In This Issue 51749 1. Gaza Recovery, a Prerequisite for the Creation of a Viable Palestinian State / 3 2. Damage Assessment, Water Sector Infrastructure / 4 3. Towards a Palestinian Land Management Reform Program / 6 4. World Bank Rallies Support for a Municipal Development Program / 9 5. Stimulating Economy through the Housing Sector / 10 6. Economic Monitoring Note / 11 7. Macroeconomic and Fiscal Assessment by the IMF / 15 8. The World Bank's Operations in West Bank and Gaza / 19 9. West Bank and Gaza Portfolio / 22 10. The Impact of Mobility Restrictions on Economic Participation,Violence and Gender Relations / 23 11. Promoting Good Governance / 24 April 2009 Gaza Recovery A Prerequisite for the Creation of a Viable Palestinian State Contact Numbers West Bank Office Numbers: Country Director Infrastructure Development Switchboard 02- 2366500 A. David Craig Ibrahim Dajani Fax: 02- 2366543 02- 2366506 idajani@worldbank.org Deputy to Country Director Governance and and Donor Coordination Public Financial Management Dina Abu-Ghaida Mark Ahern 02- 2366506 02- 2366512 Economics and Private Sector Financial Management John Nasir Suhair Musa 02-2366553 02- 2366540 Social Development Human Development Mesky Brhane Eileen Murray 02-2366500 02-2366500 Water and Energy Public Information Zeyad Abu-Hassanein Mary Koussa 08-2823422 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 Gaza Recovery A Prerequisite for the Creation of a Viable Palestinian State As the people of Gaza emerge from the ruins of their homes, the World Bank is accelerating its efforts to support their recovery and reconstruction. In addition to immediately restarting work on the Bank-supported development projects in the Strip, we are focused on assisting the donor community in overcoming the obstacles to speedy and efficient disbursement of aid. A major juncture in this endeavor was the International Conference in Support of the Palestinian Economy for the Reconstruction of Gaza, held in Sharm el-Sheikh on March 2. On the eve of his participation in the conference, World Bank Managing Director Juan Jose Daboub conducted a fact-finding mission to the Gaza Strip. His was the most senior visit by a World Bank executive to the territory since 2005. After touring devastated urban and agricultural areas and meeting local residents, Dr. Daboub assessed the damage to the World Bank supported North Gaza Sewage Treatment Project. He concluded the visit with a series of meetings with civil servants, NGO officials and business leaders to discuss recovery and reconstruction needs and modalities, including access issues. The visit coincided with the publication of the Bank's report to the Sharm el-Sheikh conference. Entitled Fund Channeling Options for Early Recovery and Beyond: the World Bank Perspective, it aims to assist donors in choosing the most effective instruments for providing financial support to Gaza's recovery and reconstruction. (See report on www.worldbank.org/ps.) While encouraging donors to channel funds through the Palestinian Authority (PA) budget, the report points to other efficient mechanisms -- the EU-PEGASE, the World Bank administered PRDP-Trust Fund, the Municipal Development and Lending Fund (MDLF) and the NGO Development Center (NDC) -- available to those seeking alternatives. The authors further note that a number of PA institutions functioning in Gaza such as the Palestinian Water Authority (PWA), the Palestinian Energy Authority (PEA), and the Coastal Municipalities Water Utility (CMWU) have the proven capacity to implement donor-financed recovery and reconstruction projects. They emphasize, however, that implementation will only be possible if the restrictions blocking the predictable entry of basic materials into Gaza -- including cement, steel, glass, equipment, and spare parts -- are lifted, along with those preventing the steady flow of cash into the territory's banking system. A central recommendation of the report is that the recovery and reconstruction effort be closely linked to ongoing development efforts in the Gaza Strip. In practice, this would mean continued funding and scaling-up of a range of existing successful donor-financed projects in several key areas -- water and sanitation, electricity, social safety nets, municipal development and NGO support. The World Bank emerged from the conference with a renewed commitment to helping the people of Gaza rebuild their lives. Recovery can begin quickly, provided that sufficient materials and cash are allowed into Gaza in an efficient and predictable manner. It also means that the reconstruction effort provides an opportunity to re-start and accelerate the long-term economic development required for Gaza to assume a central role, alongside the West Bank, in the establishment of a viable and prosperous Palestinian State.We look forward to working closely with the PA and the West Bank and Gaza donor community to realize this potential. Country Director A. David Craig 3 Damage Assessment Water Sector Infrastructure Overview: Water and wastewater services have suffered significantly during the most recent Israeli military operation in Gaza during December 27 to January 24.This has severely affected the lives of the people of Gaza and added to their suffering. Damages were incurred to a wide range of facilities and impacted almost all types of water and wastewater facilities. This includes damage to water and wastewater pipes and pump stations; water production wells and storage reservoirs; wastewater treatment plants; electrical control panels; electricity supplies; administrative and operation buildings and stores; and utility vehicle and trucks. In addition, the Coastal Municipalities Water Utility (CMWU) reported that three of its operators were killed while they were trying to maintain the continuity of water services. April 2009 4 The Damage Assessment estimated the need for about US$6.0 million to carry out repairs and reconstruction of damaged water and wastewater works.This can be itemized as illustrated below. Damages and Estimated Cost Per Category Estimated Cost Damage Type USD$ (million) Water Wells 0.4 Water Network Distribution 1.8 Wastewater Network Distribution 0.83 Wastewater Facilities 0.13 Water Tanks 0.62 Unforeseen Damages 0.45 Services (Water and Wastewater) to be Crisis Management: 0.75 provided for relocated peoples The CMWU is responsible for the delivery of water and wastewater services for the entire population of Gaza. Despite Civil Work, Equipment and Material 0.57 the security situation, the CMWU did not spare any efforts Contingency 0.25 to resume services to the people of Gaza during the crisis.The North Gaza Infiltration Basins 0.2 CMWU management was in direct contact with all active Total USD $ 6 humanitarian organizations in Gaza. In a few instances, the CMWU managed to maintain proper coordination with the Recovery Plan: Israeli military needed to fix some damages as well as supply Following the damage assessment, the CMWU has the needed fuel to operate the diesel generator sets which developed a Recovery Plan which is composed of the run the pumps as most areas in Gaza suffered from electricity (1) fast track for emergency repairs which has been outages for many hours and in some places several days. The conducted immediately following the cease fire, (2) ongoing Gaza Emergency Water Project (GEWP) financed intermediate track to rehabilitate partially damaged works by the World Bank has played a crucial role in enabling and (3) long- term track to reconstruct works in the the CMWU to operate efficiently and effectively finance completely destroyed areas. While the intermediate track all emergency interventions to maintain services. More works are in planning stages, the long-term track will not severe damages still require concerted efforts, resources, and start before the rubble removal and the reconstruction of time to bring the systems back to their original condition. the destroyed houses is completed. This will take several The CMWU and the World Bank have worked closely to years. World Bank finance of all tracks is crucial. In fact, conduct the damage assessment. World Bank funds through the ongoing projects like the Gaza Emergency Water Project and the Northern Gaza Damage Assessment: Emergency Sewage Treatment project are being mobilized As the military operation ended and the cease-fire was put to respond to the recovery plan needs. Additional financing in place, the CMWU led the damage assessment survey will be needed and the donor community funds are needed in cooperation with the Palestinian Water Authority. The to supplement the Bank financing. World Bank furnished technical support to the CMWU and sent a short mission to Gaza to assist the CMWU in developing a comprehensive Damage Assessment survey which was published a week after the cease-fire. Aiming for stronger partnerships,The CMWU and the Palestinian Water Authority (PWA) engaged all donors and humanitarian organizations in coordinating the efforts to finance the Recovery Plan. The plan was shared with donors through the Water and Sanitation Hygiene cluster (WASH) and the Water and Sanitation (WatSan) donors' network.While many West Bank and Gaza organizations like UNICEF and ICRC allocated emergency budgets for immediate repairs, the CMWU relies heavily on the GEWP and its additional finance (World Bank finance) in order to repair damages in the incursion areas. 5 Towards a Palestinian Land Management Reform Program Many developing countries around the world have are fundamental for a well functioning economy, for the cadastres and registration systems that have been established accumulation of wealth and for giving confidence to for a long time. Following years of poor governance these investors. Cadastral systems need to (i) permit the real inefficient systems have become a huge constraint on estate market to grow; (ii) allow the flow of credit using real property markets. Legal documents and records often go estate as collateral and greatly reduce the transaction costs back over a hundred years, can be often contradictory or associated with the provision of credit; (iii) improve the fraudulent, and tend to have a history of conflicting or efficiency linkages; and (iv) form the basis for broad based unclear legal documentation or seriously dysfunctional property taxation and local economic development. government held records. While many other factors affect economic growth, Resolution of such dysfunctions in cadastre and registration by ensuring that effective land administration and systems is a pre-requisite for sustainable economic management systems are in place, governments can April 2009 growth in both the urban and rural space of countries. ensure that economic growth is not hindered because of Secure cadastral and registration systems are essential to the lack of such systems that impede the development of enhance land tenure security and property rights which real estate markets. Once a country has made the political 6 decision to allow capitalism to operate, it becomes a necessity to support the development of stable, The importance of functioning land markets transparent, and efficient real estate markets, for wealth creation essential for acquiring land for development, asset It has been estimated that real estate markets may reallocation for business and private purposes, and contribute as much as 15-25% of GDP in a as a source of credit. developed country, while the share of global capital stock represented by real estate is estimated to be Secure land tenure and property rights have taken about 66%. In the United Kingdom, land and on greater historical and cultural significance buildings were estimated to comprise a total of 57% for Palestinians in recent years. The Palestinian of the national wealth in 1997. In the United Authority emphasized land management and States, real estate, including land, was estimated to surveying as its top priority in its Palestinian represent almost 70% of all tangible capital in 1993. Reform and Development Plan (PRDP). The taxable value of real property in the US was estimated at nearly US$6 trillion in 1991. Flow of Funds data in the US published by the Federal Reserve, states that household real estate assets were about US$20.6 trillion dollars at the end of 2006. With mortgage liabilities of about $9.8 trillion, household net real estate wealth was a little less than US$11 trillion by the end of 2006. While such evidence is hard to provide for developing countries, evidence from developed countries makes clear the potential benefits developing countries can achieve by establishing efficient land registration systems1. Implementation of this key PRDP priority is being done under a program called the "Land Administration Program", which aims to enhance economic growth by developing, within a framework of laws, an efficient and trusted system of land registration and cadastre that would establish private land rights for citizens and businesses. Long term donor support for this Program aims to increase the confidence of Palestinians in the security of titles, enable an increase in the number of formal transactions as well as collateralized lending, enhance local revenues from land and property related fees and taxes, and support the establishment of a strategy for Public Land Management, including its use and disposal. First Land Administration Project The objective of the first phase of donor support for this Program, provided through the Land Administration Project (LAP), was to assess the feasibility of introducing reforms in land West Bank and Gaza administration. Assessing feasibility required first 1 "Land Administration and Management Projects (LAMP) in the Europe and Central Asia Region: Experiences, Lessons Learnt, and the Future Agenda". Adlington Gavin, Stabley Victoria, Palmissano Bina Maria, and Baldwin Richard. 7 and foremost, the accumulation of substantial detailed Innovations for faster results knowledge of the various steps that, if implemented, would ultimately lead to the issuing of titles. LAP 1 was Systematic registration with simple survey methods has implemented over 3 years and 9 months, and closed on worked well in Georgia, Armenia, Kyrgyzstan, and Estonia, December 31, 2008 with significant accomplishments. leading to a reduction in costs to less than $10/parcel, and spurring mortgage activity. In Armenia the banks developed While a complete evaluation of LAP 1 is underway, the new mortgage departments in response to a 47% increase preliminary findings so far make clear that there was in demand for mortgages between 2002 and 2004. In significant learning that took place during implementation, Kyrgyzstan the annual number of mortgages doubled between and substantial knowledge was generated. Excellent 2002 and 2006 (from 22,387 to 43,001), and the value studies were undertaken, informing on changes that would of those mortgages increased from US$84.8 million in 2002 need to be made for a more efficient and affordable path to US$723.7 million in 2006. In Romania the private to the issuing of titles in West Bank and Gaza (WB&G) sector grew and expanded during the course of the Land ­ changes to existing policies, laws, and regulations and Administration Project, responding to the demand created procedures for surveying and registration. for cadastre surveying, appraisal, data entry, digitization of cadastre plans, and document scanning. In Kazakhstan, after Under LAP 1, systematic land surveying and registration the cadastral and registration system was established, the was resumed for the first time in 40 years. Using the number of transactions doubled for three consecutive years. In private sector, LAP1 demonstrated lowered unit costs Macedonia, the numbers of transactions increased by 27% for surveying. For the first time, a manual of procedures from 2005 to 2006; the number of mortgages increased by for systematic surveying and registration was prepared, 40% over the same period 2. establishing a foundation for transparent dissemination of procedures that could contribute to building the public's trust in the Land Administration Program. Second Land Administration Project The Second Land Administration Project (LAP 2), aims Computerization of land records was initiated and is to support the Palestinian Land Authority (PLA) develop ongoing. Close to 200 surveyors were licensed, and 1800 and implement a strategy for surveying and registration parcels of land were registered. Public awareness campaigns that embraces innovation, and delivers measurable results led to the empowerment of women. A dispute resolution in record time.The proposed project is under preparation, mechanism established under LAP 1 has provided and is expected to be supported by the Government of clarity on future actions. Finally and most importantly, Finland and the World Bank. "informed" discourse is taking place on an issue that was taboo before. What will make LAP 2 a success? With the technical knowledge generated, the development International experience highlights that without a of a strategy for surveying and registration of about 3.2 "champion" on the client side that takes ownership and million dunums or about 1.2 million parcels of land is becomes the "change agent" constantly galvanizing a now possible. It is clear that a strategy that delivers on constituency of support for new and innovative ways of the task within a realistic, affordable and acceptable doing business, success is often elusive. time frame, will need to (i) optimize inputs, (ii) develop partnerships for surveying and registration with many For LAP 2, PLA will need to be the champion and the stakeholders, (iii) enhance public-private cooperation, change agent. While much has been accomplished under and (iv) transfer knowledge. Depending on the level of LAP 1, it is now time for the PLA to set the agenda, innovation integrated into the surveying and registration strategy, and pace of work that will deliver results for the process, the costs of the program could vary between Land Administration Program. It is a new institution, US$300 million to US$600 million, even possibly as low and well positioned to harness the high willingness of as US$110 million. municipalities, educational institutions and the private sector to partner with it to deliver expeditiously on its mandate, and meet the expectations of the Palestinian people. April 2009 2 Ibid. 8 World Bank Rallies Support for a Municipal Development Program Working closely with other donors, the World economy, municipal budgets have declined by an Bank has actively supported the development of the average of 30 percent. In addition, municipalities local government sector since its engagement in the have suffered from poor financial accounting, West Bank and Gaza in 1994. Its focus has been, control and reporting practices, hampering their on the one hand, support for provision of local ability to provide services. services under emergency contexts and, on the other hand, building institutional capacity.The early With World Bank support and financing from projects such as Emergency Rehabilitation Project Denmark, the Municipal Development and I and II (November 1994 to 1996 and May 1996 Lending Fund in partnership with the Ministry of to 1999, respectively) supported the construction Local Government has developed and adopted a and maintenance of road, water and wastewater Unified Chart of Accounts, a fixed asset registry for networks through labor intensive public works, municipalities and an improved financial accounting thereby generating employment. The Emergency system. Municipalities are now in the process of using Municipal Services Rehabilitation Project I and these tools, enhancing their financial management II (2000 to 2006 and 2007 to 2009, respectively) and service delivery capabilities. introduced measures for local government accountability and institutionalized mechanisms Building on this experience, under the leadership of for central-local resource transfers. They also built the MDLF and the Ministry of Local Government, enhanced mechanisms for donor coordination, donors are now applying a sector wide approach including substantial co-financing by such donors to support a new Municipal Development Program as the European Union, Italy, Denmark, Sweden (MDP). The key objectives of the program are to and parallel financing by France, Germany and enable municipalities to provide better services the Netherlands. Close partnerships between the and accountability through enhanced management Palestinian Authority (PA) and donors led to the practices. To date, the key donors include the establishment of the Municipal Development and World Bank, Denmark, Germany, Sweden, France Lending Fund (MDLF) in 2005, now the PA's and the Netherlands for an approximate budget implementation arm for channeling resources and betweenUS$65 -$95 million. The program is technical assistance to municipalities. designed flexibly so additional donors may join as funds become available. A joint donor pre-appraisal The formation of many of the municipalities in the mission was held in October 2008, a joint donor West Bank and Gaza date back to the Ottoman period technical discussions mission is planned for the end and therefore, traditions of local administration are of April 2009. The MDP is expected to start in the well established. Municipalities provide a variety second half 2009. of services and facilities such as electricity and water supply, solid waste management, roads, parks and recreation, slaughter houses, markets, schools, and health clinics. In the past, municipalities provided many of these services using local revenue West Bank and Gaza collection. However, during the past five years, due to the ongoing conflict and contraction in the 9 Stimulating Economy Through The Housing Sector World Bank Technical Assistance There is high demand for housing in the West Bank and builder warranties; Gaza (approximately 400,000 to 450,000 housing units in · Review of accessory but critical provisions governing the next 10 years) and limited supply (about 16,000 units condominiums or ethical rules and expertise standards per year).This demand, coupled with the potential impact for real estate appraisal . of construction for inducing economic activity, large scale housing development could be a success, despite the In addition, a review of the prudential regime for multiple constraints created by the overall environment. mortgage credit will be undertaken, and proposals will The Palestinian Investment Fund is engaged in a 5 year be made to rationalize it , making it more extensive and affordable housing program targeting the construction of facilitating the circulation of capital towards the financing 20 000 to 30 000 new units and Bayti, a private real estate requirements of mortgage lenders. development firm plans to build a new town, Rawabi, near Ramallah. Such developments cannot be successful Public-Private Partnerships for if adequate financial means are not made available to their potential buyers. Initially, a significant part of the needed Infrastructure Investments resources will come from external investors or donors The World Bank is also providing technical assistance ­ in particular, PIF initiated in parallel to its program (TA) to the Ministry of Public Works and Housing to the establishing of a new financial institution, AMAL, (i) design public-private partnership schemes for housing whose first task will be to channel funds mostly from the development and (ii) establish criteria for setting priorities donor community (OPIC, IFC , DFID) to finance loans in housing development which require public funds. extended by Palestinian banks1. But beyond this initial The main features of the TA are the following: support, it is critical for the sustainable development of the · Define the relationship between the private sector and sector that the Palestinian financial system permanently the PA, by outlining the rights and responsibilities of provide families with the necessary means.The Palestinian each actor. It will also provide tools for the PA to assess Authority also has a major role to play in creating the the eligibility/qualifications of a private entity that will policy and regulatory environment that will facilitate such partner with the PA. It will also spell out the procedures developments.A framework for public-private partnerships the private sector would need to follow to receive needs to be established. The PRDP also clearly spells out licensing and then establishing the partnership with the the importance of housing sector development and the PA. It will also spell out the conditions that the PA can role of the private sector. propose for approving projects; · Define the criteria that qualifies a housing scheme Strenghening the Legal Framework for public funding. It will include such features as affordability and social benefits (meeting the needs of for Mortgage Finance low income families); TheWorld Bank Group, which has been involved for several · Defining the types of investments and funding limits years in supporting the overall regulatory2 environment, of the PA's contribution (that is, funding for off-site in partnership with DfID will provide technical assistance infrastructure such as roads, links to water and electricity for improving the legal environment of mortgage lending. networks, public facilities etc). It will also spell out the The variety of laws in place (Jordanian, British and general guidelines for defining of off-site and on-site Egyptian law), do not provide sufficient guarantees to infrastructure. lenders, buyers and developers alike on the conditions of secure and efficient transactions. Based on a preliminary In order to provide these infrastructure services effectively, proposal, the relevant agencies of the Palestinian Authority, the Palestinian Authority will need to prioritize the and in particular the Capital Market Authority, requested different housing initiatives and define a process that the World Bank to draft reforms in the following key areas will ensure that these are reflected in national and local of mortgage finance: plans; establish a mechanism for channeling and managing · Creation of a consolidated mortgage framework, donors funds; and identify appropriate institutions for the including the strengthening of creditors' rights ­ a delivery of infrastructure services. The Ministry of Public condition of expanding the access to finance to lower Works and Housing has already established a Housing income groups, a basic provision that will lay the Sector Thematic Group under the Infrastructure Strategy ground for an eventual securitization market- , and Group to serve as a coordination forum for donors, PA the clarification of some provisions that can currently agencies, and the private sector. restrict the extension of long term loans; · Design of consumer protection systems, including 1 See 2008 Newsletter April 2009 2 In particular through the support to the Palestinian Mortgage and Housing provisions to guarantee fairness in mortgage lending, as Corporation and to the pilot Land Administration Project (promoting policies and well as security when buying off plan units to be built implementation systems for land registration and titling, necessary conditions ­ for instance securing advance payments or providing for housing development). 10 Economic Monitoring Note for West Bank and Gaza I. Overview During 2008 per capita GDP continued to fall in the holiday periods, checkpoint hours were extended West Bank and Gaza (WB&G). Overall real GDP and many permits were issued for West Bank residents to is estimated to have increased by about 2%, with all of enter into Israeli controlled areas. In addition, the GOI is the growth coming from the West Bank while the Gaza allowing a small amount of Israeli citizens to enter Jenin economy continued to decline under that the weight and other towns by foot to shop. It is estimated that on of the ongoing Israeli blockade and the recent ground some days 200-300 people enter Jenin compared to nearly invasion. The Government of Israel (GOI) maintained its 10,000 a day before the second Intifada and the resulting system of economic restrictions in the West Bank and only closures. Though these moves are welcome they have had marginally loosened internal movement restrictions, while little significant impact on private sector activity. continuing to build settlements and establish restrictive commercial crossings between the West Bank and Israel. Israel has completed six commercial crossing points in GDP in WB&G was only maintained by enormous inflows the Separation Barrier. Once these are fully operational, of foreign assistance. Budget support alone was nearly $1.8 all traffic between Israel and the West Bank will be forced billion, nearly 80% above the 2007 figure. Despite the fall to move through them. Shipments to or from Palestinian in per capita GDP, the development assistance was so great areas will be transferred on a back-to-back basis with that disposable income in the West Bank may have actually all goods scanned. The GOI has stated that once the increased. But despite the Palestinian Authority's success Separation Barrier is complete and all of the crossing points in implementing its Palestinian Reform and Development operational, then they will be able to reduce the internal Plan (PRDP), the productive base of the economy has not barriers. However, the crossings are almost fully operational recovered and the Palestinian economy, especially the Gaza but as noted above, the internal movement restrictions have economy, is becoming ever more aid dependent. not been relaxed in a meaningful way. Thus, the crossings serve as yet another barrier to Palestinian trade. II. Closures and Economic Restrictions The construction of the Separation Barrier continues unabated and the GOI persists in actively initiating and The level of violence has fallen to very low levels in promoting the construction of settlements. Since most the West Bank, however, the GOI has responded by of the internal movement restrictions can be directly related only marginally loosening its closure regime while to the security of settlers, the increase in settlement activity continuing its tight economic restrictions and expanding leads directly to additional restrictions on the Palestinian settlements. The PA has been able to extend its security community and economy. According to figures published control through large parts of Area A and violence in the by the Israeli Central Bureau of statistics, settlement West Bank has fallen to the lowest levels in years. However, population grew by about 4.7% in 2008 compared to a for most of 2008 the GOI maintained its strict closure 1.7% growth rate for the population inside the green line. regime and in fact tightened it. UN OCHA reported that Peace Now, an Israeli NGO that tracks settlement activity, as of September 2008 there were 630 identified obstacles estimates that in 2008 1,518 new structures were erected blocking internal Palestinian movement, up from 611 in in settlements compared to only 860 in 2007.1 Nearly 39% April and 580 in February 2008. In the last part of the year, of the new buildings were east of the Separation Barrier, West Bank and Gaza the GOI began to take measures to improve movement and access between areas inside the West Bank. A small number 1 GOI does not provide information on settlement activity so the World Bank is forced of barriers were removed and several checkpoints began to to use data from Israeli NGOs who exert tremendous efforts to estimate settlement operate on a "normally open" basis. In addition, during activity. 11 deep inside the West Bank. In addition to the increase in Figure 1: Economic Growth 1999-2008* actual buildings, in 2008 there was an eight fold increase in the number of tenders issued for new construction in settlements. Most recently, in February 2009, the GOI announced the approval for building 1,400 new housing units in one settlement and the development of 130 hectares of land in another one. Also in February, a report on a secret database on settlement activity compiled by the Israeli Ministry of Defense was leaked to the Israeli press. The report details how much of the settlement construction was illegal even under Israeli law because it was done without permits or on privately held Palestinian land. Source: PCBS and World Bank Staff Calculations Israel maintains its tight economic restrictions on In 2009 the optimistic scenario is for WB&G GDP the Palestinian economy that discourage or prevent to grow by 5% as called for in the PRDP; this private investment. In addition to the movement and would begin a recovery of per capita GDP. All of the access restrictions, the GOI retains control over access growth is assumed to again come from the West Bank, to land, water, ability to travel and residency for the while Gaza continues to stagnate. Given the low base Palestinian population. In Gaza, fishermen are restricted that the West Bank is starting from, 7 or 8 % growth rate to 3-6 nautical miles off the coast leading to over fishing is not unimaginable and is actually rather conservative. and dwindling catches. The buffer zone along the border However, reaching even the 5% growth rate requires that with Israel takes up more than 30% of Gaza's arable land the current fighting in Gaza quickly subside before it and much of it is off limits or extremely dangerous for spreads to the West Bank or destroys investor confidence Palestinian farmers. In the past year, there have been no there. In addition, the PA, donors and GOI must continue softening of these restrictions and in some cases they have their actions that have produced the slight rebound in the gotten worse. West Bank's growth rate in 2008. If these conditions are not met, growth will be flat or once again turn negative. III. Economic Developments The Palestinian economy has been sustained by enormous infusions of foreign aid and the recent By 2007, real per capita GDP had fallen nearly 28% growth in the West Bank is the direct result of a from its peak in 1999. Both the Palestinian Central large increase in such flows combined with increased Bureau of Statistics (PCBS) and IMF estimates indicate that security. In 2008, budget support alone (including growth in WBG was flat in 2007 and about 2% in 2008. development expenditures) increased by nearly 80% from With an average annual population growth of around 2.7% the 2007 level and at close to $1.8 billion, was equivalent this is not enough to affect a significant recovery of GDP to about 30% of GDP. The PA has used the donor largesse growth. The Gaza Strip economy, already devastated from to pay salaries and clear arrears to public sector employees years of Israeli blockade, was further ravaged by the recent and the private sector that had accumulated during 2006 ground invasion. Consequently, what little growth has and 2007. The 2009 budget assumes that donors will occurred, has taken place in the West Bank. In other post maintain their high level of budget support and calls for conflict societies, such as the Balkans, the recovery phase over $1.6 billion in aid for 2009. Any failure to achieve was marked by sustained double digit growth rates as the this will force the PA to either cut back on development economy revived from the depths of conflict. Given the spending or once again accumulate arrears, which will low base that the WB&G economy has sunk to, a similar have a direct negative impact on the Palestinian economy. response should be expected here. Thus, the low rates The recent fighting in Gaza has added another challenge actually experienced indicate the continuing restrictions to the PA. Reconstruction costs have not yet been faced by the Palestinian economy. reliably estimated, but as this report was being written, the PA is preparing a budget supplement that will reportedly call for total of $1.624 billion, including $300 million in additional budget support. April 2009 12 Unexpectedly high inflation and fluctuations in the these projects actually come to fruition they would be a exchange rate have shocked the Palestinian economy. large boost to the construction sector and the Palestinian The Consumer Price Index increased by 7% from economy as a whole. Though the WB&G financial system December 2007 through December 2008. The increase is relatively disconnected from the international system, the in Gaza was 10.29 % compared to only 4.45 % in the rest recent international financial crisis may affect the housing of the West Bank. The CPI spiked in the first half of the finance projects. year due to rapidly rising food and fuel costs as well as the massive inflow of liquidity as the PA resumed paying salaries Table 1: Real GDP in Remaining WBG by Economic Activity at and arrears. In the last part of the year, steeply falling fuel Constant Prices (PCBS Estimates) prices and the end of PA arrears payments helped drive 1999 2002 2005* 2006* 2007** down prices, which resulted in an average increase in the Agriculture and fishing 470.7 296.6 312.6 334 340.8 CPI of 9.8% for the year. This was well above the expected Mining, rate of 3-4 % when the PRDP budget was drafted. In manufacturing, electr. 655.5 580 564.8 531.1 527.3 addition, there were large fluctuations in the Dollar-Shekel and water exchange. The Shekel gained nearly 30% against the US Mining and quarrying 35.7 33 18.3 18 21.3 Dollar before falling in the last half of the year. On average Manufacturing 566.4 476.3 476.5 444 436.0 the Shekel exchange rate appreciated nearly 15 % in 2008. Electricity and water 53.4 70.7 70.0 69.1 70.0 Since most donor aid comes in dollars and many people supply and businesses plan and save in dollars, these fluctuations Construction 616.9 67.5 119.4 104 103.8 have had a significant impact on the Palestinian economy. Wholesale and retail 537.8 350 373.9 382.7 411.6 trade Investment has shown few signs of recovery during the Transport, Storage and 231.0 349.6 461.5 466 478.5 past year. It is difficult to precisely know the size of public Communications investment since almost all of it is project finance from Financial 169.1 149.9 187.4 186.7 192.5 external sources that are often not reported to the Ministry intermediation of Finance. The 2008 budget called for over US$500 Other services 990.8 899.1 1,100.2 940.2 906.1 million in development expenditures, but current estimates Real estate, renting and 444.3 392.7 446.8 447.8 343.2 are that it only reached about US$250 million. The PCBS business services does not publish figures on private investment; however, Community, social and 28.3 33.2 43.2 43.6 43.9 personal services monetary statistics suggest it is low. Claims on the private Hotels and restaurants 128.0 60.7 68.1 67.0 67.8 sector fell by over 6 % to approximately US$1.37 billion in Education 262.4 287.7 342.5 255.3 314.8 the first half of the year. At the same time, private sector Health and social work 127.8 124.8 199.6 126.5 136.4 deposits rose from US$4.1 billion to US$5.1 billion leading to net claims on the private sector to decline by over US$1 Public administration 497.7 578.1 796.1 552.7 570.0 and defense billion. In addition, net repayment of bank debt by the PA Households with was $38 million. This large withdrawal of liquidity from 8.7 8.2 8.5 8.7 8.6 employed persons the economy offset much of the external aid and indicates Less: FISIM -129.5 -109.6 -139.6 -138.3 -139.8 that in the current environment, few investors are willing Plus: Customs duties 208.6 75.8 274.2 284.9 284.0 to take risks and borrow from the banking system. Plus:VAT on imports, net 254.4 338.2 443.6 454.3 450.0 Gross Domestic Consistent with the lack of borrowing, industrial output 4,511.7 3556.4 4502.7 4107.0 4,133.4 Product continues to decline. 2008 figures are not yet available but Source: PCBS revised estimates according to PCBS estimates in 2007, manufacturing output Base year 1997 was approximately 1.8 % lower than in 2006 and nearly 23 * Second Revision % off from 1999 (Table 1). Agricultural output has been ** First Revision slowly recovering since its low of 2002 but it remains about 28 % below its peak in 1999. The lack of investment is also The recent ground invasion destroyed a significant evidenced by the fact that the construction sector has seen amount of the remaining capital stock and has resulted little growth in the last four years and is less than 20% of in the closure of many enterprises that had been able to continue operating. Though much of the damage was West Bank and Gaza its size in 1999. Recently, a few large housing construction projects have been announced in the West Bank, including sustained by already closed businesses, their destruction a new planned community north of Ramallah, which will ensures that they will not be able to quickly recover once require over US$500 million in private investment. If conditions improve. A preliminary assessment by the 13 Private Sector Coordinating Council estimates that the recent fighting resulted in $140 million in damage to Gaza businesses. Agriculture also suffered tremendous damage. PA estimates indicate that 17% of the total cultivated area was completely destroyed and that the overall damage to the sector was $180 million. Table 2: Industrial Decline in Gaza June 2005 Week 1, Nov. Dec. Dec. 2007 March 2008 June 2008 Pre-disengagement July 2007 2007 2008* Industrial Working 3,900 780 250 195 130 90 200 Establishments Industrial Employees 35,000 4,200 2000 1,750 1300 860 1900 Exports from Gaza (truckloads) 748 0 0 0 0 0 0 Source: Palestine Trade Center (PalTrade) interviews with local business associations * These figures were gathered before the ground invasion on December 27, 2008. Unemployment in the West Bank rose from 17.7 % at the end of 2007 to 20.7 % in the third quarter of 2008, while PCBS reports that unemployment in Gaza increased from 29.7 % to nearly 41.9 %.2 These figures do not give an accurate picture of the full impact of the economic crisis, because they do not take into account underemployed workers such as the large number who have turned to unpaid family labor or seasonal agriculture. The figures also do not include the many discouraged workers who have left the labor force.3 Labor force participation rates are low and dropping. In the West Bank it fell from 44 % at the end of 2007 to 43.4 % in the third quarter of 2008 and in Gaza it held steady at about 38 %. Adding discouraged workers would increase the unemployment rate to 26.4 % in the West Bank and 46.1 % in Gaza.4 2 Fourthquarterfiguresarenotyetavailable.Thegroundinvasionhascertainlyputmanymorepeopleoutofwork.However,thissectiongivesagoodpictureofthe structuraldamagedonetoGazabythemonthsofclosure. April 2009 3 Unemploymentfiguresalsodonotincludethelargenumberof"workersabsentfromtheirusualwork".InthePCBScalculations,theseworkersareassumedtobe temporarilyawayfromjobsduetoillness,workstoppage,naturaldisasterorforotherreasonsbutstillreceivingnormalpay.UNRWAestimatesthatnearly45,000 Gazanshavebecome"absentee"workerssincethefirsthalfof2007. 4 PCBCLaborForceSurveyQ12008 14 Macroeconomic and Fiscal Assessment for the West Bank and Gaza1 By the International Monetary Fund I. Introduction II. Fiscal Developments The economic and political situation in 2008 and The Palestinian Authority (PA) continued with fiscal early 2009 has been far bleaker than hoped for in the consolidation in 2008. The recurrent fiscal deficit Palestinian Reform and Development Plan (PRDP). on a commitment basis is estimated to have declined In the West Bank, Israeli restrictions on movement and to 19 percent of GDP in 2008 from 24 percent of GDP access were tightened compared to 2007 based on security in 2007, reflecting largely expenditure restraint on the concerns, and settlements have expanded. Gaza's economic wage bill and reduced utility subsidies.The deficit has been and humanitarian situation has deteriorated markedly due lower than envisaged in the 2008 budget on a commitment basis, but somewhat higher on a cash basis due to the front- to the war and its increased isolation. The restrictions on loading of arrears repayment. cash entry into Gaza have reduced depositor confidence in Gaza banks, and further reduced people's ability to cover The Public Finance Management System has been their basic needs. The surge in inflation, while subsiding strengthened further. A General Accounting Department later in 2008, further eroded household incomes and raised (GAD) was established at the Ministry of Finance (MoF), production costs. The adverse growth impact of these and a new Computerized Accounting System (CAS) has factors has to some extent been tempered by improved been developed to link the MoF to line ministries, with security conditions in West Bank cities, as well as higher- better integration of the recurrent and development budgets. than-expected donor budgetary assistance. The MoF's action plan for 2009 includes (i) ensuring that all line ministries are linked to the CAS, (ii) setting up a Despite the difficult conditions on the ground, cash and debt management unit in the GAD with a view to further prioritizing spending and minimizing arrears the Palestinian Authority (PA) has continued with accumulation, and (iii) presenting the 2010 budget with a institution-building and prudent fiscal policies and revised economic classification in line with international reforms. A strict government employment policy was standards. followed, wage rates have been virtually frozen, and measures have been implemented to improve utility bills The 2009 budget foresees continued reduction in payment. Since the advent of Prime Minister Fayyad's the recurrent deficit and a shift in the composition government, the Palestinian Authority has made impressive of expenditure away from wages and subsidies, and strides in strengthening the Public Financial Management toward nonwage and capital spending. As the budget System, which is helping prioritize and raise the quality of was completed before the outbreak of the war in Gaza, public expenditure. a separate "supplementary budget" will take into account Gaza's war-related reconstruction and rehabilitation needs. The key features of the 2009 budget include wage restraint There is a pressing need to secure adequate external and phasing out of utility subsidies, and a significant increase assistance to finance the budget deficit for 2009. A in the share of development projects in total spending. As a lower budget deficit, combined with the front-loading result it is expected that there will be a substantial reduction of arrears repayment in 2008, will result in a substantial in external financing requirements for the recurrent budget reduction in external recurrent financing requirements, as in 2009 by about $610 million (excluding Gaza-related reflected in the 2009 budget, to $1.2 billion compared to supplementary budget spending). $1.8 billion in 2008. This will make it easier for donors to accommodate the increase in public investment, which is projected at $0.5 billion in 2009, as well as expenditures to address the damage caused by the Gaza war. The latter spending, expected to be presented in a supplementary West Bank and Gaza 1 For details of the analysis and assessment, see the IMF staff report entitled budget in due course, is preliminarily projected at $300 "Macroeconomic and Fiscal Framework for the West Bank and Gaza--Third million in emergency spending for Gaza in 2009, and $1.3 ReviewofProgress",preparedbyateamcomposedofOussamaKanaan(Chief ofMission),RinaBhattacharyaandRomanZytek.AllIMFstaffreportsrelatedto billion for both 2009 and 2010 to address Gaza's war- theWestBankandGazaarepublishedinEnglishandArabicontheIMFwebsite related reconstruction. (www.imf.org/wbg) 15 III. Banking Sector Developments and would significantly reduce banks' profitability. They would also divert resources away from the banking system While domestic banks have not been significantly toward unregulated informal channels. The cost of bank affected by the global financial crisis, the growth transactions would rise markedly as these would need of deposits and private credit remains constrained to be to be denominated in currencies other than the by the subdued economic activity. Private deposits contracted by about 6 percent in real terms in the year to shekel and be cleared through offshore banks. This would September 2008. Reflecting banks' conservative lending expand the use of cash and informal international transfers practices and limited investment demand, most deposits (including through the "Hawala system"), which are much continue to be placed abroad, with private sector credit (as more difficult to monitor than bank transactions. Hence a share of private sector deposits) falling to 25 percent by it is crucial that an arrangement be reached between the September 2008 (compared with 39 percent at end-2006 Palestinian and Israeli sides that would ensure unhindered and 30 percent at end-2007). Risks to the balance sheets access by Palestinian banks to Israeli banks' correspondent of some banks persist, due in particular to Gaza's isolation services. and the deterioration of security conditions there. The Palestine Monetary Authority (PMA) has The imposition over the past year by the Government of continued institutional reforms. These reforms, which Israel of tight restrictions on the entry of cash into Gaza have been supported by IMF technical assistance, aim at is having a serious adverse impact on Gaza's economy. transforming the PMA's organization and operations with As a result of these restrictions cash available to banks has the medium-term objective of becoming a full-fledged been well below what is needed to accommodate local central bank. The PMA has made considerable progress customer cash demand, including for Palestinian Authority during 2008 in internal reform and capacity building, (PA) employee salaries and humanitarian assistance. The including in strengthening the supervisory framework resulting cash shortages have had serious repercussions and governance. A macroprudential division was created, and progress was made in establishing an early warning in several respects: (i) the additional cash constraint on system. A new credit registry is allowing banks to better households' liquidity has further reduced their capacity to evaluate risks, reduce collateral requirements, and improve cover basic needs, in addition to the indirect repercussions credit flow. The financial legal framework has also been on other households as a result of the shortage of cash for strengthened. An Anti Money Laundering Law has been programs targeting Gaza's most vulnerable groups which in force since 2007, and a new Banking Law and a new are administered by the World Bank, European Union, Central Bank Law are expected to be enacted in 2009. and UNR WA; (ii) the steady fall in bank cash reserves has induced the hoarding of cash and negatively affected the IV. Medium-Term Macroeconomic public's confidence in its ability to draw cash from banks, thereby undermining the viability of the banks; and (iii) Outlook the cash restrictions have also resulted in the diversion of A medium-term macroeconomic baseline scenario scarce resources from banks toward unregulated informal was developed that is predicated on all parties (PA, channels. This has reduced the relevance and effectiveness the Government of Israel, and donors) pro-actively of the Palestinian Monetary Authority's prudential pushing the peace process forward and supporting framework and its regulations against money-laundering growth-enhancing reforms and institution-building. and terrorist activities. Thus removal of cash restrictions In particular, it assumes that: (i) there is an easing of will be essential to prevent a further deterioration of living the blockade on Gaza and of restrictions on movement standards, safeguard banks' viability, and prevent continued and access in the West Bank, which would lead to a diversion of resources toward unregulated activities. recovery of exports and private investment, enable an acceleration of the public investment program, and Gaza's prospects are also adversely affected by allow Gaza's reconstruction and rehabilitation; (ii) the PA would continue its prudent fiscal policy based on a the severance by Israeli banks of correspondent tight expenditure stance; and (iii) donors would provide and clearance relationships with Gaza banks. On adequate and timely financial assistance to cover both the January 1, 2009 two Israeli commercial banks (Bank narrowing recurrent budget deficit and expanded public Hapoalim and Discount Bank) cut off all correspondent investment and reconstruction needs. and clearance services with banks operating in the West Bank and Gaza for NIS-denominated transactions, Under the baseline scenario with the above assumptions and there is now a risk of severance of relations with and policy expectations, real GDP growth would April 2009 West Bank banks as well. These actions would severely increase from about 2 percent in 2008 to 5 percent disrupt the operation of the Palestinian banking system in 2009, 6½ percent in 2010, and 7½ percent in 2011 (see table below). Although trade with Israel could be 16 affected by the global slowdown (other things being equal), investment and reconstruction. This would limit income WB&G growth prospects would be much more strongly growth and employment opportunities, and would influenced by the easing of restrictions. The rise in donor- make it more difficult for the PA to continue with fiscal funded and private sector investments should offset the retrenchment.In particular,it would become more difficult impact of fiscal consolidation as well as lay the foundations to restrain real wages, raise collection rates for utilities, for sustainable growth in the long run. The share of public and reduce social spending. Furthermore, continuation consumption in GDP would decline, making room for of Gaza's blockade, by worsening its humanitarian crisis, a high rate of public investment while at the same time reducing reliance on external financing. Reflecting the would raise emergency spending and divert resources relaxation of border restrictions, expansion of exports from growth-enhancing areas. from repressed levels, and strong demand for raw materials · Additional donor assistance needs to be secured and capital, real export and import growth would average immediately to cover external recurrent financing 9­10 percent per year during 2009­11. needs for 2009. If adequate funds cannot be secured, the PA would need to cut its cash expenditures and While the projected recovery may appear impressive, likely accumulate arrears, including on wages. Close it would still leave living standards below pre-closures coordination among donors, and between donors and levels in 2000. Real GDP is estimated to have declined the PA, will be essential to ensure adequate and timely by a cumulative 13 percent since the imposition of Israeli disbursements for the recurrent budget. restrictions on movement and access in 2000 up to 2008 (or a cumulative 34 percent in real per capita terms), suggesting · The drive to raise donor support for Gaza's reconstruction an income level for the Palestinian economy well below should not divert attention from the pressing need to its potential. Even with the assumed relaxation of Israeli finance the recurrent budget. It has already been difficult restrictions starting in 2009, real income per capita in 2011 for the PA, since December 2008, to raise enough donor would still be about 27 percent below its level in 2000.The funds to cover the wage bill and basic recurrent spending. rate of unemployment would remain high at 23 percent About half of the PA's recurrent spending has in recent in 2011, compared to 11 percent in 2000. years been deployed in Gaza, including through the wage bill and social assistance. Payment of these obligations, The above projections are subject to the risk that the most of which are paid directly into the bank accounts of peace process will remain stalled, with persistence the designated beneficiaries, constitutes the most effective of Gaza's blockade and Israeli restrictions in the social safety net now in place in Gaza. West Bank. Given that risk, a "pessimistic" scenario was developed on the premise that Gaza's blockade and Israeli · The shortage of cash has made it even more difficult for restrictions would remain unchanged, inhibiting trade and people in Gaza to cover their basic needs. Failure to fully private investment. Continued restrictions on imports of finance the recurrent budget, and to ensure that this capital goods and raw materials and passage of project financing is translated into cash received by employees and personnel would also reduce the pace of implementation of beneficiaries, poses a risk that an even larger proportion the donor-financed public investment program and Gaza's of Gaza's population will fall below the poverty line. reconstruction. This would have an adverse impact on longer-term growth, in addition to its immediate impact on private sector activity (see table and figure below). Under this scenario real GDP per capita would likely remain on a declining trend, possibly contracting by an average of 1.2 percent per year during 2009­11. Unemployment would rise from 24 percent in 2008 to over 30 percent by 2011. V. Concluding Remarks Close cooperation among all three parties (the PA, GoI, and donors) is essential to contain significant risks to the macroeconomic and fiscal outlook for 2009 and beyond: West Bank and Gaza · Slow progress in the peace process combined with continued restrictions on movement and access would further delay private sector recovery and impede public 17 West Bank and Gaza - Comparison with Pessimistic Scenario 2008 2009 2010 2011 2009 2010 2011 Est. Baseline Scenario Pessimistic Scenario Output and Investment Real GDP (percentage change) 2.0 5.0 6.5 7.5 0.0 2.5 3.0 Real GDP per capita (percentage change) -1.2 1.8 3.3 4.3 -3.1 -0.6 -0.1 Gross capital formation (in percent of GDP) 19.1 32.8 24.8 25.6 20.8 22.2 23.5 o/w: public investment (in percent of GDP) 4.2 17.8 9.8 10.3 6.1 7.6 9.0 (In percent of GDP) Public finances 1/ Revenues 2/ 24.2 25.8 26.1 26.3 24.5 24.5 24.8 Recurrent expenditures and net lending 43.6 44.0 39.4 36.3 45.9 43.0 41.2 Recurrent balance (before external support) 2/ -19.4 -18.2 -13.3 -10.0 -21.4 -18.4 -16.4 Recurrent balance, cash basis (before external support) 2/ -25.1 -18.2 -13.3 -10.0 -18.7 -14.3 -11.2 Expenditure arrears accumulation -6.0 0.0 0.0 0.0 2.7 4.1 5.2 Capital expenditures 3.9 17.5 9.5 10.0 5.7 7.2 8.7 (In millions of U.S. dollars) 251 1,103 663 763 350 470 590 External recurrent budgetary support (in billions of U.S. dollars) 1.8 1.2 0.9 0.8 1.2 0.9 0.8 Total external support, including for capital expenditures 29.6 35.7 22.8 20.0 24.5 21.6 20.0 (In billions of U.S. dollars) 1.9 2.3 1.6 1.5 1.5 1.4 1.4 (In percent of GDP) External sector Exports of goods and nonfactor services 13.1 13.2 13.7 14.0 12.7 12.3 12.0 Import of goods and nonfactor services 71.6 86.3 76.0 75.8 77.9 77.5 75.5 Current account balance (excluding official transfers) -27.2 -39.7 -29.3 -28.0 -28.3 -27.1 -26.4 Current account balance (including official transfers) 2.4 -4.0 -6.5 -8.0 -3.8 -5.5 -6.5 Memorandum items: Unemployment rate (average in percent of labor force) 23.9 23.6 23.3 22.7 25.3 27.6 30.6 Sources: Palestinian authorities and IMF staff estimates.1/ Commitment basis.2/ For 2008, revenues exclude the special dividend from the Palestinian Investment Fund (PIF) of $197 million.Pessimistic ScenarioWest Bank and Gaza - Comparison with Pessimistic ScenarioBaseline Scenario(In percent of GDP)(In percent of GDP) West Bank and Gaza: Path of real GDP growth, 2005-2012 Persistence of the blockade and restrictions on movement and access will markedly slow economic growth, especially in Gaza. West Bank and Gaza, real GDP growth, Baseline Scenario West Bank and Gaza, real GDP growth, Pessimistic Scenario (In percent) (In percent) West Bank and Gaza West Bank Gaza West Bank and Gaza West Bank Gaza Source: Palestinian Central Bureau of Statistics and IMF staff estimates and projections. April 2009 18 The World Bank's Operations in West Bank and Gaza March 2009 On-going Bank Group Operations Project Name & Details Description Solid Waste and Environmental The overall objective of the project is to implement an environmentally sound solid Management Project (SWEMP). waste management system for Jenin District. This objective has been 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: June 30, 2009 (SWM) services in the district through the supply of equipment and the strengthening of Task Team Leader: Ibrahim Dajani management and operation capacities; building institutional capacity in the newly created Joint Services Council for regional SWM services; and strengthening the institutional and monitoring capacity of Environmental Quality Authority. The Project is managed by the Joint Services Council for Solid Waste Management.The European Commission is financing the supply of collection vehicles and transfer stations relation set-ups. To successfully complete the key project activities that have been delayed due to the prevailing socio-political circumstances, the project's closing date was extended from June 30, 2008 to June 30, 2009. The project was formally restructured in May 2007. The new project development objective Social Safety Net is to mitigate the impact of the continued socio-economic crisis on a subset of the poorest and Reform Project (SSNRP). most vulnerable households.An additional objective is to strengthen the institutional capacity World Bank: US$10.0 million plus of the Ministry of Social Affairs to manage cash transfer programs. The primary objective US$10.0 million additional financing would be achieved by implementing a pilot incentive-based cash transfer mechanism with approved in April 2008. US$5.0m improved targeting modalities that would contribute to improving the living conditions of additional financing from the food crisis the beneficiaries.The Project also aims to strengthen the institutional capacity of PA agencies trust fund approved in November 2008. involved in the implementation of the proposed project, in particular the Ministry of Social Approval Date: June 3, 2004 Affairs. Closing Date: June 30, 2012 An Additional Financing of US$10.0 million was approved on April 22, 2008 to help finance Task Team Leader: Eileen Murray costs associated with the scaling up of the project and its transformation into a cash benefit program administrated by the Palestinian Authority, capitalizing on the Ministry of Social Affairs poverty targeting database. In addition, the project has received additional financing in the amount of US$5m from the global food price crisis trust fund in November, 2008. The North Gaza Emergency Sewage Treatment project (NGEST) is the fourth in a series of North Gaza Emergency Sewage Treatment Bank-funded water and sanitation projects since 1994.The Project consists of two parts: Part Project. A - addressing the immediate and impending health, environmental and safety hazards to the World Bank: US$7.8 million plus US$12.0 communities near the poorly-treated and rapidly growing sewage lake in the Beit Lahia area million additional financing approved in of North Gaza. And Part B - a long-term solution for the adequate treatment and disposal April 2008 of wastewater in North Gaza, which entails the construction of a new wastewater treatment Approval Date: September 9, 2004 plant expected to be financed by various donors. Approximately 300,000 people living in Closing Date: June 30, 2012 North Gaza will benefit from this project. The project overall estimated cost is about US$ Task Team Leader: Khairy Al-Jamal 63 million. An Additional Financing of US$12.0 million was approved on April 22, 2008 to support the original objectives and the overall project design and components. Specifically, the additional financing will cover the overrun cost of Part A and risk management activities. West Bank and Gaza 19 On-going Bank Group Operations Project Name & Details Description Tertiary Education Project The project development objectives are: 1) to improve the regulatory environment for tertiary World Bank: US$10 million education management, relevance and quality assurance; 2) increase internal and external Approval Date: April 26, 2005 efficiency of the tertiary education system, as a first step towards seeking sustainability; and 3) Closing Date: December 31, 2009 to create incentives and provide the basis for improvements in efficiency, quality and relevance Task Team Leader: Adriana Jaramillo 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. Gaza II Emergency Water This Project is a follow-up to the previous GWSSP. The development objectives of this Project World Bank: US$20 million plus are: (a) to develop a sustainable institutional structure of the water and wastewater sector in US$5.0 million additional financing Gaza by supporting the functional establishment of a Coastal Municipalities Water Utility, as approved in April 2008 well as by enhancing and deepening the involvement of the private sector through a three- Approval Date: June 7, 2005 year management contract; (b) to continue improving the water and sanitation services by Closing Date: January 31, 2010 rehabilitation, upgrading and expansion of existing systems and facilities; and (c) to strengthen Task Team Leader: Khairy Al-Jamal the regulatory and institutional capacity of the Palestinian Water Authority. The whole population of Gaza (around 1.5 million people) are benefiting from the project. Additional financing of US$5.0 million was approved on April 22, 2008 to supplement the project overrun expenses. This additional financing will furthermore strengthen the ability of CMWU to consolidate the ongoing institutional reform process by covering the operational expenses for one more year Second Emergency Municipal Services A prolonged period of economic contraction has had serious consequences for municipal and Rehabilitation Project revenues and the ability of local governments to continue providing basic services. This has World Bank: US$10 million translated into sharply increased health, safety, and sanitation risks for the Palestinian population Approval Date: December 19, 2006 resulting from mounting solid waste, and deteriorating streets, water and wastewater networks, Closing date: June 30, 2009 particularly in heavily populated urban areas. The objectives of EM SRP II are to (a) provide Task Team Leader: Somin Mukherji funding for infrastructure rehabilitation and maintenance 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. Third Palestinian NGO Project The objective of the project is to provide social services to those who are poor, vulnerable or World Bank: US$10 million affected by the deteriorating socioeconomic conditions by establishing an effective mechanism Approval Date: December 19, 2006 to improve the quality and sustainability of NGO social service delivery.The first two PNGO Closing date: December 31, 2009 projects successfully built up Palestinian NGO capacity to carry out social service delivery Task Team Leader: Meskerem Brhane activities. Now, there is a need to consolidate and sustain this capacity by moving the driving force for further NGO development firmly into the hands 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 same time, the project will provide funding to develop and sustain specific NGO-sponsored social service delivery activities. April 2009 20 On-going Bank Group Operations Project Name & Details Description Emergency Services Support Program The development objective of the Emergency Services Support Program is to mitigate the III deterioration of service delivery brought about by the inability of the Palestinian Authority to World Bank: US$10 million meet its non-salary recurrent costs.The ESSP finances the non-salary expenditures of the key Approval Date: December 13, 2007 social ministries and based on the PA's recurrent expenditure program for these ministries. Closing Date: December 31, 2009 Task Team Leader: Eileen Murray Village and Neighborhood The objective of this project is to promote a coordinated development approach which builds Development Project the capacity of communities to plan for and manage development sources. The project will World Bank: US$10 million support small communities in planning local initiatives, prioritizing needs through an inclusive Approval Date: April 22, 2008 and participatory process. It will also provide small grants to support joint activities among several Closing Date: October 30, 2012 village councils for subprojects that are part of the local plan. This will provide incentives for Task Team Leader: Meskerem small communities to work together and eventually amalgamate and become a municipality. Brhane Electricity Utility Management The development objective of the Electricity Utility Management Project is to reduce the Project. fiscal burden of the sector on PA's budgetary resources through interalia lower deductions World Bank: US$12million from clearance revenues for arrears owed to IEC. This will be possible through adoption Approval Date: May 15, 2008 of appropriate sectoral efficiency enhancement measures taken and the key performance Closing Date: June 30, 2012 indicators of the electricity distribution utilities that will include: (a) improved collection Task Team Leader: Meskerem Brhane performance; (b) lower technical/non-technical losses; (c) reduction in payables to IEC on account of electricity purchase; and (d) consolidation and increase in number of consumers. The Project will also ensure that NEDCO is fully operational through financing necessary capacity building measures. West Bank and Gaza 21 West Bank and Gaza Portfolio March 2009 Trust Fund for the West Bank and Gaza REPORTS AND STUDIES Committed Disbursed Undisbursed Disbursed Municipal Finance Policy Note ON-GOING PROJECTS US$ Million Percent Water Restrictions Study Solid Waste and Environmental Management Project 9.5 9.5 0.0 100% Higher Education Student Financing Scheme Social Safety Net Project 25.0 8.7 16.3 35% Phase III: Palestinian Trade Facilitation North Gaza Emergency Sewage Treatment Project 19.8 8.2 11.6 41% Economic Impacts of Access to Land Tertiary Education Project 10.0 5.7 4.3 57% Housing Finance Sector Gaza II Emergency Water Project 25.0 19.6 5.4 78% Health Policy Report Palestinian NGO Project III 10.0 5.8 4.2 58% Emergency Municipal Services Rehabilitation Project II 10.0 9.6 0.4 96% Social Inclusion and Gender Emergency Services Support Program III 10.0 5.9 4.1 59% Transport Sector- Technical Assistance Village and Neighborhood Development Project 10.3 0.6 9.7 6% Water Resource Management Electricity Utility Management Project 12.0 0.5 11.5 4% Telecommunications Reform and Inst. Strengthen Total On-going Projects 141.6 74.1 67.5 52% Development of Housing Finance TA Total Completed Projects (1993-2009) 571.2 539.7 31.1 94% Country Procurement Issues Paper TOTAL (On-going & Completed Projects) 712.8 613.8 98.6 86% Governance Completed Projects (38) by Sectors (1993-2009) ON- GOING RECIPIENT EXECUTED (RE:Trust Funds/Grants) (USD m) Committed Disbursed Undisbursed Disbursed Palestinian Reform Development Plan MDTF (PRDP-TF) 297.2 297.2 0.0 100% Avian Influenza Prevention and Control 3.0 2.3 0.7 77% Emergency Services Support Program 81.0 68.0 13.0 84% Total RE 381.2 367.5 13.7 96% Total (On-Going Projects and RE ) 522.8 441.6 81.2 84% ON-GOING TRUST FUNDS BY DONOR Commitment ON-GOING MULTI-DONOR TRUST FUNDS (MDTF) Spain-Consorci de Promocio Comercial de Cataluna 0.15 MDTFs Donors Commitment Danish International Devp. DANIDA -Min.Foreign Affairs 10.09 Investment Guarantee Trust European Investment Bank- EIB; 20.51 Fund Japan; Palestine Liberation Org.; EU-Commission of the European Communities 16.73 Emeregency services Sup- Australia; Austria; Belgium; ; EU/EC; 81.00 Finland- Ministry for Foreign Affairs 1.47 port Program France; Italy; Norway; Switzerland; Italy-Ministry of Foreign Affairs 1.67 Sweden; Spain; United Kingdom Japan- Ministry of Finance 0.88 First: WBG Pension Canada; United Kingdom ; Neth- 0.24 Norway-Ministry of Foreign Affairs 1.94 erlands Rapid Capacity Building in Belgium; Brazil; Canada; 0.25 Germany - Ministry for Economic Coop. & Dev. 0.04 West Bank and Gaza Netherlands;Norway; Switzerland; Swedish International Devp. Cooperation Agency - SIDA 10.52 UNDP UK- Department for International Development - DFID 2.81 Palestinian Recovery Australia; Canada; Finland; France; 297.28 Other Multidonor TFs 34.85 and Development Plan Kuwait; Norway; United Kingdom Total On-going Donor Funded TF 81.15 Multi-Donor Trust Fund (PRDP-TF) April 2009 Total closed Trust Funds** 1010.18 Total On-going & Closed Trust Funds-TF 1091.33 **Total closed trust funds include all single and MDTF All figures in million of USD 22 The Impact of Mobility Restrictions on Economic Participation,Violence and Gender Relations To date, little has been written on the gender-differentiated impacts of the restrictions on movement and access, be it on employment, security or gender relations. For instance, while the severe access and movement restrictions imposed by the closures and curfews have an effect on both men and women, they limit women's presence and role in the public sphere. At the same time, the deepening economic crisis is limiting men's ability to provide economically for their families, putting into question traditional roles of men as breadwinners, and creating tension in gender relations. These realities are redefining relations between men and women, requiring constant renegotiation of gender roles. To this end, a study was launched by the World Bank in 2008 to analyze the impact of the restrictions on access and movement in the West Bank and Gaza from a gender perspective, specifically focusing on economic participation and personal security (both public and private). The study, entitled The Impact of Mobility Restrictions on Economic Participation and Gender Relations in Palestinian Society, 2000-2007, aims to inform governments, civil society, and donors and to provide recommendations for promoting greater gender-sensitivity in operational programs. The World Bank commissioned Birzeit University's Women's Studies Institute to conduct a detailed background study which relied on quantitative secondary data analysis, qualitative primary data collection and analysis, in-depth interviews, and a literature review. The findings of the study were presented by Birzeit University at a one day workshop organized by the Ministry of Women's Affairs on March 26, 2009, intended to provide feedback to key stakeholders. Over 100 people representing civil society, academia, and the public sector took part in the discussion. The study examined the impact of closures on · men's and women's labor force participation in the formal and informal labor markets; · opportunities for youth employment; · rates of higher education; · role of unemployment in domestic violence; · role of violence associated with the occupation on participation in the economy (especially for women). The Bank is carrying out this study in partnership with three key institutions: Birzeit University's Women's Studies Institute, Ministry of Women's Affairs and CARE International. Each institution brings its expertise on which the study will be drawing. Based on feedback from the workshop, additional background studies and case studies, the World Bank will finalize the report in June 2009 and will disseminate it to the public. West Bank and Gaza 23 Promoting Good Governance The World Bank is proposing to carry out a study on governance issues in West Bank and Gaza (WB&G) that will shed light on the nature and extent of the problem. A number of surveys conducted in recent years have shown that public concerns about governance persist despite reforms from the Palestinian Authority (PA) aimed at improving the quality of fiscal management. Some PA officials argue that in fact, public perceptions of corruption are exaggerated compared to the actual extent of such practices. The Bank study intends to provide further analysis by addressing the following questions: · What issues of governance in the public sector are most problematic, and in which sectors are they most prevalent? · To what extent do perceptions match the realities on the ground? How does WB&G compare to other countries in the actual manifestations of corrupt practices? · What are the main weaknesses in the regulatory, policy, and legal environment, which create the scope for corrupt practices upstream? · How effective are current anti-corruption mechanisms and institutions? · What are the priorities for governance reform in this area? The study aims to support PA efforts to improve governance. In particular, it will contribute to two programs in the Palestinian Reform and Development Plan (PRDP) ­ the Efficient and Effective Government program, and the Open and Accountable Government program. The study will have three major analytical components: 1- surveys of actual experiences with corruption in WB&G; 2- case studies of governance weaknesses and; 3- assessments of the institutional and legal environment for combating corruption. The study will be published in August 2009. April 2009 24