding a nearby village in Gaza (Um Al Nasser) killing three, injuring 24 and displacing approximately 2,000. This marks the third such instance although less catastrophic in 1988 and 1992. What actually happened? The Sewage Lake is next to the Beit Lahia treatment plant constructed in the late 80s.At its construction, the plant capacity was limited to 5,000 m3/day. The levels have now reached 15,000 m3/day. To cope with the emerging effluent lake,the municipality has been surrounding it with sand embankments and had erected a temporary basin close by.This temporary basin rupturedduetoover-pumpingwhichstressedthecapacity 2007 of the walls to contain the flow of effluent.. embervoN 10 Gaza Emergency Treatment Project Background information US$13.5 million. Part A moves treated effluent from the lake to a series of new infiltration basins.Part B involved a The wastewater situation in Gaza is particularly dire. newTreatment Facility in the south,and involved Swedish During the original design phase of the current Beit SIDA,AFD,EU,Belgian andWorld Bank funds. Lahia Wastewater Treatment Plant, the idea was to use the effluent of the treatment plant for irrigation of the The project is currently experiencing substantial delays neighboring agricultural areas.The ideas however were to the situation in Gaza, and the delays in bringing in never realized. As a result,the treated effluent was simply essential project-related goods through the crossings into let out into the sand dunes. In the first few years of Gaza.The Bank is in regular contact with the Palestinian operation,this practice did not cause problems.However, Water Authority and the Israeli Defense Forces to ensure during the last few years the situation has deteriorated. quick and unhindered entry of critical goods. Many communities were provided with sewage networks connecting to the Beit Lahia Plant.From a population of Project Benefits 50,000, it now serves a population of 180,000 including the municipalities of Jabalia,Beit Lahia,Beit Hanoun,and The North Gaza Emergency Sewage Treatment project Um Al Nasir.The combination of increased volumes of is indispensable in eliminating the risk of flooding to the generated wastewater and insufficient treatment capacity residents in North Gaza,and in improving the dwindling let to the deterioration of effluent quality. The steadily environmental and public health conditions related to the decreasinginfiltrationcapacityofthefloodedareasandthe improper sewage treatment.The implementation of this increasing wastewater volumes resulted in the formation project entails the complete removal of the Beit Lahia of a series of ponds which transformed into a giant lake. Wastewater Treatment Plant, along with the associated Sand dams were erectedinordertoconfinethelake andto sewage lake.This will eliminate the risk of for such event prevent the surrounding settlements and agricultural areas to happen again and the most recent flooding is a case from being flooded.The water level in the lake increased in point.The project is expected to benefit a population reaching the top level of the dam;leading to further work of about 300,000 people living in Beit Lahia, Beit in raising the height of the dam walls with sand. Hanoun, Um Al Nasser, and the Jabalya refugee camp. A major benefit is the protection of groundwater from World Bank involvement contamination by poorly treated sewage and the recharge of aquifer. Safety and public health risks are expected to In 2004, the Bank approved the North Gaza Emergency be reduced dramatically. It will also generate substantial SewageTreatment(NGEST)Projecttoreducepressureon job opportunities during the construction period with Beit Lahia.The Bank and EIB financed PartA with about significant impact on the depressed economy of Gaza. AZ A G D N A K N A B TSE W 11 Movement andAccess Restrictions in theWest Bank: Uncertainty and Inefficiency in the Palestinian Economy Beginning in December 2004,when all parties (including with security needs Israel will facilitate the movement of the Government of Israel (GOI) and the Palestinian people and goods within the West Bank and minimize Authority (PA)) agreed that Palestinian economic revival disruption to Palestinian lives".3 The common basis for all was essential,thatitrequiredamajordismantlingoftoday's these undertakings is the acknowledgement that without closureregimeandthatclosureneededtobeaddressedfrom efficient and predicable movement of people and goods, several perspectives at once, theWorld Bank has played a there is very little prospect for a sustainable Palestinian leading role in providing balanced analysis and proposals economic recovery. Furthermore, it recognizes that the which draw on the Bank's worldwide experience,but are relationship between Palestinian economic growth and realistic in the context of the Israeli-Palestinian situation.stability and Israeli security remain unarguable and of In May 2007, the Bank released a report which looked, fundamental importance to both societies'well-being. in particular,at the situation within theWest Bank which is experiencing severe and expanding restrictions on In the West Bank, closure is implemented through movement and access, high levels of unpredictability and an agglomeration of policies, practices and physical a struggling economy. The following is a summary of this impediments which have fragmented the territory into note.The full text can be found at: ever smaller and more disconnected cantons. While http://www.worldbank.org/ps physical impediments are the visible manifestations of closure, the means of curtailing Palestinian movement Currently, freedom of movement and access for and access are actually far more complex and are based Palestinians within theWest Bank is the exception rather on a set of administrative practices and permit policies than the norm,contrary to the commitments undertaken which limit the freedom of Palestinians to move home, in a number of Agreements. In particular, both the Oslo obtain work, invest in businesses or construction and Accords and the US-sponsored Road Map were based move about outside of their municipal jurisdiction. on the principle that normal Palestinian economic These administrative restrictions,rooted in military orders and social life would be unimpeded by restrictions. In associated with the occupation of West Bank and Gaza economic terms, the restrictions arising from closure not (WB&G),are used to bar Palestinians from accessing large only increase transaction costs,but create such a high level segments of theWest Bank including all areas within the of uncertainty and inefficiency that the normal conduct municipal boundaries of settlements,the"seam zone",the of business becomes exceedingly difficult and stymies Jordan Valley, East Jerusalem, restricted roads and other the growth and investment which is necessary to fuel military `closed' areas. Estimates of the total restricted economic revival. area are difficult to come by, but it appears to be in excess of 50% of the land of theWest Bank. While Israeli The OsloAccords provided that the movement of people security concerns are undeniable and must be addressed, and vehicles in the West Bank "will be free and normal, it is often difficult to reconcile the use of movement and and shall not need to be effected through checkpoints or access restrictions for security purposes from their use to roadblocks."1TheRoadmapspecifiedthatGOIwouldtake expand and protect settlement activity and the relatively measures to improve the humanitarian situation including unhindered movement of settlers and other Israelis in and easing restrictions on movements of persons and goods.2 out of theWest Bank. The fact that movement restrictions continued apace and resulted in greater economic hardship is evidenced by While GOI has shown a willingness to consider a the need for a third agreement between the parties in relaxation of specific restrictions, including the provision November 2005 -- the Agreement on Movement and Access of several hundred permits to unique categories of (the AMA) -- which had as its sole aim to "facilitate Palestinians such as businessmen, or the removal of the movement of goods and people within Palestinian certain physical impediments, incremental steps are not Territories". While recognizing that Israel has legitimate 1 The Israeli-Palestinian Interim Agreement on the West Bank and the Gaza Strip, 2007 reasons to take steps to protect its citizens from violence, Annex I, Article IX(2)(a). it was likewise recognized that this could not take place 2 A Performance-Based Roadmap to a Permanent Two-State Solution to the Israeli- against the backdrop of Palestinian economic hardship and Palestinian Conflict, Phase 1: Ending Terror and Violence, Normalizing Palestinian Life and Building Palestinian Institutions, Present to May 2003. embervoN collapse. In particular,theAMA provided that,"consistent 3 Agreement on Movement and Access, 15 November 2005. 12 likely to lead to any sustainable improvement. This is because these incremental steps lack permanence and certainty and can be easily withdrawn or replaced by other restrictions. Moreover, sustainable economic recovery will remain elusive if large areas of theWest Bank remain inaccessible for economic purposes and restricted movement remains the norm for the vast majority of Palestinians and expatriate Palestinian investors. Only through a fundamental reassessment of closure, and a restoration of the presumption of movement,as embodied in the many agreements between GOI and the PA, will the Palestinian private sector be able to recover and fuel sustainable growth. AZ A G D N A K N A B TSE W 13 Economic and Fiscal Developments 1. The past two years have witnessed a sequence of 2. The decline of the Palestinian economy triggered events that have at best retarded - and at worst, by the Second Intifada in 2000 and compounded by reversed - the precarious course of Palestinian recent events has left per capita GDP at $1,129 by institutional development and economic growth. the end of 2006, about a third less than it is level The international response to the victory of Hamas of $1,612 in 1999. The emerging recovery in 2003- in Parliamentary elections in early 2006 heralded 2005 was again reversed in 2006 as a result of the fiscal an almost instant drop in services and incomes, and crisis,and movement and access restrictions,following a polarizing effect on the populations of Gaza and the Hamas victory in the PLC elections (Figure 1). the West Bank as access to incomes, donor assistance GDP contracted by nearly 8.8% in 2006, and by a and crossings diverged (See Annex 6 for a summary further 4.2% in the first quarter of 2007.This trend of events since January 2006).At the same time, Gaza appears to be continuing in the second half of 2007. saw the brunt of Israeli restrictions and military action after the abduction of an Israeli soldier in the summer 3. More troubling than the negative growth rate is the of 2006. Since London, Palestinians killed in conflict- changing composition of the economy, as GDP is related incidents rose from 210 in 2005 to 673 in being increasingly driven by government and private 2006, and another 146 by June 2007.This does not consumption from remittances and donor aid, while include a new figure - 400 Palestinians dead in 2007 investment has fallen to exceedingly low levels,leaving from internecine fighting between Palestinian factions little of the productive base needed for a self-sustaining ­ more than double those killed by the conflict with economy. Israel. Over the same period,Israel witnessed 25 deaths in 2006 and 6 deaths in 2007, from various attacks 4. Fromtheoutset,Gazahasbeenhitharderbyclosures including Qassam Rockets which have exceeded 2,700 since 2004. Palestinians injured over the two and economic crisis. Since Israel's disengagement years reached more than 4,200, and Israelis injured from Gaza in September 2005, its borders have been closed for extended periods, inhibiting trade and the more than 500.1 movement of people. Unemployment in Gaza rose from 30.3% in 2005 to almost 35% in 2006 (Figure 2), while unemployment in the West Bank actually Figure 1: Economic Growth 1999-2007 fell from 20.3 to 18.6%. In the first half of 2007, unemployment fell in both regions. But these figures are misleading.First,as a result of the fiscal crisis and its impacts on both public sector employees and private sectorcontractors,employmentdidnotalwaystranslate into a regular salary payment. Furthermore, Gaza's unemployment rates were mitigated by temporary 2007 employment programs by UNRWA and others, which inject badly-needed funds but also conceal embervoN Source: PCBS andWorld Bank Staff Calculations 1 Source:OCHA,oPt Protection of Civilians Summary,June 2007. 14 Figure 2: Official Unemployment WB and Gaza Israeli closure policies and political instability have discouraged investment inWB&G,making Palestinian private sector absorption of the labor force impossible. As such,the large surplus of Palestinian labor flocked to the Israeli economy where,throughout most of the last 40years,theyhavereceivedrelativelyhigherwagesthan in WB&G. However, since the Second Intifada, Israel has been steadily reducing the number of permits for Palestinians to work in Israel, with the expressed goal of eliminating them in the near future4. The number Source:PCBS Labor Force Survey of Palestinians working in Israel or its settlements has thus declined by nearly 55% since 1999.5 The share of structural problems in the job market. Also, official the work force employed in Israel has fallen from 23% unemployment data excludes workers who turn to to less than 10%6.All of these are from theWest Bank unpaid family labor or seasonal agriculture to make as Gaza is now completely closed and no workers from up for lost jobs.2 Thirdly, the figures do not include Gaza are allowed into Israel (Figure 4). The loss of many discouraged workers who have left the labor these relatively high paying jobs has been a devastating market because they can not find employment. PCBS blow to the Palestinian economy and is a major factor estimates that adding discouraged and underemployed in the growing poverty. workers would raise the 2006 unemployment rate in Figure 4: Share of WB&G Labor Force in Israel or Settlements theWest Bank to 28% and over 39% in Gaza. 5. A better measure of the extent of the crisis is the poverty rate, which has dramatically increased in the last two years. Despite large inflows of aid, the percentage of Gazans who live in deep poverty has been steadily increasing,rising from 21.6% in 1998 to nearly 35% in 2006.3 With the continued economic decline in 2007 and the implementation of even more strict closures on Gaza the current poverty rate Source: PCBS 2006 Labor Force Survey is almost certainly higher. This rate reflects actual 7. The WB&G faces an expanding labor force and consumption, which implies that without remittances a shrinking private sector.Thus, the civil service and food aid the poverty rate is closer to 67%. The and security forces have become the only alternative increase in poverty in the West Bank has been lower but still significant (Figure 3). for jobs. With few options at its disposal,and despite an unsustainable wage bill, the PA has resorted to Figure 3: Deep Poverty 1998 - 2006 2 In 2006 PCBS estimates that 11.1% of employed workers were unpaid family members. 3 PCBS constructed the deep poverty line to reflect a budget for food,clothing and housing. For a family of six the deep poverty line in 2006 was NIS 1,837. 4 The Israeli Ministry of Justice asserts that"The report notes that Palestinian links to the Israeli economy have driven up labor costs,without referring to the need to examinealternativestotheselinks,suchasPalestinianemploymentinotherregional states. In some of its previous reports, theWorld Bank began to recommend that Palestinian economy and labor look outside the Israeli market,and suggested that these options be examined. However, these states have systematically refused to employ Palestinians or establish joint industrial areas. It is strongly suggested that this report to the donors follow up on this broader and more realistic economic view, and enhance these recommendations." This assertion, however, does not Source: PCBS unpublished estimates based on 6th Palestinian address the impacts of Israel's policies on the mobility of Palestinian labor and Expenditure and Consumption Survey on its growing dependence on Israeli labor markets since 1967.As such,a phased approach is required for such fundamental structural changes, matched with 6. AddingtothedownturninthePalestinianeconomy removal of restrictions against labor mobility. is the reduction in the number of workers allowed 5 These are PCBS figures taken from the 2006 Labor Force Survey. The number of AZ A workers includes both those that have permits to work in Israel and those that are G in Israel. Population growth in WB&G is around D working illegally. N A 3.3% per annum; making it one of the highest rates 6 The Israeli Coordinator of Government Activities in the Palestinian Territories K N (COGAT) has disputed this figure,noting that 42,000 Palestinians were allowed to A B in the world and creating an ever larger labor force. work in Israel or the settlements byAugust 2007,up from 24,000 in May 2005. TSE W 15 absorbing workers as a way to alleviate poverty.At the 9. Investment has fallen to precariously low levels, same time, many workers have historically been hired endangering the prospects for long-term growth. tobolsterpoliticalsupport. Asaresult,thepublicsector Public investment to maintain or add infrastructure has grown by 60% since 1999 and in May 2007 stood has nearly ceased and in the last two years almost all at 168,319. The Caretaker Government has sought government funds have been used to pay salaries and to roll this back by not paying 31,000 workers hired cover operating costs. Already-low private investment illegally since the end of 2005. However,the PA may is estimated by the IMF to have fallen by over 15% find it politically challenging to reduce the work force between 2005 and 2006. A recent World Bank any further. Unless the economy improves and the Investment Climate Assessment found that less than a private sector is energized by a removal of movement quarter of private sector firms made any investments and access restrictions, there remains little alternative in 2005/2006 and that manufacturing equipment were to public sector jobs. on average over 10 years old. Managers had access to finance, but were operating at less than 50% capacity, 8. The economy's productive capability is diminishing and saw few opportunities for investment under the making it increasingly donor dependent. GDP did current closure regime. Gross capital formation in notdeclineasmuchasexpectedafterdonorssuspended the private sector fell by over 60% between 1999 and directaidtotheHamas­ledPAin2006(SeeTable1). A 2005 (See Table 1).The lack of investment in public combination of borrowing, remittances and increased infrastructure and private firms is eliminating any aid that circumvented the PA allowed consumption to residue of the Palestinian productive base, making remain strong. PCBS estimates that despite the crisis, the economy more aid-dependent. When conditions household consumption dropped by only 0.6% in improve, large investments will be needed just to 2005 and 2006. Nevertheless,output in the productive rehabilitate assets let alone create new wealth. sectors declined in 20067. The construction sector was the hardest hit,falling by nearly 13%. Industry fell by over 6% and services by nearly 4%. The IMF estimates that the public sector declined by 10 percent. Table 1: Composition of Real GDP in WBG&G 1999 2000 2001 2002 2003 2004 2005 2006 (percentage change) Real GDP 8.9 -5.4 -15.4 -9.4 5.8 6.0 6.0 -8.0 Consumption 8.3 -1.9 -6.7 -7.7 4.5 8.6 5.6 -4.8 Private 8.3 -4.4 -5.4 -8.5 6.0 8.5 5.6 -3.8 Public 8.4 9.4 -11.6 -4.3 -1.6 9.5 5.7 -9.4 Investment 33.9 -27.0 -44.6 9.4 18.0 0.6 2.0 -24.8 Private 36.0 -26.5 -52.1 8.7 16.9 0.4 1.4 -15.0 Public 25.5 -29.4 -9.9 11.1 20.6 1.2 3.3 -47.1 Exports 3.7 -6.8 -34.7 -13.0 -4.0 13.5 8.2 -11.6 Imports 19.1 -13.9 -18.1 -2.0 4.8 9.9 4.4 -8.5 Change in inventories 62.3 -73.5 -8.9 -36.7 -- -- -- -- Real GDP/capita 4.4 -9.3 -18.7 -12.6 2.1 2.5 2.5 -10.9 Real GDI/capita 3.4 -7.4 -8.1 -7.2 -3.8 0.9 1.8 -3.2 Source:PCBS and IMF Staff Estimates. 10.The unpredictability of the border openings in real estate or short term trading activities. Now has prevented firms from importing inputs and local entrepreneurs are closing existing operations and exporting products in a planned and profitable moving them to neighboring countries. This capital way. In response, enterprises have closed and and the entrepreneurial and technical talent that go large amounts of financial and human capital have with it are irreplaceable and unlikely to return unless fled. The pace of capital flight reached an all-time conditions dramatically improve. 2007 high in the last two years. Investors have always been wary of investing in WB&G, with almost no foreign direct investment in the past few years embervoN 7 The exception was agriculture where a large olive harvest allowed agriculture to and most local capital is kept abroad or invested post a 7% gain. 16 11.Despite the economic downturn, bank deposits 14.Furthermore,thecontinuingconflictisperpetuating continue to grow reflecting the continued inflows of an internal cycle of violence, fragmenting social aid and remittances. Private sector deposits increased cohesion and affecting psychosocial well-being. A by about 8% in 2006,and 6% in early 2007,compared 2006 survey concluded that nearly three quarters of to 2% in 2005. While a breakdown between businesses Palestinians suffer from severe depression as a result of and households is not available, this expansion seems the current situation.11Women,who historically play a to reflect continued inflows from abroad, which are key role as income providers,are increasingly relegated being used for consumption rather than investment. to the informal market as a result movement and access No comprehensive data are available on remittances, restrictions.Their participation in the labor market,at but interviews with commercial banks indicated that 15.2%12,is amongst the lowest in the world.Also,since private inflows from abroad picked up in 2006 and September 2000,youth have been caught literally and continued to grow in 2007. Despite the crisis, banks figuratively in the crossfire of the conflict.Nearly 75% continued to extend credit to the private sector,albeit of the injured during the second Intifada were between at a much slower pace than in 2005. 10 to 29 years old.13 Youth have also been active participants in the Intifada and have therefore suffered 12.Trade data indicate a significant decline in exports both violence and imprisonment with its consequent fromWB&G but a smaller fall in imports. Most impact on mental health and physical disability. They trade takes place with Israel and much of that is done also suffer from high rates of unemployment (60 informally and not reported. While trade data are not percent14) and are excluded from formal mechanisms readily available, the Palestinian Monetary Authority of decision making. (PMA) publishes estimates that indicate a significant economic slowdown. In 2006 imports declined by 10% but exports fell by close to 16%.The fall in trade The Fiscal Spiral in Gaza overshadowed the decline inWest Bank. For most of 2006 and 2007 the borders there have rarely 15.The PA's longstanding fiscal crisis deepened been open. Since the June 2007 events,these borders further in 2006 as a result of Israel's withholding of have been completely shut and there have been no Palestinian clearance revenues and the aid boycott, commercial imports or exports. resulting ina deficit of over $1billion. Manydonors 13.The social impacts of the current crisis are no cut off direct aid to the PA, but continued providing funds through the EU TIM, the Office of President less significant, but are often overlooked. Health Abbas, and other mechanisms. The IMF estimates indicators in theWB&G have seen a steady drop over that external aid towards recurrent operations reached the last three years. Chronic diseases have surged 31% $740 million in 2006;over double the amount in 2005. since 2005. Chronic malnutrition among children Yet, total resources for recurrent expenditures fell by under five jumped 3% between 2004 and 2006.Ten a third.About $0.9 billion in expenditure arrears were out of every 100 children under 5 are stunted (13% in accumulated, including $385 million in arrears on the Gaza strip and 8% in theWest Bank).8The number net wages (excluding those related to pensions and of households with safe drinking water has also other wage deductions), $175 million in arrears on dropped by more than 8% between 2000 and 2007.9 pension contributions (employees' and government's In the education sector, school enrolment is high but contributions), and $200 million in arrears to the declining. The quality of education is also suffering private sector (including Israeli suppliers and unpaid because schools lack textbooks and other materials. domestic tax refunds). The increasing insecurity, especially in the Gaza strip, is having a devastating effect on the performance of students: failure rates in mathematics are nearly 80% and 40% in Arabic.10 In the West Bank, closures and 8 Palestinian Family Health Survey, 2006. restrictions on movement and access,especially due to 9 PCBS,"Special Report on the 59thAnniversary of the Nakba,"May 14,2007. the Separation Barrier are preventing many students 10UN News Service,"With Education Standards in Gaza Plummeting,UN Launches NewAction Plan,"5 September 5,2007 and teachers from reaching their schools. 11Near East Consulting, "Depression in the Occupied Palestinian Territories," Sept AZ A 2006. G D 12PCBS,Labor Force Survey,April ­ June 2007. N A 13PCBS, "Palestinian Youth: Facts and Figures," 2001. http://www.unfpa.org/ K N adolescents/opportunities/palestina/docs/facts+figures%20Palestine.pdf A B 14PCBS,Labor Force SurveyApril ­ June 2007. TSE W 17 16.Of an estimated $770 million in Palestinian in tax collection, but this will not offset the loss in clearance revenues collected by Israel in 2006, VAT and customs duty from the suspension of Gazan only about $344 million was released to the PA trade17. Thus, with deteriorating domestic revenues, due to deductions to for the payment of utilities. In most of the clearance revenues will go towards funding addition, domestic revenues fell from $476 million in recurrentcosts,andthePAwillcontinuetoaccumulate 2005 to around $395 million in 2006. Tax revenues arrears. remained about the same despite the fall in economic activity and government strike. 21.Nearing the end of 2007, the PA finds itself with a large current deficit and a significant stock of 17.The PIF's assets continued to be depleted with arrears. External assistance has been unusually high about$190millionbeingused topaydividendsand in 2007; about $560 million in the first half of the to finance the PA in 2006. This was largely used to year. In the absence of equal or greater amounts of pay for fuel imports and cover debt service obligations assistance, the year 2008 may herald an extremely to banks. Banks, fearing foreign anti-terrorism laws, precarious fiscal situation for the PA, with a large sharply reduced lending to the PA and liquidated PIF deficit, a substantial stock of arrears and falling assets held as collateral. domestic revenues. Looking forward, the PA forecasts a need for at least $1.62 billion in donor assistance per 18.Non-wage operating costs, transfers, and spending year to achieve fiscal sustainability18. Of this amount, on utilities and energy continued to grow despite 94% will need to go to meet recurrent expenditure the decrease in funding. The fiscal crisis meant needs, as opposed to development assistance. The that spending had to be prioritized, wages being the PA will soon unveil a three-year Palestinian Reform highest. However, as of the second quarter of 2006, and Development Plan (PRDP 2008-10) based on wages could only be partially paid. Overall,including a Medium Term Expenditure Framework (MTEF) TIM payments, civil servants received about 60-65 approach. The will begin to address longstanding percent of their wages. Yet these payments absorbed disconnects in policy-making,planning and budgeting nearly half of the available resources. Social benefits processes. Its success will depend partly on the and spending on utilities and energy took up the rest. credibility of the reform agenda and pragmatic plans Payments to cover production and consumption of to achieve fiscal sustainability. However, these steps energy and utilities, including subsidies of domestic must be matched with predictable donor assistance petroleum products,reached almost $400 million. and a growing private sector that will provide a larger tax base and alternatives to public sector employment. 19.The PA's underlying financial position has The removal of movement and access restrictions,and the ability of the Palestinian private sector to exploit continued to deteriorate at an increasing rate in its trade potential,will both increase the PA's revenues 2007. In the first half of 2007 the deficit was likely and allow it to reduce its expenditures. above $100 million a month. The largest expense is the wage bill, which on a commitment basis grew by nearly 20 percent in 2006 (SeeAnnex 3).15 Despite the Government's recent efforts to limit the growth in the public sector, the payroll remains at an unsustainable level. Even taking into account Israel's decision in June to release withheld clearance revenues16,and even with a recovery of domestic tax revenues, the wage 15To some extent this reflects the full-year effect of wage increases granted in 2005 but it is also due to the increased number of government workers. bill due now exceeds total government revenues. This 16The GOI decided to release the withheld clearance revenue and resume monthly implies that all non-wage expenditures such as energy transfers with a first installment of NIS 500 million on July 2nd through the Single and infrastructure would have to be covered from TreasuryAccount.The total stock of revenues collected as of July,net of deductions for payments of utilities (and net of the transfers made) was preliminarily estimated other sources. at NIS 2.7 billion. Of that amount, close to NIS 400 million has been attached by Israeli courts.The Israeli MoF agreed to release monthly installments of NIS 370 million until the stock of withheld revenues is fully repaid.Regular monthly 20.The PA has only a limited ability to increase transfers started in earlyAugust. 2007 17It is unclear how the drop in Gazan trade will affect tax revenues fromWest Bank domestic revenues. PIF assets have been depleted and enterprises.On the one hand,Gaza is an important market for a number ofWest the PIF cannot be expected to maintain its previous Bank enterprises. On the other, many West Bank enterprises are reporting an increase in business as Israeli and other firms shift away from Gazan enterprises. embervoN level of funding. There is room for increased efficiency 18Ministry of Finance,Budget Directorate. 18 TheWorld Bank's Operations inWest Bank and Gaza On-going Bank Group Operations Project Name & Details Description SolidWaste and Environmental The overall objective of the project will be to implement an environmentally sound solid Management Project (SWEMP). waste management system for Jenin District. This objective would be pursued through World Bank:US$9.5 million the construction of a controlled sanitary landfill in Jenin District (Zahrat Al- Finjan); Approval Date:October 10,2000. rehabilitation/closure of uncontrolled dumps; improvement in solid waste management Closing Date:30 June 2008 (SWN) services in the district through the supply of equipment and the strengthening TaskTeam Leader:Andrew Mokakha of management and operation capacities' building institutional capacity in the newly created Joint Services Council (JSC) for regional SWM services ;and strengthening the institutional and monitoring capacity of Environmental Quality Authority (EQA). The Project is managed by the Joint Services Council for Solid Waste Management (JSU). The EC is financing the supply of collection vehicles and transfer stations relation set- ups. EmergencyWater Project (EWP). The main objective of the project is to support investments that would help alleviate the World Bank:US$12.5 million chronic shortages of safe water supplies;reduce water costs and health risks;and conserve Approval Date:February 2004 scarce water resources by reducing system losses. The Project includes the following Closing Date:September 30,2007 components: (a) Rehabilitation and improvement of Water Supply Transmission and TaskTeam Leader:SanaAl Nimer Distribution System;and (b)TechnicalAssistance and Capacity Building provided to the PalestinianWaterAuthority. Social Safety Net The project was formally restructured in May 2007. The new project development Reform Project (SSNRP). objective is to to mitigate the impact of the continued socio-economic crisis on a World Bank:US$10.0 million subset of the poorest and most vulnerable households. An additional is to strengthen Approval Date: July 19,2004 the institutional capacity of Ministry of Social Affairs to manage cash transfer programs. Closing Date:December 31,2008 The primary objective would be achieved by implementing a pilot incentive-based TaskTeam Leader:Eileen Murray cash transfer mechanism with improved targeting modalities that would contribute to improving the living conditions of the beneficiaries. The Project also aims to strengthen the institutional capacity of PA agencies involved in the implementation of the proposed project,in particular in Ministry of SocialAffairs. The Integrated Community The Project seeks to improve the quality and availability of basic social and economic Development Project (ICDP). services in poor and marginalized communities of West Bank and Gaza. It succeeds World Bank:US$10 million plus previous community development operations financed through the Bank under US$5 million additional financing Community Development Projects I & II.The project finances the rehabilitation of roads, approved in December 2006. water supply and sanitation systems,schools,clinics,thereby preserving and extending the Approval Date:May 23,2002. capitalstockofvillagesandsmallmunicipalities.Undertheoriginalfinancing,agricultural Closing Date:December 31,2007. activities were also financed, including the rehabilitation of wells, roads, and terraces. TaskTeam Leader:Meskerem Brhane The project is also piloting new Information and Communication Technology (ICT) initiatives by funding the creation of MultipurposeTele-centers,thereby improving access to information and training for the poor and marginalized.The Additional financing of US$5 million does not entail changes to the ICDP Development Objective, but gives higher focus on strengthening community participation in the identification and implementation of microprojects,through community-grants procurement. North Gaza Emergency Sewage The North Gaza Emergency SewageTreatment project is the fourth in a series of Bank- Treatment Project. funded water and sanitation projects since 1994.The Project consist of two parts Part World Bank:US$7.8 million A is addressing the immediate and impending health, environmental and safety hazards Approval Date:September 9,2004 to the communities near the poorly-treated and rapidly growing sewage lake in the Beit Closing Date:June 30,2010 Lahia area of North Gaza.And Part B - a long-term solution for the adequate treatment TaskTeam Leader:SanaAl Nimer. and disposal of wastewater in North Gaza, which entails the construction of a new AZ A G wastewater treatment plant expected to be financed by various donors.Approximately D N 300,000 people living in North Gaza will benefit from this project.The project overall A K N estimated cost is about US$ 63 million. A B TSE W 19 On-going Bank Group Operations Project Name & Details Description GazaWater and Sanitation This Project is a follow-up to the previous GWSSP. The development objectives of Services Project (GWSSP II). this Project are: (a) to develop a sustainable institutional structure of the water and World Bank:US$20 million wastewater sector in Gaza by supporting the functional establishment of a Coastal Approval Date: June 7,2005 MunicipalitiesWater Utility, as well as by enhancing and deepening the involvement of Closing Date:December 31,2008 the private sector through a three-year management contract;(b) to continue improving TaskTeam Leader:KhairyAl-Jamal the water and sanitation services by rehabilitation, upgrading and expansion of existing systems and facilities;and (c) to strengthen the regulatory and institutional capacity of the PalestinianWater Authority.The whole population of Gaza (around 1.5 million people) are benefiting from the project. Tertiary Education Project The project development objectives are: 1) to improve the regulatory environment World Bank:US$10 million for tertiary education management,relevance and quality assurance;2) increase internal Approval Date:April 26,2005 and external efficiency of the tertiary education system, as a first step towards seeking Closing Date:December 31,2009 sustainability; and 3) to create incentives and provide the basis for improvements in TaskTeam Leader:Adriana Jaramillo efficiency, quality and relevance of tertiary education institutions in order to meet the socioeconomic needs of the Palestinian population. The project provides technical assistance on defining policies consistent with increasing the financial sustainability of the sector and improving the capacity to respond to labor market needs.It also provides incentive mechanisms to improve quality and relevance of the programs offered. On a competitive basis,institutions will apply for quality and management grants,administered by a Fund mechanism.In addition the project will provide technical assistance to improve the management of the current student loans program managed by the MOEHE, and will set the basis for expansion of the financial resources available for funding the student aid programs.The EC is providing co-financing in the amount of 6 million. LandAdministration Project The objective of this project is to assess/learn the extent of commitment and readiness World Bank:US$3 million of the PA to reforming land administration by introducing policy,legal and institutional Government of Finland:US$3.1 changes to achieve efficient procedures for the issuance of land titles and registration million equivalent of property transactions, and transparent processes for the management and disposal of Approval Date: January 26,2005 public land.The project is the first phase of a long-term Land Administration Program, Closing Date:December 31,2007 which aims at enhancing economic growth by improving land tenure security and TaskTeam Leader:Ibrahim Dajani facilitating the development of efficient land and property markets in rural and urban areas through the development of an efficient system of land titling and registration based on clear, transparent and coherent policies and laws and supported by an appropriate institutional structure. Third Palestinian NGO Project The objective of the project is to provide social services to those who are poor,vulnerable World Bank:US$10 million or affected by the deteriorating socioeconomic conditions by establishing an effective AFD:6 million mechanism to improve the quality and sustainability of NGO social service delivery. Approval Date: December 19,2006 The first two PNGO projects successfully built up Palestinian NGO capacity to carry TaskTeam Leader:Meskerem Brhane out social service delivery activities.Now,there is a need to consolidate and sustain this capacitybymovingthedrivingforceforfurtherNGOdevelopmentfirmlyintothehands of the Palestinian NGOs.To this end, PNGOIII will support the transformation of the Project Management Organization (PMO), the implementing unit within the Welfare Association of the previous projects, into the NGO Development Center (NDC), an institution dedicated to grant-making and sector development. At the sametime, the project will provide funding to develop and sustain specific NGO-sponsored social service delivery activities. 2007 embervoN 20 On-going Bank Group Operations Project Name & Details Description Second Emergency Municipal A prolonged period of economic contraction has had serious consequences for municipal Services and Rehabilitation Project revenues and the ability of local governments to continue providing basic services. This World Bank:US$10 million has translated into sharply increased health,safety,and sanitation risks for the Palestinian The Netherlands: 5 million population resulting from mounting solid waste, and deteriorating streets, water and AFD:12 million wastewater networks, particularly in heavily populated urban areas.The objectives of Approval Date: December 19,2006 EMSRP II are to (a) provide funding for infrastructure rehabilitation and maintenance TaskTeam Leader:Steve Karam to help mitigate further deterioration in the delivery of essential municipal services, and (b) create temporary job opportunities at the local level through the launching of labor-intensive employment generation schemes. In addition, through the Municipal Development Lending Fund (MDLF), the Project would pilot innovative initiatives to improve municipal service cost recovery (through the introduction of pre-paid electric metering systems) and leverage partnerships with local NGOs to deliver services more effectively. The total cost of the project is currently estimated at US$40.2 million with financing of US$10 million from the Trust Fund for Gaza and West Bank (TFGWB), and further commitments from Netherlands and Agence Française de Développement. On-going discussions with KFW and Sweden are likely to cover the balance with commitments expected by October 2007. Avian Influenza Prevention and West Bank and Gaza has been considered at high risk for AI due to the large number Control Project of migratory birds crossing the territories and the high risk of spreading the infection World Bank:US$10 million among domestic poultry. In April, FAO/WHO confirmed AI H5N1 presence in 8 Global Fund forAvian Influenza: locations in Gaza and preventive culling was concluded in the infected areas. The project US$3 million aims to strengthen the public and veterinary heath sectors to respond to possible future Approval Date: September 7,2006 outbreaks.The overall responsibility for overseeing and coordinating institutional and TaskTeam Leader:LucieTran implementation arrangements is vested with the National Emergency Committee for Avian Influenza Control (NCAIC) which is chaired by the Minister of Health, while funds from the Global Trust Fund (US$3 million) are being implemented by UNDP, focusing on quick implementation of the most urgent activities. Emergency Services Support The development objective of the Emergency Services Support Program is to mitigate Program - the deterioration of service delivery brought about by the inability of the Palestinian (UnderTemporary International Authority to meet its non-salary recurrent costs. The ESSP finances the non-salary Mechanism ­ window 1) expenditures of the key social ministries and based on the PA's recurrent expenditure program for these ministries. Multi DonorTrust Fund:US$65 million The ESSP budget is based on the PA's annual recurrent expenditure program.Eligibility Approval Date:August 2006 of expenditures is assessed by the Bank, taking into account the emergency nature Closing Date:June 30,2008 of the project and the Bank's procurement and fiduciary requirements. Financing of TaskTeam Leader:Eileen Murray expenditures in other sectors may become possible if donors are willing to provide the DeputyTaskTeam leader:Samira necessary financing. Hillis The Bank will be approaching donors for replenishing this multi donors trust fund as most funds are now committed under this phase. AZ A G D N A K N A B TSE W 21 West Bank and Gaza Portfolio September 30, 2007 Trust Fund for Gaza and theWest Bank Co-financing Committed Disbursed Undisbursed Disbursed Committed Disbursed Undisbursed Disbursed CURRENT PROJECTS US$ Million Percent US$ Million Percent * 01 SolidWaste and Environmental Management Project 9.5 8.1 1.4 85% 02 Integrated Community Development Project 15.0 9.6 5.4 64% 04 EmergencyWater Project 12.5 10.2 2.3 81% 04 Social Safety Net Project 10.0 2.2 7.8 22% 05 North Gaza Emergency SewageTreatment Project 7.8 6.8 1.0 87% 18.1 0.0 18.1 0% 05 LandAdministration Project 3.0 1.7 1.4 55% 1.5 0.7 0.8 47% 05Tertiary Education Project 10.0 2.7 7.3 27% 6.7 1.1 5.6 17% 05 Gaza II EmergencyWater Project 20.0 10.2 9.8 51% 07Avian Influenza Project 10.0 1.2 8.8 12% 07 Palestinian NGO Project III 10.0 1.5 10.0 15% 07 Emergency Municipal Services Rehabilitation Project II 10.0 2.0 10.0 20% Total 117.8 56.1 61.7 48% 26.2 1.8 24.4 7% DONOR FUNDEDTRUST FUNDS Local Government Capacity Building 2.5 1.5 1.0 60% Emergency Services Support Program 58.7 27.2 31.5 46% Total 61.2 28.7 32.5 47% COMPLETED PROJECTS 00 Electricity Sector Management Project 15.0 14.8 0.2 99% 03 Emergency Services Support Project II 40.0 40.0 0.0 100% 71.6 71.6 0.0 100% 97 Palestinian Expatriate Professional Program 2.3 2.3 0.0 100% 0.3 0.3 0.0 100% 02 Emergency Services Support Project 20.0 20.0 0.0 100% 29.2 29.2 0.0 100% 04 Public Financial Management Reform SAO 20.0 20.0 0.0 100% 97 Legal Development Program 2.8 2.5 0.0 89% 96 Municipal Infrastructure and Development Project 40.0 40.0 0.0 100% 5.4 5.4 0.0 100% 97 Microenterprise Project 2.2 2.2 0.0 100% 95 Emergency Rehabilitation Project 30.0 30.0 0.0 100% 63.9 63.9 0.0 100% 97 MIGA Fund 10.0 10.0 0.0 100% 96 Emergency Rehabilitation Project II 20.0 20.0 0.0 100% 3.5 3.5 -0.0 100% 97 Community Development Project 10.0 10.0 0.0 100% 2.8 2.8 01 Emergency Response Program 12.0 12.0 0.0 100% 95 Education and Health Rehabilitation Project 20.0 20.0 0.0 100% 29.1 29.1 0.0 100% 99 Community Development Project II 8.0 8.0 0.0 100% 97 GazaWater and Sanitation Project 31.0 31.0 0.0 100% 98 Palestinian NGO Project 10.0 10.0 0.0 100% 4.6 4.6 0.0 100% 99 Bethlehem 2000 25.0 25.0 0.0 100% 3.6 3.6 0.0 100% 97 Palestinian Housing Project 17.4 17.4 0.0 100% 98 Gaza Industrial Estate 7.2 6.9 0.0 96% 99 SouthernAreaWater and Sanitation Project 21.0 21.0 0.0 100% 00 Health System Development Project 7.9 7.9 0.0 100% 01 EducationAction Project 7.0 6.9 0.0 99% 03 Emergency Municipal Services Rehabilitation Project 20.0 20.0 0.0 100% 01 Palestinian NGO II Project 8.0 8.0 0.0 100% 11.6 10.2 1.4 88% 00 Municipal Infrastructure and Development Project II 7.5 7.3 0.0 97% Total Completed 414.2 413.2 0.2 100% 225.7 224.3 1.4 99% TOTAL (Current & Completed) 532.0 469.3 62.7 88% 313.1 254.8 58.3 81% CLOSED DONOR FUNDEDTRUST FUNDS The Holst Fund 285.7 285.7 0.0 100% TechnicalAssistanceTrust Fund 23.6 23.6 0.0 100% 2007 PEACE Facility 25.0 25.0 -0.0 100% Public Financial Management ReformTrust Fund 273.4 273.4 0.0 100% TOTAL DONOR FUNDEDTRUST FUNDS 607.7 607.7 -0.0 100% embervoN GRANDTOTAL 532.0 469.3 62.7 88% 920.8 862.5 58.3 94% * For some cofinancing,investment income is added to the principal and disbursed,causing disbursements to go above 100% ** Closed 22 2/Year approved byWorld Bank Board of Executive Directors ANNOUNCEMENT World Bank Global Network of Private Sector Liaison Officers Reaching the Private Sector inWest Bank and Gaza The Federation of Palestinian Chambers of Commerce, Industry and Agriculture has joined the World Bank Private Sector Liaison Officer (PSLO) network program of communication with the private sector. The Federation represents the Private Sector Coordinating Council inWest Bank and Gaza in its capacity as Secretariat. TheWorld Bank Group has developed a network of liaison officers based in business organizations based throughout the world, and works to foster trade and investment relations between countries with the support of theWorld Bank Group's products and services.The network facilitates companies' access to World Bank Group (World Bank, IFC, MIGA) business opportunities,services and knowledge;act as the voice of their national private sector in advising the World Bank Group on how to better engage companies on development issues;and promotes communication between global business organizations through its PSLO representatives with the support of theWorld Bank Group. The Federation of Palestinian Chambers of Commerce,Industry andAgriculture is a national organization representing theWest Bank and Gaza Strip's chambers. Its main task is to strengthen and enhance the capacity of chambers to cope with the requirements of the global business environment. Its strategy is to ensure that the private sector is operating freely; is an integral to policy formulation at the national level; and strives to create strong regional and international links to the world's larger,global markets. The network has now 5 PSLOs appointed in MENA: Morocco, Jordan, Israel, Egypt and Palestine (Algeria in the pipeline) out of a total of 77 PSLOs in 61 countries worldwide. Contact forWest Bank and Gaza PSLO: Dr.Amin Baidoun P.O.Box 54107,DahietAl- Barid,Sha'rawi Bldg.,Jerusalem Tel:972 2 23452 36 / 37 / 38 To learn more about: PSLO Network:http://www.worldbank.org/business-global Federation of Palestinian Chambers:http://www.pal-chambers.org AZ A G D N A K N A B TSE W 23