In This Issue 1. West Bank and Gaza Economic Update and Potential Outlook /3 2. Land Administration in the West Bank and Gaza /8 3. The Role and Performance of Palestinian NGOs In Health, Education and Agriculture /11 4. An Interim Assessment of Passages and Trade /15 5. Recent Economic Developments /19 6. Economic and Financial Developments By the IMF /30 7. World Bank Activities - Speech by the Country Director /33 8. Consultations with Palestinian Civil Society on Improving Women's Rights /36 A Quarterly Publication of the West Bank and Gaza Office 9. Transparency and Good Governance in Tertiary Education /37 April 2006 Contact Numbers West Bank Office Numbers: Switchboard 02-2366500 Fax: 02-2366543 Country Director Legal Reform External Affairs A. David Craig Paul Prettitore Saida Hamad Tel. 02-2366506 02-2366534 Tel. 02-2366504 Deputy to Country Director Water and Energy Public Information Faris Hadad-Zervos Khairy Al-Jamal Mary Koussa Tel. 02-2366549 08-2823422 Tel. 02-2366529 Education Infrastructure Development Adriana Jaramillo Ibrahim Dajani 02-2366514 Tel. 02-2366553 Health Financial Management Iamd Dweik Siaka Bakayoko 02-2366501 Tel. 02-2366541 Gaza Office: International Finance Corporation Coordinator Investment Officer Husam Abu Dagga Youssef Habesch Tel. 08-2823422/2824746 Tel. 02-2366517 Fax: 08­2824296 Fax: 02-2366521 Free Subscription: mkoussa@worldbank.org Newsletter at Internet: http://www.worldbank.org/ps Special thank to Mr. Joel Toujas-Bernate, IMF representative, for his contribution to this issue. 3 West Bank and Gaza Economic Update and Potential Outlook This note previews the findings of the Bank's Economic Monitoring Report #2, requested by the Ad Hoc Liaison Current Context Committee in December 2005 and due next month. It reports on developments in 2005 on the basis of recent data, and reviews the potential economic impact of In recent weeks, both the Government of Israel (GOI) various policy measures currently under consideration. and donors have been considering a variety of economic responses to the outcome of the Palestinian Legislative Council (PLC) election of January 25, 2006, some of which are already under implementation. GOI has suspended Developments in 2005 the regular transfer of revenues which it collects on behalf of the PA; other forms of economic interaction at issue are Palestinian labor access to Israel, and the flow In 2005, real Gross Domestic Product (GDP) grew by an of imports and exports across Palestinian borders with estimated6.3percent.AsexplainedintheBank'sDecember Israel. Donors are planning to reduce various categories 2005 Economic Monitoring Report #11, a confluence of foreign assistance. of factors explains this level of growth, including an expansionary (but unsustainable) By way of introduction, two fiscal policy by the Palestinian points are worth noting. First, Authority (PA), increased banking Suspending revenue transfers, constraining the Palestinian economy is highly credit to the private sector, a Palestinian movement and access and sensitive to external stimuli, due relaxation of closures (permitting reducing aid flows would cause severe to its degree of dependence on a higher number of Palestinian economic damage. Real GDP per capita Israel and on foreign assistance; workers to find jobs in Israel), declines by 27 percent in 2006, and personal consistent with this, the Ad Hoc and increased Israeli demand Liaison Committee (AHLC) in incomesby30percent;a one yearcontraction for Palestinian exports2. Despite December 2005 agreed that of economic activity equivalent to a deep positive growth rates during achieving desirable rates of depression. By 2008, unemployment hits 47 2003-5, Palestinian incomes Palestinian GDP growth would percent and poverty 74 percent. remain considerably lower than depend on Israel continuing to their pre-intifada levels, with real transfer revenues, rolling back the GDP per capita in 2005 about 31 system of movement restrictions percent lower than in 1999. in force and maintaining or increasing labor access to Israel--and on sustained high rates of donor and private investment as well as Palestinian governance reform. It follows that suspending revenue transfers, constraining 1 The Palestinian Economy and the Prospects for its Recovery--Economic Monitoring Report to the Ad Hoc Liaison Committee Number 1, December Palestinian movement and access and reducing aid flows 2005. 2In Economic Monitoring Report #1 (op. cit.), we estimated that real GDP would cause severe economic damage if the available growth might reach 8.7 percent in 2005. The economic data released since tools were employed with sufficient vigor. Second, the then, notably labor market data for the third and fourth quarters of 2005, impact of the suspension of clearance revenue transfers show that economic developments in the second half of 2005 were less positive than anticipated. April 2006 4 and restrictions on movement and access would be much dialogue in 2004-5, culminating in the Agreement on greater than the impact of reduced aid flows. Movement and Access (AMA) concluded between the parties on November 15, 2005. GOI and the PA The relative impact of GOI and donor actions is borne have not yet fulfilled various obligations under the out by the economics of the second intifada--a period in AMA5. Furthermore, GOI has recently announced which the various restrictions placed on the movement of that it will tighten security checks on its borders people, labor and goods, and on the transfer of revenues with West Bank and Gaza. collected by GOI on the PA's behalf, led to a contraction in real personal incomes of almost 40 percent between · Restricting or terminating Palestinian labor flows the third quarter of 2000 (Q3/2000) and Q3/2002--despite to Israel. In 2005, a daily average of approximately a doubling of annual donor disbursements in the same 44,800 Palestinians worked in Israel6. These period. workers were paid approximately US$405 million in the course of the year (amounting to 7 percent of GDI). Even before the PLC election, GOI policy was to reduce to zero the number of permit-holding Potential Measures and their workers by the end of 2007. Since the election, Impact labor flows have averaged 25-30,000 per day. Reducing aid flows. Foreign assistance to the Possible economic measures. Those with the greatest Palestinians is conventionally classified under three broad immediate impact are of three main types. headings--budgetsupport,emergency/humanitarian,and development aid. In 2005, donors contributed a total of · Suspending the transfer of tax revenues collected on approximately US$1.3 billion7 to the Palestinian economy, the PA's behalf. As agreed under the Paris Protocol or some 22 percent of GDI. Of the US$1.3 billion, it is of 1994, and consistent with the operation of the estimated that some US$350 million (27 percent) was quasi-customs Union between Israel and the PA, provided in the form of budget support, US$500 million GOI remits to the PA through a regular `clearance' (38 percent) as humanitarian/emergency assistance, and mechanism taxes and VAT levied in Israel on US$450 million (35 percent) as developmental aid (either merchandise destined for Gaza and the West Bank. in the form of capital assistance or for technical assistance/ These revenues have in the past represented up capacity building). to two-thirds of total Palestinian revenue--a sum Donors have by and large stressed that emergency/ amounting to some US$740 million in 2005, or humanitarian assistance is not at issue in the current approximately 13 percent of Gross Disposable debate, and might even be increased to mitigate any Income (GDI)3. Last month GOI announced it hardships for the neediest in Palestinian society accruing would suspend these transfers and deposit the from a reduction in other forms of foreign assistance. In proceeds due to the PA in an escrow account. addition, in contrast to the other forms of aid, almost all · Restricting trade across borders. Border trade has of this assistance is routed through the UN or through been significantly constrained since the beginning NGOs rather than through the PA. Potential aid reductions, of the intifada (at present, all merchandise trade therefore, would come from the c. US$800 million provided flows either to or through Israel). In 2005, imports in 2005 for budget support and developmental aid. and exports totaled nearly US$3.4 billion--an Regarding the provision of aid exclusively through UN amount equivalent to 83 percent of Palestinian and NGO channels, the following points should be GDP, illustrating the openness of the Palestinian economy (and its consequent vulnerability to trade restrictions)4. A recognition of the importance of 5See www.worldbank.org/ps: An Interim Assessment of Passages and Trade normalizing Palestinian trade flows led to a trilateral Facilitation, February 2006. 6The labor flows used in this note exclude East Jerusalem ID holders. Of the 44,800, some 18,800 held valid permits, about 18,600 were clandestine/ illegal entrants from the West Bank and another 7,400 were Israeli ID or foreign passport holders. 3Gross Disposable Income measures all resources available to the economy, 7In the Bank's Economic Monitoring Report #1 (op. cit.), a total of US$1.1 including aid transfers and remittances. billion was used. This excluded approximately US$200 million contributed 4In 2005, imports amounted to nearly US$2.8 billion (68 percent of GDP) to UNRWA's `regular' budget (a convention generally observed since the while Palestinian exports contributed US$600 million in value added (15 beginning of the Oslo process in order to distinguish additional assistance percent of GDP). accruing as a result of the Peace Process). 5 borne in mind. First, the PA delivers the vast bulk of be withheld, that border trade is further restricted12, public services8. Second, it would be difficult to ramp and that permits for Palestinian laborers are reduced up emergency/humanitarian assistance levels quickly if considerably faster than under Scenario 113. Aid humanitarian flows required new verification procedures; flows, however, continue as under Scenario 1. humanitarian delivery potential would also be impeded · Scenario 3: Reduced Aid Flows. This assumes that by the movement restrictions in place today at the borders and inside the West Bank (including those being economic policies consistent with Scenario 1, but experienced by donor Palestinian staff)9. Third, welfare that donor assistance is reduced. Budget support in levels cannot be divorced from PA salary payments; the 2006 is assumed to decrease from US$350 million case for sustaining these during the intifada was in part to US$300 million (OECD contributions decline to premised on the welfare benefits associated with such US$120 million14, while overall Gulf/Middle Eastern transfers10. flows remain almost unchanged). In 2007 and 2008 budget support is assumed to total only US$200 million as OECD support is withheld. Emergency/ humanitarian assistance is assumed to increase Assumptions Made by 20 percent in 2006, to US$600 million, and to peak at US$650 million in 2007. Disbursements of Bank staff have modeled four scenarios for the period developmental aid are assumed to decline from 2006-8. They do not cover all eventualities, and are thus US$450 million in 2005 to US$200 million in 2006 illustrative in nature. in the face of cut-backs, and to taper off to US$100 million in 2008 as ongoing programs gradually · For baseline comparative purposes, we have close. developed Scenario 1: No Abrupt Change. This · Scenario 4: Suspension of Clearance Revenue assumes the resumption of the transfer of revenues, Transfers, Trade and Labor Restrictions, and the continuation of the border trade management Reduced Aid Flows. This assumes that all measures practices of 2005, and a daily average of 32,800 described in Scenarios 2 and 3 are applied. Palestinian workers in 2006, 20,100 in 2007 and 7,400 in 200811. Aid disbursements are assumed to remain at 2005 levels in 2006, after which they decline gradually. Potential Outcomes · Scenario 2: Suspension of Clearance Revenue Transfers, Trade and Labor Restrictions. This The projections show the following (see the assumes that revenue transfers to the PA continue to Attachment): · Even under Scenario 1: No Abrupt Change Palestinian economic prospects are not good. 8 In primary and secondary education, the PA employs almost 30,000 staff Readers of the Bank's Economic Monitoring Report (64 percent of all education personnel), runs 76 percent of all schools (1,660 of 2,190) and educates 67 percent of all schoolchildren. In health, 11,000 #1 may recall that donors targeted a real GDP staff are employed to run 62 percent of all health facilities (800 of 1,290). growth rate of 10 percent per annum in order These proportions are significantly more pronounced if refugee camps (in which UNRWA delivers such services) are excluded. 9 For these reasons, we assume that 2006 emergency/humanitarian aid flow increases are limited to 20 percent as compared with 2005. 10See, for example, Twenty-Seven Months: Intifada, Closures and Palestinian Economic Crisis, Annex 1, World Bank, May 2003. In 2005, an average of 12 c. 135,000 staff were employed by the PA; using a dependency ratio of 6.0 In Gaza we assume that the management of Karni and Erez will remain (the ratio of population to persons employed), this suggests that about significantly more constrained than in 2005 insofar as exports are concerned, 810,000 people, or 23 percent of the population, were directly supported though less so in relation to imports. In the West Bank, we assume both a by PA salary payments. tightening of border terminal management and (complementing this) that the separation barrier is completed in 2006. 11This presumes the termination of all Palestinian labor permits at the end 13 of 2007, but with continued access by West Bank foreign passport holders. We assume that a daily average of c. 6,000 permits is issued in 2006 and The labor figures in this scenario are composed of three elements: a) permit 2007, and that clandestine West Bank labor flows average 9,300 per day in holders (a daily average of c. 18,800 in 2005, which we assume declines 2006 and cease thereafter. West Bank foreign passport holders continue to gradually in 2006 and 2007 in accordance with stated intentions, to c. 16,100 have access to work in Israel. in 2006 and 12,700 in 2007); b) clandestine/illegal West Bank laborers (a 14Of this, c. US$60 million has been disbursed to date by Norway and daily average of c. 18,600 in 2005, reduced by half to c. 9,300 in 2006 as the the EC (in the latter's case to help the PA pay utility bills owed to Israeli separation barrier is completed, and disappearing thereafter); and c) West companies), and US$42 million has been disbursed from the Bank- Bank foreign passport holders (c. 7,400 throughout). administered Reform Fund. April 2006 6 to rapidly reduce unemployment to acceptable · Scenario 4: Suspension of Clearance Revenue levels15. Under this Scenario, however, real GDP Transfers, Trade and Labor Restrictions, and per capita growth declines from 6.3 percent in 2005 Reduced Aid Flows is the most deleterious. Real to 4.9 percent in 2006, and turns negative thereafter. GDP per capita declines by 27 percent in 2006, By 2008, real incomes as measured by GDI per capita and personal incomes (real GDI per capita) by are 19 percent lower than in 2005, unemployment has 30 percent--a one-year contraction of economic grown to 34 percent of the workforce and poverty activity equivalent to a deep depression. Under increases to 51 percent of the population. this scenario, unemployment hits 47 percent and · Scenario 2: Suspension of Clearance Revenue poverty 74 percent by 2008. By 2008, the cumulative Transfers, Trade and Labor Restrictions results in a loss in real GDP per capita since 1999 has reached dramatic contraction in 2006 of real GDP per capita 55 percent. (minus 21 percent), which is comparable to the It is also worth noting that continued withholding by rate of decline associated with the early intifada GOI of Palestinian revenues under the assumptions in period (minus 18 percent in 2001 and minus 13 this model would reduce available total budget resources percent in 2002--albeit from much higher base). to between US$700-750 million in 2006. This should be Under this scenario, unemployment jumps to 35 compared with the PA's 2006 draft Budget of US$1.9 billion percent in 2006 and to 45 percent by 2008, with (incorporating a salary bill of US$1.2 billion)16. A fiscal poverty levels reaching 70 percent by the end of outlook of this nature is incompatible with continuity in the period. essential government operations. · The impact of a 15 percent contraction in aid flows in 2006 and the decline modeled thereafter under 15In the Bank's December 2005 projections, strong rates of economic growth Scenario 3: Reduced Aid Flows is less alarming. were premised on a number of requirements that now appear unrealistic: Although real GDP growth turns negative in 2006 a major reduction in Israeli closure measures (restrictions on border trade, movement inside the West Bank, movement and trade between Gaza and and real GDI per capita declines by 7 percent the West Bank), a maintenance of the relatively high labor flows of 2005 more than under Scenario 1, most other aggregates (averaging 45,000 per day), and a significant increase in aid levels (a further US$500 million per annum on average in 2006-8). are only marginally worse than under No Abrupt 16Macroeconomic Developments and Outlook in the West Bank and Gaza, Change. prepared by the IMF for the AHLC Meeting, London, December 14, 2005. 7 0 2 74 507 900 585 3.88 362 735 -1.0 -4.2 -8.3 7,400 1,071 2,851 3,959 2,777 1,944 1,020 -55.1 47.0 2008 4 0 2 72 503 547 3.76 369 754 -4.3 -7.4 1,000 1,071 2,835 4,096 2,792 1,945 1,089 -10.8 -53.2 44.3 13,400 2007 Scenario 2 67 100 422 506 3.63 405 802 1,100 1,071 2,910 4,353 2,953 2,026 1,199 -24.5 -27.1 -30.0 -49.4 39.6 22,700 2006 0 2 55 689 900 732 3.88 604 7,400 1,514 3,983 5,085 3,754 2,622 1026 -2.1 -5.3 -9.3 1,310 -40.3 34.8 2008 3 0 2 51 696 690 3.76 742 1,000 1,514 4,006 5,316 3,721 2,660 1066 -2.6 -5.8 -9.2 1,414 -37.0 29.7 20,100 2007 Scenario 0 2 47 704 655 3.63 861 1,100 1,514 4,038 5,550 3,708 2,700 1112 -0.2 -3.6 1,529 -10.2 -33.1 24.2 32,800 2006 0 2 70 573 576 3.88 467 807 -0.8 -4.0 -7.7 7,400 1,100 1,243 3,132 4,429 2,950 2,104 1,141 -51.5 44.9 2008 2 million) 0 2 67 568 540 3.76 480 827 -4.3 -7.4 Flows. 1,200 1,243 3,110 4,549 2,947 2,100 1,210 -10.1 -49.5 41.4 13,400 2007 Aid Projections (US$ Scenario 2 62 100 489 500 3.63 588 879 1,300 1,243 3,192 4,799 3,044 2,183 1,322 -18.5 -21.3 -21.9 -45.4 35.5 Reduced 22,700 Attachment 2006 2006 and 0 2 51 778 723 3.88 927 -1.7 -4.9 -8.5 7,400 1,100 1,583 4,264 5,560 3,856 2,824 1,099 1,433 -36.8 34.1 Illustrative 2008 March 1 Restrictions Restrictions, 0 2 48 783 681 3.76 -2.3 -5.5 -8.6 1,200 1,567 4,272 5,766 3,837 1,044 2,857 1,136 1,533 -33.6 28.7 Labor Labor 20,100 2007 and and Scenario 0 2 790 647 4.9 1.3 43 3.63 -2.6 radeT radeT 1,300 1,551 4,296 5,983 3,829 1,161 2,892 1,183 1,648 -29.7 22.4 32,800 2006 0 ransfers,T ransfers,T 740 590 3.5 6.3 2.7 4.3 44 3.51 1,300 1,514 4,044 5,815 3,652 1,022 2,734 1,152 1,657 -30.6 23.4 2005 (est.) 44,800 Revenue Revenue ISI (%) (%) p.c. in Clearance Clearance Flows GDP (%) Change of of %) growth growth Aid 1999 workers (million) real transferred withheld capita growth p.c. Abrupt assistance (cpi, capita p.c. (%) Assumptions consumption consumption since No Suspension Reduced Suspension per 1: 2: 3: 4: per GDP GDP GDI Revenues Revenues Palestinian Foreign Public Exports Population Inflation Outcomes GDP GDI Private Investment Imports GDP GDI Real Real Real Cumulative change Unemployment Poverty Scenario Scenario Scenario Scenario April 2006 8 Land Administration in the West Bank and Gaza Background As throughout many areas of the developing world, land and property in West Bank and Gaza (WBG) is a common means of storing wealth. This fact may be especially applicable in WBG since the current situation vis a vis Israel continues to stifle the Palestinian economy and threaten land ownership. Thus, secure land tenure and property rights have a strong historical and cultural significance for Palestinians. For these reasons land titling, registration and efficient administration of public lands are of paramount importance. However, the atmosphere surrounding land administration in the West Bank and Gaza is problematic for a number of reasons, both internal to the Palestinian Authority (PA) and related to the ongoing conflict. On the PA side, the current system related to land administration remains inefficient and non-transparent, especially in regards to management of public land. The Government of Israel (GOI) maintains responsibility for land administration issues in roughly fifty- percent of the West Bank, including responsibility for zoning and planning. In addition, the issue of land is continually hampered by construction of the Barrier and expansion of settlements. An Israeli military order issued in 1967 halted all land registration in the West Bank and Gaza. Later, the PA was granted limited jurisdiction in certain areas of the West Bank pursuant to the Israeli-Palestinian Interim Agreement on the West Bank and Gaza Strip (Oslo Accords) signed in 1995.1 The Olso Accords separated the West Bank into Areas A, B and C. Areas A and B correspond primarily to Palestinian urban areas, and the PA has full responsibility for civil matters in both. In Area A the PA also has security responsibility, while in Area B the GOI retains the security mandate. Civil authority related to land includes registration of land transactions in the land registry, first-time registrations of land and administration of land registry offices.2 The GOI also retains civil and security responsibilities in Area C, which accounts for roughly fifty-five percent of the West Bank. Though the Oslo Accords provided for the gradual transfer of lands in Area C to Area A or B, such transfers have not taken place. Since the GOI disengagement from Gaza in September 2005, the PA has had full authority over land administration activities in the whole of Gaza. Registration was carried out systematically on the West Bank by the British and then the Jordanians from 1925, working north to south, but stopped at the time of the 1967 war. Settlement and titling was carried out covering most of the Gaza, but ended in 1948. In Gaza close to ninety percent of land has been surveyed, though the level of surveyed land in the West Bank is considerably lower. Registration rates remain even lower ­ less than fifty percent in Gaza and thirty percent in the West Bank. Because different registration provisions were enacted in the Ottoman, British, Jordanian and Egyptian periods, each land registry office maintains three sets of registers: Ottoman, British, and Jordanian (West Bank) or Egyptian (Gaza), with transactions registered according to the system in which the land was originally registered. 1The Israeli-Palestinian Interim Agreement on the West Bank and Gaza Strip, Washington, D.C. (September 28, 1995), Article XI. 2Ibid., Annex III (Protocol Concerning Civil Affairs), Article 22. 9 management in the West Bank and Gaza remains Land Administration in Areas A weak. and B · Currently, it is estimated that only about ten percent of all transactions are registered with the PLA. Instead most transactions are carried through Overall, there is a general lack of formally adopted land irrevocable powers of attorney (IPA) with the policy at the national level that establishes a framework for assistance of a notary public, a system that has explicit and implicit government intervention in the land resulted in competing land claims. sector. This includes addressing matters of law, tenure, public management of land, the environment, gender, · The current legal framework governing land and socio-economic and market development. The result administration includes Ottoman, British Mandate, of this lack of policy is a de facto land policy by the Jordanian, Egyptian and PA laws and regulations, in government, the components of which may be either at addition to GOI military orders. The separate legal odds with each other and/or may not necessarily address frameworks applicable in the West Bank and Gaza the current and future needs of the Palestinians. have not been harmonized. Though considerable work has been done on a new draft Land Law, A national land policy to be developed and adopted with several areas in the law remain of concern, in the participation of key stakeholders (citizens, civil society particular those related to eminent domain and and government) will give these activities the needed confiscation of land. coherence and consistency. The national policy will also put in place a set of guidelines to steer the implementation · The current mechanism for managing and of policy in a consistent and timely manner that addresses disposing of public land remains inefficient and the national priorities of the Palestinian people. non-transparent. The level of land disputes is also problematic, particularly those regarding ownership and land boundaries. It is estimated that such disputes account for roughly twenty- five percent of court cases in the West Bank. These Land Administration in Area C disputes relate primarily to unclear ownership, complex inheritance rules and numerous absentee claimants. To Because the GOI retains civil authority in Area C, GOI- address this situation there is a need for policy, legislative imposed restrictions in regards to land administration and institutional changes to achieve: efficient procedures remain in effect throughout the area. Area C accounts for the issuance of land titles; increased registration of for roughly fifty-five percent of the area of the West Bank property transactions; and development of a transparent outside of East Jerusalem. The areas in the northern mechanism for the management and disposal of public West Bank from which the GOI evacuated settlements land. There remain a number of obstacles to improved remain Area C. These restrictions prevent the registration land administration in the West Bank and Gaza. These of Palestinian private land, and have allowed for the include: weak institutional capacity to administer land; a requisitioning of various amounts of land for construction non-comprehensive legal framework; and an inefficient of settlements and their related infrastructure. Confiscation and non-transparent mechanism for managing public of land is made easier by the fact that registration of land. ownership was limited in the West Bank prior to 1967, and subsequent Israeli measures restricted future registrations. The primary obstacles to improved land administration in About one-third of land remains unregistered in Area C in Area A and B include: the Governorates of Ramallah, Hebron, Qalqilya, Nablus · The precise mandate of the Palestinian Land and Tulkarem. Authority (PLA) remains unclear, though this GOI measures and activities in Area C continue to impact should be addressed pursuant to the draft Land Law Palestinian residents. These include: currently under consideration by the Palestinian Legislative Council (PLC). The PLA also remains · The PA has no legal mandate to undertake land under-resourced. administration activities, including registration of land, in Area C. · The institutional and physical capacity of PA bodies to perform systematic land registration and land · GOI land administration practices in Area C have April 2006 10 made land registration by Palestinians difficult, as Per a PA presidential decree, private land within the noted in a report by the GOI State Comptroller's settlements was expropriated by the PA, so that the Office. Unregistered land is at risk of being evacuated areas could be maintained as a whole for classified as public land by the GOI and effectively planning purposes. Once expropriated the land became confiscated. public lands. Individuals in the process of privatizing land could be identified from privatization contracts. Once · Considerable amounts of Palestinian agricultural outstanding privatization fees are paid, ownership would land have been de jure or de facto confiscated be recognized. The land would then be expropriated for establishment of settlements and their related under the same conditions as for private land. The land infrastructure. There are few effective remedies in security areas around the settlements, which may available to affected land owners or users. Roughly consist of an equal amount of land as the settlements forty percent of the West Bank outside of east themselves, is primarily privately-owned. Such land will Jerusalem is incorporated into the jurisdictional remain under private ownership. boundaries of settlements. Post-disengagement issues affecting land administration · Several aspects of GOI land administration include: activities in the West Bank have been criticized in reports by the GOI State Comptroller's Office, and · A claims process was to be established to address a report commissioned by former Prime Minister claims of private property located within the Ariel Sharon. However, a formal recommendation evacuated settlement areas. The PA has not that no lands be allocated for settlements until a released any information on the functioning of the thorough re-examination of the status of the land claims process. is conducted has not been implemented. · It remains unclear as to whether land usage rights · GOI officials have never officially released would be acknowledged and respected. information on the amount of public and private · No special measures were introduced to provide for land in Area C. the transparent management of public land. Since the draft Land Law has not yet been adopted, an inter-ministerial committee remains responsible for managing and allocating public land. The process by which this is done remains unclear. Land Administration and · There has been no public accounting of how Disengagement the public land has been administered since disengagement. In September 2005, the GOI disengaged from Gaza and four settlements in the northern West Bank. According to the Palestinian Land Authority (PLA), only a fraction of land within the evacuated settlements in Gaza is privately-owned. Of the 24,400 dunums evacuated, over ninety percent is public land. The rest is private or was in the process of privatization under the Egyptian Administration. An additional 20,000 or more dunums were used for security areas around the settlements, most of which is privately-owned. The percentage of private ownership may be higher for the lands occupied by the settlements in the northern West Bank, though to date the PLA has not produced detailed statistics regarding land ownership in those areas. The land comprising the evacuated settlements in the northern West Bank has not been reclassified from Area C to Area A or B, and thus remain under the civil control of the GOI. Therefore the PA has no ability to register land, nor to undertake zoning and planning activities. 11 The Role and Performance of Palestinian NGOs In Health, Education and Agriculture The World Bank and the Bisan Center for Research and Development have recently completed a study on the Role and Performance of Palestinian NGOs in health, education and agriculture.1 The study analyzes various aspects of the social service delivery function of NGOs looking at: (i) patterns of utilization; (ii) accountability and management practices; (iii) targeting and participation; and, (iv) quality standards and monitoring. It also reviews the constraints faced by NGOs in accessing donor funding and the level of their cooperation with the Palestinian Authority (PA) and other local partners. The Study draws its analysis on data gathered through two research tools: (a) an NGO survey of 78 independently registered NGOs2; and (b) a household survey of 3000 households.3 Following are some highlights of the Study's main findings the Ministry of Health's data according to which NGOs and recommendations: account for 30% and 31% of primary health care clinics and hospital beds, respectively. In Gaza, NGOs account 1) What is the role of NGOs relative to other service for only 22% of hospital beds.5 providers? The study shows that the relative role of NGOs vis-a-vis other providers varies considerably both across NGOs seem to have a particular niche in the provision of and within sectors, and is to a large extent influenced by specialized health services whereby they account for 25%, the affordability and accessibility of alternative channels 21%, and 19% of services utilized in the areas of mental/ of service delivery. psychological counseling, health awareness and training, and physical therapy and rehabilitation, respectively. According to the results of the household survey, NGOs account for 11.7% of health services used by Palestinian The results of the household survey also show that only households. The rate of utilization of NGO health services 29% of Palestinian households send their children to pre- is much lower in Gaza (8.1%) than it is in the West Bank school. Of those, 21% use NGO services. For vocational (13.3%). These results are consistent with data recently training and informal education, NGOs account for published by PCBS which show that NGOs account for 25% and 38% of total services utilized, respectively. 12.8% of total visits to health care centers4 and also with In agriculture, the number of households reporting utilization of NGO services was bigger than the total reported for Government and private sector combined, making NGOs accountable for up to 50% of services utilized in the sector. NGOs appear to be particularly relied upon for provision of in-kind subsidized materials 1The Study is scheduled to be published in April 2006. 2The sampling included all registered Palestinian NGOs with a mandate and land reclamation services. in health, education and agriculture (definition of NGOs used excluded cooperatives, unions and youth clubs). According to PCBS, the total number of such NGOs was 353. The final sample of 77 NGOs consisted of 43 NGOs specializing in health; 19 in education; and 15 in agriculture. The sample was biased towards large and medium-sized NGOs. 3The field work for the two surveys was carried out by Alpha International for Polling, Research, and Informatics between March and August 2005. 4 PCBS, Health Care Providers and Beneficiaries Survey ­ 2005 Preliminary 5 Results, February 2006. MOH/Health Management Information Systems Annual Report, 2003. April 2006 12 Rates of Utilization of Agricultural Services by Provider NGO Governmental Private WB* GS* Total WB GS Total WB GS Total Irrigation 28.6 26.3 27.7 21.2 4.5 14.5 0 14.3 8.8 Credit Loans 14.3 10.5 12.9 9.1 81.8 38.2 53.8 42.9 47.1 Land Reclamation 28.6 52.6 37.6 15.2 31.8 21.8 15.4 71.4 50 Veterinary Services 28.6 18.4 24.8 15.2 13.6 14.5 7.7 28.6 20.6 Training 17.5 42.1 26.7 21.2 9.1 16.4 0 23.8 14.7 In kind subsidized materials 42.9 57.9 48.5 63.6 68.2 65.5 23.1 76.2 55.9 Agricultural road 12.7 31.6 19.8 15.2 36.4 23.6 0 38.1 23.5 rehabilitation Marketing 4.8 2.6 4 6.1 0 3.6 38.5 71.4 58.8 Import/Export 0 5.3 2 0 0 0 0 66.7 41.2 Raw Materials Purchases 9.5 36.8 19.8 9.1 31.8 18.2 15.4 57.1 41.2 * WB- West Bank, GS=Gaza Strip Who are the Beneficiaries of NGO Services? As than 50% of the beneficiaries of NGO services in these the chart below shows, with the exception of users of sectors reported an income of less than NIS 1400/month. agricultural services, more than 50% of beneficiaries of In pre-school education, NGOs seem to have also found NGO services have reported an income level of NIS 1400- a particular niche in targeting rural communities where 2000/month. NGO health services, in particular, seem to they account for almost a quarter of pre-school education be largely utilized by households with relatively higher services, as compared to only 13.3% in urban centers. income levels. This could be attributed to the fact that the PA has in recent years extended health insurance coverage, When asked about their targeting policies, only 10%, providing free health services to a large segment of the 11% and 43% of NGOs working in health, education and population. agriculture (respectively), confirmed that they targeted their services towards households/individuals with limited income. On the other hand, all of them identified poverty/income level as one of the important criteria for beneficiary selection. NGO targeting towards specific vulnerable groups ­ e.g. the disabled, youth, children/ women was more frequently reported. 3) Vertical vs. Horizontal Accountability. The accountability of Palestinian NGOs was investigated through their reporting and dissemination practices, the role of their Board of Directors and their monitoring and supervision of grant-financed projects. By and large, NGOs confirmed more consistency in vertical reporting and dissemination to their Board of Directors, the PA and financing donors, than they did towards the public ­ the communities they served, other NGOs and local authorities. According to the survey results, 93% and 73% of NGOs reported that they prepare annual activity and financial audit reports, respectively. In more than 70% of the cases, NGOs submitted both these reports to their Board of Directors, Ministry of In education and agriculture, NGO services seemed to be Interior and financing agencies. However, less than a more accessible to households with limited income. More third confirmed distribution of financial reports to local 13 partner organizations, municipalities/village councils, and (financial cost being constant), 60% confirmed that they local community leaders. Only a quarter published their would choose the NGO. financial audit reports on their websites. Although these indicators are not a sufficient basis for assessing the extent In pre-school education, households were equally to which Palestinian NGOs feel accountable towards their satisfied with private and NGO services. Although constituencies, they do point to the need for wider-based households reported a high level of satisfaction with accountability. vocational training services offered by NGOs, this was not supported with an equally positive reporting on impact. Most NGOs reported an active functioning of their Boards, Only 25% of those receiving vocational training from an both in terms of regularity of meetings and alignment NGO confirmed that the training has helped them find a with the NGO Law. However, there was some ambiguity job. By contrast, 57% of beneficiaries of private vocational with respect to the roles of various administrative layers training confirmed that the training helped them find a in approving financial reports and selecting auditors. job. Although the NGO Law stipulates that these functions be maintained at the level of the General Assembly, they are Overall, the overall rate of satisfaction with the quality of often delegated to the Board/Executive Directors, raising a agricultural services was not as high as that reported potential problem of inadequate financial accountability. in the other sectors. Nevertheless, it was highest amongst the beneficiaries of NGO services, 67% of whom reported 4) Quality Standards and Monitoring. NGOs generally that the quality of the service they received was good or use a wide range of tools for monitoring the quality and very good. impact of their services. However, there is an absence of harmonized service quality standards, making it difficult to 6) Funding Patterns Facing Palestinian NGOs. monitor the quality of services across sectors. For example, Palestinian NGOs are heavily dependent on donor in education, a third of NGOs surveyed obtained their funding. However, several of the larger NGOs seem to have service standards from donors. Only a few use UNESCO successfully expanded their local revenue base through or Ministry of Education standards. Furthermore, although service fees and income-generating activities. Funding the level of monitoring by the NGOs was reported to by international organizations and donors is skewed to be high, there was little evidence of regular monitoring/ the larger NGOs, largely on account of stronger capacity inspection by the specialized ministries. In health, only a and wider coverage. Access to donor funding is complex third of surveyed NGOs report to the Ministry of Health and donor granting policies seem to lack transparency. on their medical records. When asked to report on the When NGOs were asked about how they learnt about last monitoring visit by the Ministry of Health, 77% of the last grant they received, 48% reported having known NGOs declined to answer and 8% confirmed that it was about the grant through a contact with an employee of never done. the donor agency; 33% were directly invited by the donor to submit a proposal; and 25% learnt about the grant Very few NGOs reported having the capacity to monitor through a public announcement. In more than 50% of impact according to clearly identified benchmarks. At the cases, the duration of the last grant reported was less least two-thirds of the NGOs use formal evaluations and than six months, implying constraints on the ability of the impact assessments as important tools for monitoring NGOs to undertake longer-term planning. impact. However, when asked about the results of their work, NGOs reported on outputs and only the large NGOs had the capacity to document and monitor the results of their evaluations. While the majority of NGOs have a fee structure, in the majority of cases these fees were established by the organization itself. Only two of the 63 NGOs working in health use the fee structure of the Ministry of Health. 5) Beneficiary satisfaction with NGO services: Households generally reported a high/very high rate of satisfaction with NGO services. The rate of satisfaction was highest in the health sector. When households were asked whether they would choose to receive their health services from an NGO or a government provider April 2006 14 Survey data also revealed that sub-contracting was · The PA and NGOs need to collaborate towards another important funding channel for NGOs. The PA and developing appropriate quality and performance local private organizations accounted for the largest share standards for service delivery. In parallel, efforts of contracting agreements, followed by international to strengthen the monitoring function of the organizations. specialized ministries should be sustained and further intensified. 7) Cooperation with the PA and other Local Partners: The survey results revealed a high level of · NGOs need to be supported towards adopting cooperation between NGOs and the PA. However, less improved targeting policies and mechanisms to than 25% confirmed participation in policy and sector ensure that their services are accessible to the planning. Most NGOs (73%) described the role of the PA poorest and marginalized communities. Given the as "supportive", 6.5% viewed the PA's role as "obstructive" particularly high rates of poverty in Gaza, NGOs and 13% characterized it as both. The forms of support should be encouraged to expand their presence most commonly reported involved the provision of there, complementing the role of PA institutions funding, tax exemption, and sub-contracting. Only 38% and UNRWA.. of NGOs reported having formal relationships with local governments/ authorities. · Given their important role as representatives of civil society, Palestinian NGOs need to actively The Report's Main Recommendations: engage in broadening their constituency base with civil society institutions and grassroots based · Taking into account the current socio-economic organizations. This process should be accompanied situation, and the increasing needs of Palestinian by an activation of the NGOs advocacy role for communities, NGOs should receive an adequate more equitable and inclusive social policies. level of financial and technical support to strengthen and sustain their role as complementary service · Palestinian NGO networks and umbrella providers. In view of the scarcity of resources, organizations need to intensify their efforts towards however, financial support to NGOs should be enhancing accountability practices through based on a careful and comprehensive review of voluntary mechanisms and the adoption of a existing capacity within the entire system of service broadly accepted NGO code of conduct. On its delivery and an identification of the comparative part, the PA should activate the by-laws approved advantage of the various providers. This will by the Cabinet in order to remove existing contribute to greater efficiencies in the system and ambiguities surrounding the NGO Law. This will support longer-term sustainability. contribute significantly to more transparency and improved performance in the sector. · Opportunities for NGO partnerships with local partners, in particular the local governments, should be more actively explored, possibly through joint funding mechanisms. These are critical elements for the long-term sustainability of NGOs. · Donors should explore more program-based and multi-year funding, using harmonized procedures and adequate fiduciary tools. Such programs should incorporate elements of institutional building that would strengthen the capacity of NGOs in defining their programs, based on beneficiary needs. This will, both, contribute to more effective and sustainable programs while strengthening NGO legitimacy vis-à-vis their constituencies. · The PA and donors should consider NGO representation on aid-coordination structures to ensure more harmonization in donor-financed institutional building and development efforts. 15 Prepared by the World Bank Technical Team, February 28, 2006 An Interim Assessment of Passages and Trade Facilitation / February 2006 Background It has been widely acknowledged that the future economic viability of the Palestinian economy depends on the creation of a trade logistics system which permits the safe, reliable and competitively-priced movement of people and cargo. This system has been described, at length, in a number of World Bank reports beginning with the December 2004 report to the AHLC, "Stagnation or Revival? Israeli Disengagement and Palestinian Economic Prospects" which was broadly endorsed by the international community, the Palestinian Authority (PA) and Government of Israel (GoI) at a meeting in Oslo in December 2004. This and subsequent reports are available on the World Bank's website for the West Bank and Gaza (www.worldbank.org/we). The creation of a functional trade logistics system for the The various Bank papers written on border management West Bank and Gaza requires addressing four inter-related over the past 15 months stress that there is no basic types of movement: contradiction between these two objectives: a judicious mixture of modern management and the use of · Movement across the Gaza/West Bank-Israel new scanning technology will make it possible to borders, either to Israel or through Israel to create a regime that provides both high levels of third countries via Israeli sea and air ports. security and commercial efficiency, and thereby is · Internal movement within West Bank. of benefit to all parties. Elements of such a regime were incorporated in the Agreement on Movement and Access · Movement between Gaza and the West Bank. brokered by the US Secretary of State in November 2005. · Direct access to third countries, via land However, as of the writing of this update, very little has borders (to Egypt and Jordan), by sea and by been implemented and the system that exists today air. is virtually unchanged from that which existed in December 2004. Throughout 2005, the two governments, with technical support from the international donor community, sought This note summarizes the status of the movement of to replace the current system--which is unilaterally people and goods, with a particular emphasis on Gaza. managed, grounded in security considerations and This is a summary note; a more detailed analysis will be based on the inefficient "back to back" system of cargo provided in the context of the Bank's update of "The handling--with one that is cooperatively managed and Palestinian Economy and the Prospects for its Recovery" ensures a proper balance between Israel's legitimate expected in April 2006. security requirements and Palestinian economic needs. April 2006 16 expected in any situation in which the volume of Movement of Goods and trade is heavily controlled, and procedures are altered with little or no notice. People in Gaza · It uses a "one size fits all" approach to inspection. This is incompatible with both modern security The Karni crossing, the only existing crossing for the procedures and efficient cargo management. export and import of goods serving Gaza's 1.4 million people, has evolved through a turbulent period in The problems at Karni are related first and foremost to bilateral relations from a gated gap in the Gaza perimeter management and process. USAID has recently procured to today's complex and inefficient facility. Physically and for the Government of Israel several millions of dollars procedurally, Karni is a culmination of ad hoc responses worth of new scanner technology and supporting to specific incidents, terrorist attacks, and policy shifts.1 infrastructure which is being installed on the Israeli side As the Bank has expressed in earlier reports, remedying of the wall. However, despite this newest technology, the current arrangements requires a thorough procedural the design and flow, as currently configured, is based and physical reform. on maintaining the back-to-back system and may, in fact, require an additional layer of handling through the new · Karni represents a serious physical barrier to scanners after passing through the first offloading into the Palestinian trade, embodying a design that current scanners and inspection cells.5 GoI plans for new introduces unnecessary delays, inflicts damage crossings on the West Bank (such as the one at Tulkarm/ on goods, and severely limits the throughput of Shair Efraim) appear to reinforce the back-to-back system cargo.2 despite evidence that, from a commercial perspective, this system as currently implemented constitutes a · It acts as a significant non-tariff barrier to trade, as virtually insuperable impediment to competitive cargo a result of controls and processes which (a) make movement. As the Bank and others have argued on many it difficult for Palestinian exporters and importers occasions, the purchase of additional scanners and other to avoid using Israeli middlemen and traders,3 (b) equipment will not remedy the current situation unless discriminate against goods entering from the West they are deployed within a fully-managed system.6 There Bank and exiting Gaza,4 and (c) oblige Palestinian is no evidence that such a system is being developed; importers and producers to pay Israeli truckers to rather there appears to be continued resistance to the sit idle for long periods at the crossing. publication of service standards, procedures and fees and limited progress in terms of developing clear operating · According to reports from shippers and producers, procedures which are shared between cooperating parties it has led to financial inefficiencies on both sides on both sides of the border. of the border as a consequence of the lack of clear and predictable procedures. This outcome can be The PA has compounded these problems by being slow in establishing its own unified border services agency. Such an organization is necessary in order to ensure efficient and secure border management and would significantly bolster the PA's ability to assume responsibility for the 1 Recently, press reports have suggested that GoI is considering making Karni an "international crossing" which would mean an abrogation of the management of a port, airport and land borders with third existing quasi-customs union put in place under the Paris Protocol. countries. These benefits would result from having a single 2Everything is offloaded and passed through an opening in the border wall, national entity responsible for the delivery of integrated or placed on the ground in clearing cells at the wall before being reloaded onto trucks on the other side of the wall. Moreover, all goods are handled services including the uniform application of laws and in close proximity and without separation by cargo type--meaning that dirty cargoes (gravel and live animals, for example) are handled where they can contaminate agricultural and consumer goods. 3 Many Palestinian producers have no dependable means of ensuring onward transport of goods once they cross into Israel, or of imported goods before they reach Gaza. To ensure market access, Palestinian producers 5 and importers are thus heavily reliant on Israeli middlemen to clear landed The new system is not yet functional so operations could not be evaluated goods and to ensure that exports leave Israel to third country markets. by the Bank. 6 4Goods exiting West Bank and headed to Gaza have already undergone a The shortcomings of modern equipment operating in a procedural vacuum back-to-back procedure when leaving the West Bank and entering Israel. are demonstrated by the failure of the truck scanner introduced at Karni in There does not appear to be a security-related reason to hold these cargoes the first half of 2005 to improve the flow of cargo. The scanner, financed at Karni before they enter Gaza as the trucks, drivers and cargoes have been by the PA, was installed on the Israeli side of Karni. Rather than using it to free to move about inside Israel. Products loaded in Israel do not undergo accelerate the secure clearance of goods, it has been used to inspect empty a security inspection prior to reaching Karni, but are given preference on containers exiting Gaza ---a process which could be done more quickly arrival there. using less costly methods (i.e. laser technology). 17 regulations, and maintaining key relationships with the The Palestinian controlled Rafah terminal could offer private sector, Israeli customs and border security, and an alternative to Karni for some direct exports to third with foreign border services agencies. countries (i.e. without the need to go through Israel) and the Agreement on Movement and Access allows exports Despite extending operating hours and a commitment to leave Rafah. A number of Palestinian exporters have in the Agreement on Movement and Access to raise sought to move goods through the Rafah terminal. In productivity at Karni to 150 trucks a day by December practice, however, this has not been possible. Anecdotal 31, 2005, the Karni operation remains mired in the same evidence suggests that efforts have been made to prohibit processes and problems described above. Data provided empty Egyptian trucks from entering the Rafah terminal in by Paltrade, a Palestinian private sector organization order to take products out, while GoI would prohibit any which has monitored the flow of trucks across Karni since Palestinian truck leaving Rafah in order to take products June 2005, suggests that there has been no sustained across into Egypt (even if traveling only to the Egyptian improvement in the movement of goods across Karni side of the border to transfer goods to an Egyptian truck) before or after the disengagement. According to Paltrade from reentering Gaza. As Rafah is currently the only and the Office of the Quartet Special Envoy, in the six border terminal controlled by the PA, however, it is worth months preceding disengagement, an average of 43 exploring the development of new supply chains that trucks per day crossed out of Gaza, followed by 18 would take Palestinian goods to third country markets by trucks a day in September and October 2005. From transiting through Egyptian ports. November 2005 to mid-February, the daily average flow again reached only 43 a day.7 In terms of the movement of people, there have been significant improvements for Palestinian travelers entering While there were certain weeks when the truck flow and exiting Gaza to Egypt. According to data provided by was in excess of 60 a day (still well below capacity the Office of the Quartet Special Envoy, travelers through according to World Bank calculations), the Karni crossing the Rafah crossing have increased from a daily average of was completely closed from January 15 to February 5.8 some 580 for the period January-June 2005 during which Given the high demand during this period for agricultural Rafah was under Israeli jurisdiction, to a daily average of exports, the losses to the Palestinian economy have about 1360 in the period November 2005-February 2006 been substantial. Estimates by USAID contractors for the when Rafah was transferred to the Palestinian Authority week of January 23-29 alone was some US$4.1 million with oversight by EU monitors (EU BAM). According to for agricultural goods. Estimates by Paltrade were that the EU BAM, the 100,000th traveler to cross through Rafah losses to Palestinian exporters were some US$10.1 million under these new arrangements was recorded on February from January 15-February 3. Losses to the Israeli economy 7, 2005. It appears that Rafah operations are fully meeting for food and other imports destined for Gaza, as well passenger demand. as for Israeli fashion and textile producers who use Gaza workshops for piece work and product finishing, At the same, there has been relatively little change in will also have been substantial although estimates have the daily flow of workers and businessmen through not been made. Moreover, such wide disparity in daily the crossing at Erez into Israel. Since November, the truck flow numbers demonstrate that movement remains average number of workers and businessmen entering extraordinarily unreliable and unpredictable ­ and Israel through Erez has averaged 1284 a day, compared therefore a strong disincentive in terms of attracting and to 1841 a day in the January-June 2005 period.10 While for promoting private sector investment in Gaza. As of the most periods, the daily flows were nearly the same as the writing of this note, Karni has once again been closed (as immediate pre-disengagement (approximately 1925 daily), of February 23).9 9 GoI claims that there were tremors which might have been related to tunnel activity. The Palestinian side of the terminal says that there is no evidence of this and that they had already undertaken digging at the 7This includes data collected through 17 February. terminal at the request of GoI during the January/February closure. GoI 8GoI closed the crossing in response to what it said was evidence of a has offered the possibility of moving goods through Kerem Shalom at the tunnel. In response, the PA undertook digging operations but the nature of southern end of Gaza. The PA has refused on the basis that the closing this threat was not resolved. The crossing was subsequently reopened after of Karni is unwarranted and against the provisions in the Agreement on twenty days, but operations have been hampered by the damage to the area Movement and Access. caused by the search for the tunnel. 10Data provided by the Office of the Quartet Special Envoy. April 2006 18 Erez also suffered from periods of complete closure such two territories for passengers by December 15 and truck as during the last week of December and most of January. convoys for goods by January 15. Both deadlines have The number of workers remain far lower than the amount passed, however, without these commitments being met. committed to by GoI in February 2005 when indications were that 15,000 permits would be available in order to In terms of a permanent link, Bank staff prepared a provide short-term stability to the Palestinian economy.11 brief note on the issue in a June 19 paper entitled "The Gaza/West Bank Link--Rail vs. Road". With USAID, the Bank is sponsoring a feasibility study of various options, including sunken road and rail options, for establishing Connecting Gaza and the West a secure, economically viable, permanent link between the two Palestinian territories. Results from this study are Bank expected in April 2006. The economic and social connections between Gaza and the West Bank have been largely severed since the beginning of the intifada; apart from permits given to a Internal Closure limited number of businessmen and high level officials, very few West Bank residents are able to visit Gaza Israel's disengagement has left Gaza free from internal and vice-versa. Cargoes transiting between one part closure, greatly improving the situation that prevailed of WBG and the other are subject to two back-to-back during the intifada. The same, however, has not happened procedures and long delays, particularly when entering in the West Bank. The future status of the system of Gaza, rendering Palestinian products non-competitive checkpoints and roadblocks in the West Bank remains compared to imports from Israel. Moreover, in periods unclear.13 The United Nations Office for the Coordination when Israel closes access to and from Gaza as they have of Humanitarian Affairs (OCHA) regularly monitors and at present, the absence of a permanent link between reports on the status of these obstacles. According to Gaza and the West Bank means that producers cannot OCHA, the number of fixed obstacles had been reduced even sell goods into the whole domestic Palestinian from 680 in November 2004 to some 396 in November market.12 As a result, merchandise flows between the two 2005. However, this number has increased by nearly 100 Palestinian territories are minimal. In December 2004, the to 484 as of February 2006. Moreover, the number of Bank pointed out that "an unfettered flow of people and manned checkpoints, which constitute the most serious goods between Gaza and the West Bank is needed to link form of physical impediment to economic activity, has the two territorial elements of the Palestinian economy, remained relatively constant -- 62 in November 2004, 52 and to lay the basis for viable statehood. A functioning in August 2005, 55 in November 2005 and 58 at present. link would create a larger effective internal market, help trigger price and income convergence between Gaza and This is a summary note. A fuller assessment will be included the West Bank and provide a pathway from the economy in the World Bank's Economic Monitoring Report to the Ad of the West Bank to a future seaport in Gaza." The Hoc Liaison Committee which is being prepared in April Agreement on Movement and Access promoted this view 2006. with a commitment to begin bus convoys between the 11In discussions with the Bank in late 2004, GoI indicated that in the near-term Israel would issue 15,000 permits to Gazans and 20,000 to West Bankers. This understanding was reconfirmed to the Bank in February 13On the eve of the intifada, there were approximately one dozen 2005 (see "The Palestinian Economy and the Prospects for its Recovery", checkpoints in the West Bank (most of them around Jerusalem); by 2003, December 2005). the number of obstacles of all kinds exceeded 700. This resulted in the 12For example, because of the closure of Karni for much of January and severe fragmentation of the West Bank. These obstacles also block access February, the Gazan market is flooded with produce which was destined to many of the main roads in the West Bank, which are now partially or for Israel and third country markets beyond. This produce could be sold wholly restricted for use by Israelis (the military and settlers). The Bank is profitably into the West Bank market if there was a means for it to reach the currently finalizing a report on the settlements and movement in the West West Bank such as through the use of truck convoys. Bank which will analyze this situation further. 19 Recent Economic Developments place at end-2005, including the current restrictions on trade and internal movement and the continued reduction Economic Output in the number of Palestinians granted work permits for inside Israel and Israeli settlements. Under this scenario, Recent economic data from a variety of sources (Palestinian Palestinian economic prospects are not good. In the past, imports from and exports to Israel through the fourth the World Bank has estimated that annual growth rates quarter of 2005; Palestinian employment data through the in real GDP on the order of 10 percent were necessary fourth quarter of 2005 and in Israel through June; banking to rapidly reduce unemployment and bring poverty rates sector data through end-October; fiscal data through end- to acceptable levels. Here, however, real GDP growth 2005; price data through February 2006) suggest that the rates fall short of the 10 percent target, declining from 6.3 economic recovery that began in 2003 continued through percent in 2005 and 4.9 percent in 2006 to negative rates the year. Growth had been particularly robust in the first the following years. By 2008, real incomes as measured half of 2005 ­ particularly in employment. However, with by GDI per capita are 19 percent lower than in 2005; the imposition of strict closure during the removal of Israeli unemployment has grown to 34 percent of the workforce; settlements from Gaza and the lack of a "Disengagement and poverty rates increase to include 51 percent of the Dividend" due to their continuation through the remainder population. (Table 1). of the year, economic growth slowed considerably. Continued restrictions on movement between Gaza and Table 1. Macroeconomic Projections 2005-2008"No the West Bank and, in particular, on goods both to and Abrupt Changes" Scenario from Gaza through Israel, as well as likely reductions in the number of Palestinian workers granted work permits for inside Israel, suggest that future growth prospects are 2005 2006 2007 2008 quite fragile. Furthermore, economic performance in 2006 GDP (US$ million) 4,044 4,296 4,272 4,264 is extremely vulnerable to suspensions in the transfer of clearance revenues by the Government of Israel and by real growth rate 6.3% 4.9% -2.3% -1.7% reductions in foreign assistance to the Palestinian Authority GDP per capita (US$) 1,152 1,183 1,136 1,099 from the international donor community. Under such a scenario, economic growth would again turn negative, real growth rate 2.7% 1.3% -5.56% -4.9% falling at rates similar to those witnessed during the early GDI per capita (US$) 1,657 1,648 1,533 1,433 years of the Intifada. real growth rate 4.3% -2.6% -8.6% -8.5% InMarch2006,WorldBankstaffundertookananalysisofthe potential macroeconomic impact of a number of measures Unemployment Rate 23% 22% 29% 34% currently under active consideration by the Government Poverty Rate 44% 43% 48% 51% of Israel and by the donor community. (Indeed, some of these measures are already under implementation; World Bank staff projections, March 2006. Gross Domestic Product see below.) For comparative purposes, a "No Abrupt (GDP) measures productive activity within West Bank and Gaza; Changes" Scenario was also modeled. Essentially this Gross Disposable Income (GDI) measures total income, including involves a continuation of policy measures already in workers' remittances, foreign aid, and other current transfers. April 2006 20 Table 2. Macroeconomic Projections 2005-2008 "Suspension of Clearance Revenue Transfers, Trade Foreign Trade and Labor Restrictions, And Reduced Aid Flows" Scenario The importance of trade in promoting economic growth has been demonstrated time and time again, particularly 2005 2006 2007 2008 for small, developing countries. For West Bank/Gaza, GDP (US$ million) 4,044 2,910 2,835 2,851 international trade is already important and is destined to play an ever increasing role in the future. During the past real growth rate 6.3% -24.5% -4.3% -1.0% six years, imports of final goods, services, equipment, GDP per capita (US$) 1,152 802 754 735 and intermediate inputs used in domestic production represented approximately 70 percent of GDP, while real growth rate 2.7% -27.1% -7.4% -4.2% exports of goods and services represented between 15 GDI per capita (US$) 1,657 1,199 1,089 1,020 and 20 percent of GDP. Such a large degree of openness is not without risk, however, leaving West Bank/Gaza real growth rate 4.3% -30.0% -10.8% -8.3% vulnerable to external closure imposed by the Israelis ­ thereby cutting off this vital lifeline to the outside world. Unemployment Rate 23% 40% 44% 47% Poverty Rate 44% 67% 72% 74% Unfortunately for statistical analysis, trade is badly registered since most of it takes place between the World Bank staff projections, March 2006. See also note to Table 1. West Bank and Israel where no customs stations exist to record the quantity and value of goods that cross This however, is neither the "worst case" nor "most (unlike trade between Gaza and Israel which can be likely" scenario. At present the Israeli Government has counted). Nevertheless, the Israeli Central Bureau of withheld clearance revenues (import tariffs and VAT Statistics estimates such flows, and we rely on their data collected by Israeli customs on behalf of the Palestinian to help understand the evolution of trade since 1998. Authority); tightened border closures and is considering Although ICBS estimates only cover Palestinian trade a further reduction in the number of Palestinian workers' with Israel and not directly with the rest of the world, permits issued. At the same time, donors are considering trade with Israel represents the bulk of total Palestinian reductions in their foreign assistance transfers to the trade.1 Furthermore, significant shares of imported goods Palestinian Authority, possibly eliminating budget support from Israel are actually originating from third countries altogether. ­ "indirect imports". Under this scenario, real GDP per capita declines by The impact of closures that followed the outbreak of 27 percent in 2006 and personal incomes (real GDI per the Intifada in September 2000, and their progressive capita) by 30 percent ­ a one-year contraction of economic tightening through summer 2002, was clearly reflected in activity equivalent to a deep depression. Further declines the reduction of Palestinian trade with Israel. Merchandise the next two years bring unemployment to 47 percent and imports, which had reached their peak in third quarter poverty to 74 percent by 2008. By 2008 the cumulative 2000 at NIS 1.9 billion (US$478 million equivalent), fell decline in real GDP since 1999 would reach 55 percent below the NIS 1 billion level (US$201 million) in second (Table 2). quarter 2002. From that point on, import growth was consistently steady, averaging NIS 2.1 billion (US$463 Thus, the short-term economic prospects for West Bank / million) for each of the four quarters of 2005. Import Gaza depend critically on a number of crucial decisions by growth was particularly strong in 2004 (over 30 percent); all parties; only time will tell which of the two scenarios by the second half of that year, Palestinian imports from outlined above ends up being the more accurate predictor. Israel had fully recovered to their pre-Intifada level ­ and (For further information regarding these scenarios and continued to evidence further growth (10 percent) in 2005 their underlying assumptions, see "Economic Update and (Figure 1). Potential Outlook", World Bank, March 15, 2006. This report can be found on page 3). 1 In 2002, exports from West Bank/Gaza to Israel represented 90 percent of total exports, while imports from or via Israel amounted to 98 percent of total Palestinian imports. (Approximately 55 percent of these imports were of Israeli goods, with the rest coming from third countries.) 21 interruptions due to both internal and external closure, foreign purchasers switched to more reliable, alternative sources of supply; and Palestinian producers switched to service domestic markets. Although the closure regime remained in place in 2004, its administration by then had become far more predictable ­ a key factor in the economic recovery of these years. One part of this recovery was a greater ability for Palestinian manufacturers to begin providing goods to the Israeli market (although their total value still remained small, dwarfed by Palestinian imports). Looking forward, the degree of external access permitted by the Israeli authorities ­ particularly out of Gaza ­ will determine whether the slow, but steady, decline in exports witnessed in 2005 will continue or if export growth rates can be increased and sustained. Source: Israeli Central Bureau of Statistics Trends in merchandise exports to Israel have followed a somewhat similar trend, although at much lower levels. Employment and Averaging approximately NIS 325 million (US$80 million equivalent) in pre-Intifada 2000, exports decline steadily Unemployment through summer 2002 before rebounding in the second half of that year and in 2003 ­ only to hit their low point in the As a result of external closures nearly 100,000 Palestinian fourth quarter 2003 at NIS 207 million (US$47 million). As workers have lost their jobs in Israel since September with imports, 2004 saw very strong growth ­ over 40 percent 2000. According to Palestinian Central Bureau of Statistics compared to 2003; although essentially flat in 2005, trends (PCBS) data, 146,000 Palestinians (116,000 from the by year-end were again pointing downward. Nevertheless, West Bank, incl. East Jerusalem, and 30,000 from Gaza) at NIS 330 million (US$71 million) exports to Israel during were working in Israel and Israeli industrial estates and fourth quarter 2005 remained above the pre-Intifada third settlements during the third quarter 2000. At its low point quarter 2000 level. (Figure 2). during the second quarter of 2002, this number had fallen to 33,000 before rebounding in the following quarter to 53,000; since then, the number of Palestinian workers in Israel and settlements has been relatively stable, increasing (or decreasing) with the extent of closure imposed in the wake of specific terror incidents. In second quarter 2005 their number peaked at 67,000; by fourth quarter 2005 it had fallen to 60,000 (virtually all from the West Bank including East Jerusalem) (Table 2).2 Fewer jobs in Israel have meant a significant decline in workers remittances. According to the Israeli Central Bureau of Statistics, third quarter 2000 remittances totaled US$321 million. In fourth quarter 2005, only $58 million ­ a decline of 82 percent (see Figure 3) ­ was remitted. The considerable decline during the second half of 2005 completely erased the growth in remittances seen in the first two quarters: second quarter 2005 remittances were Source: Israeli Central Bureau of Statistics. US$113 million ­ their highest level in four years. At least three factors explained the reduction in exports witnessed during the first three years of the Intifada: 2 Of these 60,000 nearly half held an Israeli-ID or foreign passport; the increased costs in transportation resulting from internal World Bank estimates that 85 percent of Israeli-ID holders reside in East Jerusalem. The balance in the number of workers in Israel from the West closure made Palestinian products less competitive Bank are believed to be divided roughly equally between those holding (see Figure 14); in the face of production and shipping work permits and those working illegally ("clandestine" workers). April 2006 22 following year. The second and third quarters are usually the strongest, with a concentration of employment in construction. Fourth quarter 2005, however, showed a weakness in job generation in the West Bank. For the second quarter in a row, employment declined ­ a trend likely to continue into the first quarter of 2006 due to seasonal factors. Inside the Gaza Strip 157,700 Gazans were employed during third quarter 2000. By third quarter 2002, the low point during the Intifada, this number had fallen to 106,500 (a 33 percent decline). Four quarters (one year) of continuous job growth found 170,900 Gazans employed domestically, before the decline registered during the fourth quarter of 2003 reduced the number of employed Source: Israeli Central Bureau of Statistics to 163,200. Since then job levels within Gaza have fluctuated (falling The decrease from pre-Intifada levels has had considerable as low as 146,100 in second quarter 2004 due to a direct consequence on the income of Palestinian severe deterioration in the security situation during that households; workers' remittances from Israel represented period), before resuming an upward path. By the fourth some 18 percent of total disposable incomes in 1999. quarter 2005, domestic employment in Gaza had reached Reduced income, in turn, meant reduced demand for 187,700. domestic goods, and therefore lower levels of domestic employment within the West Bank and Gaza. Despite the recent increases in employment, with population growing at just above 4 percent per year, This negative impact that job losses in Israel has had on dependency ratios ­ the total population divided by domestic employment was aggravated by the difficulties the number of employed persons ­ have increased in conducting business within the West Bank and Gaza as significantly over the Intifada period. a result of internal closures and curfews, particularly in 2002, which resulted in significant increases in transaction Whereas in the third quarter of 2000 each job holder in costs, disruptions in production cycles, losses of perishable the West Bank was supporting 4.3 persons, by the fourth output, and lower economies of scale. quarter of 2005 each employed person was supporting 5.2 persons. In Gaza the dependency ratio increased At its low point in third quarter 2002 domestic employment more dramatically, from 5.9 in the last quarter prior to the stood at 387,300 ­ a drop of 25 percent from pre-Intifada Intifada to 7.7. third quarter 2000. By second quarter 2003 domestic employment had recovered to the extent that the number of Palestinians employed within the West Bank and Gaza surpassed the levels prior to the Intifada. At the same time, however, the number of unemployed grew considerably, from 73,600 in the pre-Intifada third quarter 2000 to 197,800 currently (see Table 2). In fourth quarter 2005 the number of Palestinians working inside the West Bank was 384,100 compared to 357,500 just before the Intifada, an increase of 9.4 percent. At its low point in second and third quarter 2002, their number had fallen to 282,200 and 280,900 respectively. Although generally growing from that point forward, seasonal variations can be seen. Employment growth in the fourth quarter is usually concentrated in agriculture (particularly in olive-harvest years), only to fall off again in the first quarter of the 23 Table 3. Number of Palestinians Employed and Unemployed (thousands) Q-1 Q-2 Q-3 Q-4 Q-1 Q-2 Q-3 Q-4 Annual Averages 2004 2004 2004 2004 2005 2005 2005 2005 2000 2001 2002 2003 2004 2005 Employment Working in West Bank 349 367 371 394 359 412 405 384 334 310 297 343 370 390 Working in Gaza 167 146 154 163 167 177 186 188 145 125 128 166 157 180 Working in 47 45 53 48 60 65 64 60 94 67 45 49 48 62 Israel ­ from West BankWorking in Israel ­ from Gaza Strip 6 0 1 1 0 2 1 0 22 2 3 5 2 1 Total Employed 569 559 581 605 586 656 657 632 595 505 474 565 578 633 Unemployed (ILO) 202 224 212 208 209 176 193 198 100 170 216 194 212 194 Discouraged Workers 68 67 69 64 64 58 68 65 98 113 117 89 67 64 Total, Unemployed 271 291 281 272 272 235 261 263 198 283 333 283 279 258 and Discouraged Dependency Ratios West Bank 5.7 5.6 5.4 5.3 5.6 5.0 5.1 5.4 4.7 5.6 6.3 5.7 5.5 5.2 Gaza Strip 7.6 9.1 8.7 8.3 8.2 7.7 7.4 7.5 6.6 9.1 9.3 7.5 8.4 7.7 Source: PCBS. Note: Employment data for workers in Israel includes employment in Israeli settlements and industrial estates. West Bank data includes East Jerusalem. Annual averages are averages of the four quarters that year. Due to rounding errors, totals may not equal sum of components. As mentioned above, a growing population, declining levels of Palestinian employment in Israel and Israeli settlements, and a lack of domestic job creation during the first two years of the Intifada, led to dramatic increases in unemployment and unemployment rates. Despite the job growth in recent quarters, the absolute number of unemployed remains far in excess of pre-Intifada levels. (Under International Labor Organization (ILO) standard definitions, a person must be actively seeking work in order to be considered "unemployed".) The unemployment rate in the West Bank peaked at 31.2 percent in the first quarter 2003. For the next two years, the rate fluctuated between 21 and 25 percent, falling below the 20 percent line in second quarter 2005. Such Source: PCBS. Data for West Bank includes East Jerusalem. a level was short-lived, however, as unemployment rates grew in the second half of the year, reaching 21.8 percent Because a large number of persons without employment in fourth quarter 2005 (Figure 4). have stopped looking for jobs (so-called "discouraged workers"), they are not considered part of the labor force and not included in ILO-standard definition unemployment rates. If such persons are counted, the "relaxed definition" unemployment rate for the West Bank during fourth quarter 2005 was 27.7 percent. (This rate reached its highest level in second quarter 2002, at 42.4 percent.) April 2006 24 Focusing instead on the number of unemployed and Including "discouraged workers" produces a relaxed the number of "discouraged workers" rather than on definition unemployment rate of 33.1 percent in Gaza for unemployment rates shows how much joblessness has fourth quarter 2005; the number of unemployed by this grown. From a total of 95,300 in pre-Intifada third quarter definition increases from 73,900 to 92,800. 2000 (37,900 unemployed and 57,400 discouraged), their number peaked at 228,700 in second quarter 2002 (131,200 unemployed; 97,500 discouraged). Despite recent employment growth (and declining unemployment rates), their number remains large ­ in fact, grew significantly in the second half of 2005. In fourth quarter 2005, 123,900 West Bankers were unemployed, and a further 46,300 had stopped looking ­ a "relaxed definition" unemployment level of 170,200 (Table 3 and Figure 5). Source: PCBS. Wage employment represents approximately 55 percent of total employment in the West Bank, and two-thirds of total employment in Gaza ­ percentages that have remained fairly stable since the outbreak of the Intifada.3 Prior to the Intifada nominal wages were rising steadily; s with the economic growth witnessed from summer 2003 Source: PCBS. Data for West Bank includes East Jerusalem. through 2005, average daily wages again rose (see Figure 8). By fourth quarter 2005 the average daily wage received In Gaza, the fourth quarter 2005 unemployment rate stood by wage employees working in the West Bank was NIS 71.3 at 28.2 percent (73,900 individuals). This represented the (equivalent to US$15.29); for wage employees working in sixth consecutive quarter of reduced unemployment, both in Gaza, the average daily wage stood at NIS 63.5 (equivalent terms of rates and absolute numbers. (Second quarter 2004 to US$13.62); by comparison, wage employees working saw the highest number of unemployed in Gaza ­ 96,600 in Israel and Israeli settlements received on average NIS ­ and a near record unemployment rate of 39.7 percent.) 130.2 (US$27.94) daily.4 Prior to the Intifada the unemployment rate in Gaza was 15.5 percent (35,700 persons). (Figures 6 and 7.) 3The other three types of employment (broken down by status) are "employer", representing approximately 5 percent of total employment in the West Bank and 3 percent in Gaza; "self-employed", amounting to roughly 28 percent in the West Bank and 23 percent in the Gaza Strip; and "unpaid family member", approximately 11 percent of employment in the West Bank and 9 percent in Gaza. Nearly 70 percent of unpaid family members are engaged in agricultural work (for women, roughly 90 percent); roughly 20 percent work in commerce (e.g., a family member's store or repair shop). The rest are scattered among the remaining economic sectors. 4Because a "simple average" can be strongly affected by large or extreme values ("outliers"), this section uses a "95 percent trimmed mean" in order to reduce their impact. The top 2-1/2 percent and bottom 2-1/2 percent of the data are excluded (thereby removing the most extreme responses, which in some cases are simply the result of incorrect data entry), and the Source: PCBS. remaining 95 percent of observations are then averaged. 25 This is particularly true in Gaza where there has been not only a large increase in PA employment (which occurred in the West Bank as well) but also a significant difference in PA versus private sector wages.5 Looking at the average wage rate overall in Gaza blurs together two very different dynamics. Source: World Bank staff calculations based on PCBS data. est Bank includes East Jerusalem. Averages are 95 percent trimmed means; see footnote 4. Wage behavior in 2001, 2002, and the first half of 2003 is less obvious, as employers adopted a combination of strategies to cope with the considerable drop in demand witnessed during this period. Some employers reduced salaries in order to try and preserve their workers' jobs ­ in effect, trying to share the pain. Source: World Bank staff calculations based on PCBS data. West Bank includes East Jerusalem. Averages are 95 percent trimmed Most, however, reduced employment. Between third means; see footnote 4. quarter 2000 and fourth quarter 2000 the number of wage employees working in the private sector in the West Bank fell by 28,500; by second quarter 2002 a further 27,900 West Bank private sector wage employees were no longer working ­ a decline of 48 percent from the last quarter prior to the Intifada when 117,600 workers enjoyed regular wage employment. In Gaza, the reduction was more sudden: whereas 43,000 Gazans held regular wage employment in third quarter 2000, that number fell to 22,600 in the fourth quarter 2000; a further 2,900 were without regular private sector wage jobs by third quarter 2002 ­ a decline of 59 percent. Often it was lower skilled (and lower paid) workers, or workers with fewer years of job experience (again, often lower paid as a result of less time on the job), who were the first to be dismissed. Consequently, the average daily wage received by those who continued to be employed Source: World Bank staff calculations based on PCBS data. could actually increase from one quarter to the next. Averages are 95 percent trimmed means; see footnote 4. Focusing on average wage data for all wage employees, therefore, can be a somewhat misleading indicator because 5In the West Bank, the average daily wage for PA employees was roughly it does not take into consideration what is known as the NIS 11 below the average of private sector wage employees through the third quarter of 2003. For the next two years they were approximately "composition effect" ­ the impact of changes in the number equal. In the fourth quarter of 2005 a gap appeared in favor of PA wage of persons employed, or changes in the distribution of employees, with a daily wage NIS 4.5 higher than that of private sector workers. In Gaza, the PA average daily wage was NIS 12 above the private wage employment by sector (for example, agricultural sector average through third quarter of 2003. Starting in fourth quarter workers receive lower salaries than do manufacturing 2003 the difference between PA and private sector wages widened, until it reached NIS 34 in the fourth quarter of 2005. PA daily wages in West Bank workers), or by type of employer (PA vs. private sector have generally exceeded PA wages in Gaza by about NIS 4 throughout the for example; see Figures 9 and 10). past six years. April 2006 26 For wage earners who continued to be employed, the impact of the increase in dependency ratios during the Prices and Inflation course of the Intifada (and the implied obligation on working Palestinians to support greater numbers of extended family member) was exacerbated by the decline Consumer prices, measured in NI shekels, increased in in average real wages over much of the period. Inflation both the West Bank and in Gaza in 2005, by 2.9 percent has meant a considerable reduction in purchasing power in the West Bank and 1.2 percent in Gaza. For the West for private sector wage employees although their nominal Bank, this represents no change from 2004's inflation rate wages remained roughly steady, while the increase in (also 2.9 percent), and a decrease from the 3.2 percent public sector wages over the past two years has more recorded in 2004 in Gaza. During the first two months of than made up for inflation's impact. In the West Bank, 2006, inflation in the West Bank is virtually unchanged ­ average private sector real wages have declined 17.9 falling to 2.8 percent ­ while in Gaza inflation has picked percent since fourth quarter 2000 while average public up noticeably ­ to 2.7 percent ­ compared to the January- sector real wages decreased only 1.1 percent (Figure February 2005 period (Figure 13). 11); in Gaza, the decrease for the private sector was 13.0 percent against an increase of 10.9 percent of public sector wage employees (Figure 12). Source: World Bank calculations based on PCBS data. Figure shows three-month moving averages, re-based to Third Quarter (July-September) 2000 = 100. Source: World Bank staff calculations based on PCBS wage data. West Bank includes East Jerusalem. Averages are 95 percent trimmed Leading the increase in 2005 in the West Bank were means, deflated by PCBS consumer price indices for Remaining West Bank and re-based to Fourth Quarter 2000 = 100. Beverages and Tobacco (up 5.7 percent), Miscellaneous Goods and Services (up 4.1 percent), and Housing (up 4.0 percent). This is the first year since the Intifada that the Transport and Communications price index has not been either the number one or number two contributor to West Bank consumer inflation. In 2004 this component was up 5.6 percent; in 2002 it rose 21.9 percent largely due to the impact of internal closure (see below). For the first two months of 2006, Transport and Communications costs have again accelerated, up 5.5% compared to the first two months of last year, an increase largely driven by increases in the price of gasoline. Other leading contributors thus far in 2006 continue to be Miscellaneous Goods and Services (up 6.4 percent), Housing (up 5.0 percent), and Beverages and Tobacco (up 4.4 percent) compared to January-February 2005. Source: World Bank staff calculations based on PCBS wage data. Averages are 95 percent trimmed means, deflated by PCBS consumer In 2004 in Gaza, the Food Index represented the second price indices for Gaza Strip and re-based to Fourth Quarter 2000 = 100. largest increase among the components of the consumer 27 price index, rising 4.8 percent (compared to a 3.5 percent increase in 2003.) Food costs stabilized in 2005, increasing just 0.5 percent above 2004's level. Leading ) the increases this past year were Housing and Beverages and Tobacco; both components were up 5.0 percent. The Transport and Communications price index rose 2.8 percent, a rate roughly half of what was witnessed in 2004 when this component led the increase in Gaza's CPI, increasing by 5.7 percent. Thus far in 2006, Transport and Communications prices is again the leader, up 5.7 percent compared to the first two months of 2005, and a rate more than twice the rate of increase registered so far in the overall CPI for Gaza. Because so much of what is consumed in West Bank and Gaza are imported goods, changes in the shekel- Source: Central Bank of Israel. dollar exchange rate can impact prices domestically. For example, the depreciation of the Israeli shekel in During 2004, the shekel first weakened against the dollar, 2001 and early 2002 (particularly strong in the period depreciating by 4.6 percent through May, and then November 2001-April 2002; depreciation is represented strengthened; by year's end, the shekel gained 1.2 percent. as an upward movement in Figure 14) and its subsequent In 2005 the shekel's value against the dollar was largely appreciation (especially in the period February-July 2003; stable during the first half of the year and then weakened, seen as a downward movement in the figure) corresponds losing 6.5 percent from December 2004 to December to a period of accelerating inflation during 2002 and its 2005. For the past six months the NIS-USD exchange subsequent slowing down in 2003. rate has been roughly stable, ending March 2006 at 4.67. But should the rate of NIS depreciation again accelerate, From December 2000 to December 2001 the shekel lost inflation tendencies might be expected to pick up. 4.9 percent of its value with respect to the US dollar; from December 2001 until May 2002 the Shekel weakened a As Figure 13 indicated, there is a degree of regularity further 15.9 percent. As a result, prices of goods, expressed concerning the pattern of price increases during the in shekels, imported into Israel from overseas ­ and by course of the year. Much of 2005's increase in overall extension, into the West Bank and Gaza ­ mechanically consumer prices occurred during the first quarter, followed increased and the overall consumer price index, also by modest declines in the summer and fall months, with measured in shekels, increased ­ not by the same amount, price increases again noticed in the last quarter. Similar but to the extent that the CPI market basket is made up seasonality was observed in 2003 and 2004. of imported goods or of services priced in dollars (such as rents). With an appreciating shekel ­ from February Food prices generally exhibit strong seasonality effects, 2003 through December 2003 the shekel strengthened 9.7 peaking during the first quarter (see Figure 15). At this percent against the dollar (11.7 percent since the shekel's point, food prices usually decline in the second and third weakest point in May 2002) ­ imports become cheaper quarters, before rising modestly in the final quarter of the and, to the extent that importers actually pass on these year ­ a pattern that is likely to continue through 2006. reductions to consumers as opposed to increasing their Over the course of 2005, the Food price index increased profit margins, inflation measured in shekels lessens. 2.7 percent in the West Bank and 0.5 percent in Gaza; comparing January-February 2006 to the first two months of 2005, food prices have increased 1.0 percent in West Bank and 3.3 percent in Gaza. April 2006 28 Source: World Bank calculations based on PCBS data. Figure Source: World Bank calculations based on PCBS data. Figure shows three-month moving averages, re-based to Third Quarter shows three-month moving averages, re-based to Third Quarter (July-September) 2000 = 100. (July-September) 2000 = 100. Excluding food (in order to remove the impact of food's While food prices explain much of the seasonality seasonality), the consumer price index in the West Bank reflected in the CPI and exchange rate movements help has risen by 2.8 percent in 2005; in Gaza, the non-food explain basic trends in tradable consumer goods prices CPI increased 1.5 percent last year. These rates are below (particularly in non-food prices, which are less affected what has been witnessed in previous years. (In 2001, by seasonality), tightened closure during the Intifada non-food prices rose 4.4 percent in the West Bank and period also impacted consumer prices overall. fell 0.2 percent in Gaza; in 2002, non-food prices rose 8.6 percent in the West Bank and by 2.3 percent in Gaza; This effect came through both direct and indirect in 2003, 4.4 percent in the West Bank and 2.1 percent in channels: directly through changes in the transportation Gaza; in 2005, they rose 3.7 percent in the West Bank and component of the consumer price index (which measures 1.9 percent in Gaza.) transportation prices that have increased as a result of heightened closure, such as taxi fares) and indirectly When the Transportation and Communication price index through increased costs of shipping for producers and is also excluded ­ transportation prices being most affected distributors, which were in turn passed on as increases by changes in the closure regime (and also by changes in the final price of all goods faced by consumers in in world energy prices, which can be quite volatile) ­ a the market place, and were seen as increases in these clearer portrait of general price changes emerges. Such components' price indices (for example, increases in the an index can be seen as a measure of "core inflation." price of food resulting from higher shipping costs and Non-food, non-transportation prices in the West Bank greater perishability because of delays and damage due increased 2.9 percent in 2005 and by 1.3 percent in Gaza to off- and on-loading at back-to-back platforms). (Figure 17). The tightening of closure associated with the outbreak of the Intifada in fall 2000 affected both Gaza and the West Bank, while Israeli military interventions in the West Bank in autumn 2001 and spring 2002 explain the difference in movement in the transportation price index in the West Bank and Gaza during these years. In effect, these were negative shocks that raised the level of the West Bank transportation price index (seen as upward steps in Figure 16). In 2004, both West Bank and Gaza witnessed proportional increases in transportation prices: 5.6 percent in the West Bank, and 5.7 percent in Gaza. In 2005 has continued to show roughly parallel increases of 2.8 percent in Gaza and 3.0 percent in the West Bank. 29 These core inflation rates are in line with those of previous years. In 2004, non-food, non-transportation prices rose 3.0 percent in the West Bank and 0.9 percent in Gaza; in 2003, they rose 2.9 percent in the West Bank and 1.8 percent in Gaza. (During 2002, non-food, non- transportation prices rose 4.7 percent in the West Bank and 2.2 percent in Gaza; the higher rate in the West Bank is largely the indirect impact on prices due to closures. In 2001, these prices rose 2.0 percent in the West Bank and fell 1.6 percent in Gaza.). For the first two months of 2006, core inflation is running slightly higher than the rates seen last year: 3.5 percent in the West Bank and 1.8 percent in Gaza. Source: World Bank calculations based on PCBS data. Figure shows three-month moving averages, re-based to Third Quarter (July- By John Wetter, Sr. Country Economist September) 2000 = 100. Sami H. Miaari, Research Economist April 2006 30 West Bank and Gaza Recent Economic and Financial Developments By the International Monetary Fund increased sharply, by 30 percent to almost US$2 billion. As a result, the deficit reached US$777 million in 2005, Economic Activity or 17 percent of GDP, compared with US$574 million in 2004. Only US$349 million in external budget support was Although the recovery in the West Bank and Gaza received, however, about the same level as in 2004, but (WBG) was sustained during 2005, economic roughly half the US$654 million foreseen in the budget.3 activity remains highly dependent on political and The resulting fiscal gap was financed mainly by advances security developments. Real GDP continued to grow from the Palestine Investment Fund (PIF) and unplanned by an estimated 6 percent in 2005, driven by a substantial borrowing from domestic banks4--often backed by PIF increase in government spending and increased activity in assets. construction, transportation, trade, and real estate. In line with this economic expansion, unemployment fell to 23.5 The strong revenue performance mostly reflected percent by late 2005. Inflation remained low, at 3.6 percent increased excise receipts resulting from higher in 2005 (annual average).1 Nonetheless, conditions for oil prices, exceptional profits transfers from PNA- private sector development remained constrained by the owned corporations, as well as administrative volatile security situation, and the Israeli restrictions on improvements. Gross clearance revenues collected by passage and further extensions of the separation wall. As the Government of Israel (GoI)5 on behalf of the PNA rose a result, economic activity remained depressed at levels to over US$740 million (a 20 percent increase from 2004), well below its potential. The November 2005 agreement boosted by the higher petroleum prices and improved on movement and access was a welcome step towards monitoring and cross-checking of taxes. These revenue easing some of the constraints on the movement of transfers amounted to about two-thirds of the PNA's total Palestinian goods and people but, so far, very little of the revenues. Domestic revenues increased to almost US$0.5 agreement has been implemented. billion, due to a large increase in dividends paid to the PNA by the PIF, a substantial increase in licensing fees from telecommunications, higher income tax receipts from higher wages and changes in revenue administration Fiscal Developments procedures. Total revenues reached about 27 percent of GDP in 20056, similar to the average revenue ratio in other non-oil producing countries in the region. The Palestinian National Authority's (PNA) fiscal deficitwidenedsubstantiallyin2005,asexpenditures increases more than offset strong revenue performance. Revenues increased by 36 percent to over US$1.2 billion in 2005. Expenditures2, however, also 3In 2005, external budget support included almost US$190 million from Arab donors, and slightly more than US$130 million from the Reform Trust Fund administered by the World Bank. 4Outstanding PNA debt to commercial banks reached a record of US$642 million at end-December. 1Price changes in WBG largely mirror inflation developments in Israel 5Clearance revenue are indirect taxes collected by the Government of Israel 2Includes wages, nonwage current expenditure, PNA-financed capital on behalf of the PNA, and represent about two-thirds of total revenue. expenditure, net lending, and VAT refunds. 6Net of VAT refunds. 31 6. The wage bill grew much faster than envisaged Net lending increased sharply in 2005, to over twice in the Wage Bill Containment Plan (WBCP)7 owing the budget allocation, due to a general inability to to large salary increases. The Security Service law8 recover the higher costs of energy products. This raised the average monthly wage for security personnel included the need to cover non-payment of utility bills by 34 percent9 between June and December, while the by consumers; increased electricity generation by the total number of security personnel remained reportedly Gaza power plant using relatively expensive fuel oil; and unchanged at 57,067 (although some 14,000 trainees subsidies on petroleum product prices. Consequently, were hired, see below). In addition, following the second US$344 million was spent on net lending in 2005, more phase of implementation of the 1998 Civil Service law10, than double the amount in 200415. the average monthly wage for civil servants was raised by about 16 percent between June and December 2005. Net The already tight liquidity situation became even recruitment in the civil service amounted to 3,666 persons, more precarious in early 2006, following the bringing the total number of civil service employees to parliamentary elections. Even with the receipt of 79,705 by year-end. Overall, the wage bill increased from clearance revenues from the GoI, the PNA was facing a US$870 million to US$1 billion between 2004 and 2005. monthly financing gap of some US$70­80 million--almost Due to the strong revenue performance, however, the three times the average monthly external support received ratio of the wage bill to gross revenues fell to 82 percent in the last two years--due to the full effect of last year's in 2005--84 percent in the last quarter--down from 91 wage increases and the changes in pension legislation. percent in the previous year. In the first two months of 2006, the PNA managed to pay its wage bill, transfers, and purchases of essential goods Non-wage expenditures11 rose sharply between and services with additional bank loans, some income 2004 and 2005, from US$485 million to US$637 tax advances, and limited amounts of external support. million, mainly owing to higher transfers and, to Other payments, including pension contributions, were some extent, higher operating expenditures. Higher delayed. The convening of the new parliament in mid- transfers reflected a larger number of retirees, plus a February, however, prompted the GoI to withhold the higher average pension per retiree following the adoption transfer of clearance revenues, causing a net revenue of the new Unified Pension Law (UPL)12, and the mid- shortfall of some US$50­55 million per month, and raising year salary increases, which also increased PNA pension the monthly fiscal gap to over US$130 million. contributions. Transfers were also impacted significantly by the introduction of a temporary unemployment benefit program and, in the last quarter, a program to recruit security trainees13. Increases in operating expenditures Financial Sector were mostly concentrated in the security services and debt The financial sector remains relatively sound16. service14, with the latter reflecting the higher recourse to Private sector deposits continue to grow at a slow rate domestic financing in the last few years. of 2 percent, reaching about 77 percent of GDP at end- 2005. Credit to the private sector continued to grow at a rapid pace, although it remained at a level of around 30 7 The WBCP, a benchmark for disbursements from the World Bank Public percent of GDP in 2005, which is very low relative to the Finance Reform Trust Fund agreed by the authorities in 2004, aimed at (a) maintaining a stable security forces wage bill in nominal terms; (b) limiting regional average. The result is a highly liquid banking net recruitment to 2,000 persons in 2005 mostly in the areas of health and sector--with a liquidity ratio of about 74 percent. The education; (c) restraining salaries to a 2 percent wage drift by, in particular, not raising professional allowances for teachers and not implementing the Palestine Monetary Authority, however, has yet to resolve second phase of the 1998 Civil Service law; and (d) reducing the wage bill the situation of a few undercapitalized, but non-systemic to 80 percent of budgetary revenue by 2006. banks. The stock market continued its strong performance 8 The law was implemented in August, but became effective on July 1st for all but 8,000 security personnel identified as inactive but maintained on the throughout 2005, with the Al Quds index registering an payroll. increase of more than 300 percent over 2004, due to 9 Wage increases are quoted in New Israeli Shekels (NIS). speculative activities. More recently, however, the index 10The new salary scale for civilians was initiated in July for education and completed in October for all ministries, effective on July 1st and including fell on a monthly basis by about 11.5 percent during both back pay in the October payroll. January and February 2006, although by end-February the 11 Includes non-wage current expenditure and PA-financed capital index was still 116 percent up from a year before. expenditure. 12 Which stipulates for the PNA paying employer contributions to the pension fund for all security personnel aged less than 45. 15About US$109 million was transferred to the General Petroleum Company in 13There were 13,852 new security trainees by end-December 2005. 2005 to cover losses from petroleum prices in WBG not reflecting import prices. 16 14 Debt service increased by about US$20 million in 2005, totaling US$43 The share of non-performing loans (NPLs) decreased from 10.4 percent at million. end-2004 to 7.7 percent at end-2005. April 2006 32 Table 1. West Bank and Gaza: Central Government Current Fiscal Operations, 2004­2005 2004 2005 Prel. Budget 5/ QI QII QIII QIV Year (in million of US dollars) Gross Revenue 954 1,078 254 342 291 331 1,217 Gross domestic 337 396 86 152 95 142 476 Tax revenues 191 230 53 65 67 46 231 Nontax revenues 146 166 33 87 28 96 245 Gross monthly clearance 617 682 167 190 196 188 742 Expenditure 1/ 2/ 1,355 1,582 320 407 445 466 1,638 Wages 870 936 236 235 253 278 1,001 Civilian 538 566 148 149 153 165 614 Security 3/ 333 371 88 86 100 113 387 Nonwage expenditure 449 623 81 155 177 180 593 Of which: Operating 193 263 36 72 57 53 218 Transfers 257 360 45 83 120 127 375 PA financed capital spending 1/ 36 23 3 17 16 8 44 Net lending 4/ 157 130 59 93 85 107 344 VAT refunds 16 20 1 1 5 4 12 Balance 1/ -574 -654 -127 -160 -244 -247 -777 External budget support 353 654 71 174 54 51 349 Balance after budget support 1/ -221 0 -56 14 -190 -196 -428 Total other financing 221 0 56 -14 190 196 428 Exceptional PIF profits ... ... 0 0 109 64 173 Gross withheld clearance revenues 97 92 10 43 11 73 137 Net domestic bank financing 134 -69 74 105 84 52 315 Net change in arrears (- = repayment) and residual -9 -23 -28 -162 -14 7 -198 (in percent of GDP) Gross revenue 23.4 24.0 ... ... ... ... 27.1 Expenditure 1/2/ 33.2 35.3 ... ... ... ... 36.5 Wages 21.4 20.9 ... ... ... ... 22.3 Nonwages 11.0 13.9 ... ... ... ... 13.2 Net lending and VAT refunds 4.2 3.3 ... ... ... ... 7.9 Balance 1/ -14.1 -14.6 ... ... ... ... -17.3 Balance after budget support 1/ -5.4 0.0 ... ... ... ... -9.5 Memorandum items: Nominal GDP in U.S. dollar 4,076 4,488 ... ... ... ... 4,488 Exchange rate NIS/$ (period average) 4.48 4.35 4.36 4.41 4.54 4.65 4.49 Government employment (end of period) 133,106 ... 134,984 135,811 135,226 136,772 136,772 Of which: civilian 76,039 ... 77,917 78,744 78,159 79,705 79,705 Of which: security 57,067 ... 57,067 57,067 57,067 57,067 57,067 Sources: Ministry of finance, and Fund staff estimates. 1/ Excludes foreign financed capital spending. 2/ Excludes net lending and VAT refunds. 3/ In the 2005 budget, includes all employees of the Ministry of the Interior and Internal security services. 4/ PA transfers or payments deducted at source by GOI from disbursements of withheld clearance revenue for bills owed by Palestinian municipalities and other entities. 5/ Budget valued at actual exchange rate. The exchange rate initially used was NIS 4.70 per U.S. dollar. 33 World Bank Activities in West Bank and Gaza Speech by David Craig Country Director for the West Bank and Gaza Private Sector Roundtable in Ramallah March 7th, 2006 Good afternoon Minister Sinokorot, Mr. Masrouji in conflict areas is an intrinsic part of our overall and friends, and thank you for inviting me to meet development agenda. and speak with you today. I have met some of you already but for those of you who I have yet to meet, Development is now accepted by the international my name is David Craig, and I took over as the Country community to be a critical tool in preventing both Director from Nigel Roberts on the 15th of January this potential and renewed unrest. A 2003 World Bank year. As I am still very new here and have much to learn study showed that developing countries with poor about the issues facing West Bank and Gaza, I especially policies and institutions are fifteen times more likely welcome the opportunity to hear from the other speakers to suffer from conflict than the richest countries. So, and members of the private sector. understanding the link between development and conflict is crucial to making a lasting impact anywhere. It also I have been asked to speak with you today about the follows that any assistance program should establish the role of the World Bank Group and its organizations basis for sustainable growth. - including the Multilateral Investment Guarantee Agency (MIGA) and the International Finance Corporation (IFC) ­ Since 1990, the World Bank has substantially in the West Bank and Gaza. My MIGA and IFC colleagues increased its assistance to conflict-affected could not be here today to explain their program in detail countries. One event was a turning point for a but I'll try my best to give you an overview of their work new, multilateral approach. This came in 1994 when here generally. the international donor community asked the Bank to administer multilateral trust funds to support the peace But let me first talk about the World Bank Group process in the West Bank and Gaza. The first trust fund role in countries dealing with or emerging from supported the establishment of the Palestinian Authority conflicts, in general. This, I hope, will stress to you the and its capacity to deliver public services. Subsequent trust importance we attach to the private sector as a driving funds provided for emergency employment generation force for development. projects during a time of renewed conflict As you may know, reconstruction and growth in This framework has operated on the view that, in areas of conflict is at the heart of the World Bank's addition to physical reconstruction, the World Bank mission, dating from our creation after World War and other donors should support the development II. Over time, our mission evolved into poverty of institutions and build the capacity needed for reduction in all countries, including financial and sustainable development driven by the private policy assistance to developing countries throughout the sector. This requires sound policies for macroeconomic world. New institutions within the World Bank Group have management, good governance, growth and employment emerged to tackle important issues such as private sector generation, access to social services and social safety development, investment guarantees and investment nets. In a nutshell, this is about establishing the social dispute resolution, among others. But these are all related and economic foundations of a well-functioning market activities forming part of our poverty reduction mission. economy. As you know all-too-well, unrest and conflict are both a cause and a consequence of poverty. So growth In other words, post-conflict reconstruction means not only a transition from conflict to peace, but April 2006 34 also a transition from a planned to a market-based completing our "Country Economic Memorandum", as economy. well as a "Economic Monitoring Note" which will be presented to the Ad Hoc Liaison Committee, and the Now, let us move to the World Bank's program in the community at large. In both of these analyses, the role West Bank and Gaza. Since 1994, our Board of Directors of the private sector as an engine of growth will be representing the 184 countries that own the World Bank, analyzed, and constraints to private sector growth will has approved 34 projects worth approximately $500 be addressed. We will present a preliminary assessment million, of which a third are in the form of a grant. These of how the private sector has fared since the onset of projects have covered a range of areas from electricity to the second intifada compared to its pre-intifada levels land administration to education and other social services. and what can be done to improve competitiveness in the To date, a total of about $435 million has been disbursed current political climate. on these projects. We have compiled a brief information sheet which we will distribute at the end of this meeting. In addition to the work I just described, the World Bankwillcontinueinitsroleasthesecretariatforthe In terms of overall support to the private sector, Private Sector Working Group, including overseeing the World Bank's main contribution continues to the implementation of various aspects of the joint focus on the institutional reforms I just highlighted, Palestinian ­ Israeli private sector declaration on as well as the creation of an overall business and promoting economic growth in the West Bank and economic environment, mainly through improved Gaza. This declaration was written ahead of the Investors access and movement into and out of the West Bank Conference in London in December of last year and and Gaza. It has been widely accepted that the future presented to the Chancellor of the Exchequer, Gordon economic viability of the Palestinian economy depends Brown. As you might suspect, the main objectives of on the creation of a trade logistics system which permits the declaration centered on increasing the reliability and the safe, reliable and competitively-priced movement of efficiency of movement of goods and people; protecting people and cargo. investors and their businesses; and reducing the legal In order to attract and maintain private investment, and regulatory obstacles facing private investors. The investors in the West Bank and Gaza need a system first meeting of the executive committee will take place which is reliable and predictable. Elements of such tomorrow in Jerusalem and will set the agenda for the a system would include freedom of internal movement upcoming year. within and between Gaza and the West Bank, across the Now, let me turn your attention briefly to another Israel borders, either to Israel or through Israel to third aspect of the World Bank's involvement with the countries, and direct access to third countries, via land private sector. As Youssef Habesh could not attend borders to Egypt and Jordan, by sea and by air. This this meeting today, I would like to take the liberty of system has been described in detail in a number of World discussing a bit about the work of our sister organization, Bank reports which are available on our website (www. the International Finance Corporation, or the IFC, which worldbank.org/ps). Unfortunately, what we are reporting is the private sector arm of the World Bank and an is that the system that exists today is virtually unchanged organization with whom we work with closely. Prior to from that which existed in December 2004. the Intifada, IFC was very active in the territories and had However, as I am sure you are all acutely aware, the current committed a total of US$54 million in 15 companies, of political situation has created a bit of uncertainty for the which US$31 million had been disbursed, including equity work programs of the donor community. In terms of the investments amounting to US$ 14 million. In the period World Bank, our current work program of 12 projects is since September 2000, IFC has focused on managing the quite advanced and continues to be implemented. The portfolio and has reduced its exposure significantly. By bulk of our projects are already being carried out by end September 2005, IFC's outstanding portfolio stood at private sector consultants and contractors who have been $15 million in 11 firms. hired under competitive bidding processes consistent with Looking forward, IFC believes that there could be the World Bank's procedures. Our future program and an opportunity to re-enter the market, and it plans projects will, as has been the case so far, depend on the to re-engage in Gaza with its traditional investment future mandate given to us by our Board of Directors. productsaswellasbyprovidingtechnicalassistance The Bank also continues with its analytical work, through the Private Enterprise Partnership for which has been used by donors and PA to weigh the Middle East and North Africa also known by the costs and benefits of their policies. We are currently more catchy acronym of "PEP-MENA." Teams from the 35 IFC have completed mapping missions to assess private Another organization affiliated with the World Bank sector opportunities. IFC is considering investments in is the Multilateral Investment Guarantee Agency or the financial sector, industry and services which could MIGA. Since 1998, MIGA has been administering a $23 include microfinance, a small business financing facility million trust fund for insuring investments in the West with local banks, a hotel, a private hospital in Gaza, an Bank and Gaza against political risks such as currency offshore gas investment and industrial estates. transfer, expropriation, war and civil disturbance. This has been financed by the Palestinian Authority under a Through PEP-MENA, IFC plans to provide support World Bank loan, the European Investment Bank and the through increased technical assistance for micro, Government of Japan. The fund is currently capped to smallandmedium-enterprisedevelopment,including a maximum of $5 million per project though donors will an SME management training program, technical be asked to consider whether this cap should be raised to assistance for microfinance institutions, advisory services accommodate larger investments. for banks to help them cater to SME clients including the provision of credit, and an SME sector analysis This is a brief summary of the World Bank's work, its targeting growth sectors such as agribusiness, stone and current portfolio, etc. If you'd like more information marble, construction and pharmaceuticals. In general, TA on any of these issues, please visit our website or interventions will be designed to develop SMEs and make feel free to get in touch with us. them more bankable. Thank you. April 2006 36 Case Study Consultations with Palestinian Civil Society on Improving Women's Rights Women's rights take on a special meaning in the context PA, which ensures women receive maintenance of legal and judicial reform. As such reform is underway in payments since enforcement of court decisions on the West Bank and Gaza (WBG), special attention should husbands was highly problematic. be paid to ensure women have an equal opportunity to · In terms of labor rights, the primary problem is access justice and exercise basic rights. In general, women sexual harassment in the workplace. in WBG face the same obstacles to accessing justice as do all residents: a slow and inefficient court system; a weak legal framework; non-implementation of court decisions; and other restrictions. However, there are numerous obstacles that are unique to the plight of women in WBG. Movement Restrictions and These obstacles have been highlighted to the Bank by Residence Issues members of civil society through the Bank's ongoing studies on access to justice. The following is a synopsis of Restrictions on both movement and the ability to the primary impediments identified by civil society: legally change residence have considerable impact on women, particularly in East Jerusalem. According to several accounts by civil society organizations, West Bank residents that marry Jerusalem ID holders are not Legal Framework systematically granted IDs themselves. Even in the West Bank, administrative control over the assignment of official The legal framework in the West Bank and Gaza, though residence in unclear. With construction of the Separation problematic, is not the primary problem for women. It is Barrier nearing completion, restrictions and their impact non application of laws and non-implementation of court are likely to become more problematic, particularly in decisions that are the primary obstacles to exercise of East Jerusalem. basic rights. When court decisions cannot be implemented women are forced to turn to informal justice mechanisms, · Women from the West Bank who marry men from which in general are less protective of women's rights. East Jerusalem often have problems securing Jerusalem IDs. If they reside in East Jerusalem · The Criminal Code still provides that killing they are forced to limit movements so as not to be a family member for purposes of "honor" is a identified and returned to the West Bank. Women mitigating factor to charges of murder. in such a situation are extremely vulnerable since · The Family Law has not been amended since the they have little ability to exercise rights. For 1970's, and thus many provisions are out of date. In example they cannot file for divorce in Israeli particular, those provisions related to maintenance courts, and if they file petitions in the PA courts, payments in cases of divorce provide sums that the decision cannot be enforced against their are inadequate for women to survive on and care husbands because they reside in East Jerusalem. for children. One positive development has been Children of such marriages also have considerable the establishment of a maintenance fund by the problems securing Jerusalem IDs. 37 · Women from Gaza who marry men from the West Bank faces similar difficulties, as they must request Recommended Reforms a change of residence from the GOI, and such requests are rarely granted. If they remain in the West Bank without the proper ID they risk being In order to address these obstacles, the following reform forcibly returned to Gaza. The situation is much the recommendations are widely regarded as priorities: same for women from the West Bank or Gaza that · Investing in the judiciary and prosecutors, in marry Israeli Arabs, especially since amendments particular setting clear criteria for the appointment to the Israeli Citizenship Law severely restrict the and promotion of both. ability of Israeli Arabs to marry persons from the West Bank or Gaza. · Increasing the number of judges and prosecutors to reduce the backlog of cases. · Children born to Jerusalem ID holders living in the West Bank cannot receive Jerusalem IDs, · Supporting the enforcement of court decisions. because they are not living in Jerusalem, and have · Strengthening the relationship between the courts considerable difficulty obtaining West Bank IDs. and the police. The latter is due to PA concerns that requests for · Providing judicial training on women's issues. such IDs, which need the approval of the GOI Ministry of Interior, will alert the GOI to the fact · Encouraging Palestinians to use the formal court Jerusalem ID holders are residing outside of East system instead of the informal sector. Jerusalem resulting in the cancellation of their Jerusalem IDs. Access to Justice in Area C According to the Oslo Accords, PA courts have no jurisdiction in Area C. Instead, the GOI has full jurisdiction over civil and security matters. In practice, the GOI has retained authority only over select civil matters such as land administration, zoning and planning. It has allowed de facto jurisdiction of the PA courts in areas A and B over other matters, such as family law. · Women seeking a divorce or restraining order for an abusive spouse would normally have to file a petition in a PA court in Areas A or B since there are no bodies in Area C to handle such issues. However, any decisions rendered would have to be implemented through the GOI, which has full civil and security jurisdiction in Area C. So a woman seeking a restraining order from an abusive husband would have no effective remedy. She would also have problems implementing child custody and divorce rulings. · In practice, many women are forced to receive decisions from a PA court and use this as a basis for negotiations through informal justice channels. However, informal justice mechanisms do not always provide an adequate level of protection of women's rights. April 2006 38 Case Study Transparency and Good Governance in Tertiary Education The recent World-Bank- EU financed Tertiary Education Project months of project implementaion. To date, nine proposals have has already achieved a number of important steps towards been approved by the QIF Board in the first round of selection. transparency in the allocation of funds to support innovative These include proposals for: establishment of a Biotechnology projects in universities and colleges across the West Bank Training and Research Unit at the Palestine Polytechnic University and Gaza. This project, which amounts to 10 million US from in Hebron; Development of a Professional Diploma Program the World Bank and 5 million euro from the EU, seeks to (i) for Small and Medium Enterprises at Bethlehem University; improve the policy-making environment for tertiary education Introduction of a Masters Program in Clinical Nutrition at Al- management, governance and quality assurance; (ii) increase the Azhar University; and Introduction of a Food Processing and internal and external efficiency of tertiary education institutions Management Program at the College of Educational Sciences as a first step towards achieving sustainability; and (iii) create and Women's Community, among others. incentives and provide the basis for improvements in quality, relevance and equity of tertiary education institutions in order to This exercise has shown that there is a considerable potential for meet the socio-economic needs of the Palestinian population. innovation and creativity within Palestinian tertiary institutions. Moreover, the professional peer review system, relying on the The project has, among other steps, introduced mechanisms to local academic community, has demonstrated that such a model ensure a level of competition between tertiary education projects can in fact succeed. seeking to improve the quality and relevance of education services. The Quality Improvement Fund (QIF)- financed jointly by the World Bank and the European Commission- was established as an independent body reporting to a Board consisting of representatives from academia, the private sector, the Council for Higher Education, and the Accreditation and Quality Assurance Commission. All universities and colleges are eligible to apply for QIF grants, provided that they have a clear plan for quality assurance and self-evaluation. Under this mechanism, universities and colleges submit their proposals to a `peer review scoring system'. Priorities for grant awards are given to those proposals that are consistent with the Palestinian Authority's established development plans in the sector. A strong emphasis is also placed on projects that: (a) seek to develop human resources and the quality of the educational programs; (b) stress partnerships between local and international, as well as public and private, universities and colleges; and (c) address the potential for alternative sources of funding and revenues. Universities and colleges throughout the West Bank and Gaza have been very active in preparing and presenting proposals to the QIF- 42 proposals were submitted to QIF within the first six