WEST BANK A Quarterly Publication of the West Bank and Gaza Office AND GAZA December 2002 UPDATE The World Bank Group Long-Term Policy Options for the Palestinian Economy1 The recently released World Bank study Long-Term This study considers policy alternatives relating to Policy Options for the Palestinian Economy compares trade, labor and investment, and their implications potential alternative approaches to economic relations for Palestinian economic growth. In looking to the between the West Bank and Gaza (WBG) and Israel, future, the analysis draws lessons from past experience, exploring which type of economic policy regime specifically from the economic outcomes associated would offer the most benefits to Palestinians in the with the Paris Protocol era. context of future statehood. Palestinian GDP growth in real terms averaged 5.4 As the Interim Period neared the end of its prescribed percent per year between 1968 and 2000, but post- five-year lifespan in 2000 and negotiations on final Oslo economic output was erratic and averaged only status arrangements got underway, the Palestinian 2.5 percent growth between 1994 and the eve of the Authority (PA) and the Government of Israel intifada in September 2000, compromised as it was considered potential policy regimes to succeed the by periods of severe closure-induced contraction. 1994 Paris Protocol. While such discussions have been Conflict apart, however, growth in Palestinian capital temporarily submerged by today's tide of violence, stock never took off as expected after Oslo, in spite there is a need to return to the issue of basic economic of large inflows of foreign assistance, and most relations between Israel and an eventual Palestinian investment has been devoted to construction rather state. The World Bank's new study therefore examines than more productive activities. Even when the the pros and cons associated with a range of alternative Palestinian economy was relatively free from mobility approaches to economic relations between Israel and restrictions, average Palestinian incomes did not the future Palestine. converge with those in neighboring Israel, which by Establishing a Palestinian state would likely afford a end-2000 enjoyed a per capita income level more than range of policy choices to the Palestinian authorities ten times that of WBG. that has been hitherto unavailable. Today, for example, a lack of clearly defined borders with Israel and Israel's control over Palestinian borders with Jordan and Egypt restrict Palestinian access to third-party trade partners, 1To access the full report, go to: www.worldbank.org/we and largely limit Palestinians to trading with Israel within the current customs union. Israeli closure policies have also significantly reduced Palestinian CONTENTS PAGE capacity to produce as well as to trade. An amicable Technical Assistance Trust Fund (TATF) 8 final status agreement, by contrast, could open up Recent Economic Developments 11 alternative production and trade policy options, Bank Group Operations 19 assuming that Palestinians exercise effective economic Bank Group News 29 control over their borders as well as their policies. New Bank Publications 29 PDF-EN.PM5 1 1/15/103, 5:28 PM West Bank and Gaza Update Explanations for this disappointing outcome vary. effective rate is a much higher 16.6 percent on Apart from the obvious impact of conflict and closure, Palestinian imports, due to the types of goods imported some observers stress technical flaws in the Protocol into WBG. Furthermore, the Paris Protocol allows (such as loopholes in trade rules and inadequate only limited Palestinian access to Egyptian and dispute settlement mechanisms), Israeli reluctance to Jordanian markets. Because Israel controls all borders implement aspects of the agreement and weak efforts in the Palestinian Territories, Palestinian trade must by the PA to develop a climate attractive to investors. be conducted through Israel rather than directly with It has been argued that the Protocol was destined to third-party countries. This creates at least two disappoint since it encouraged the Palestinian problems: first, Palestinian traders incur higher economy to persist with low value-added activities transport costs than if trading directly; and second, beneficial to Israel. This limited growth opportunities the PA loses out on trade tax and VAT revenue from and left the Palestinian economy highly vulnerable to goods nominally imported into Israel but subsequently political factors that could, and did, impede re-exported to the West Bank and Gaza without being transactions. Others suggest that the Paris Protocol properly accounted for - and taxed - as a trade amounted to an incomplete contract between unequal transaction. partners which relied excessively on well-intentioned Israeli interpretation. The overall environment of This lost revenue associated with indirect imports uncertainty was compounded by inadequate amounts to an estimated US$174 million per year (see Palestinian legal, regulatory and financial institutions, Table 1). Additional welfare losses are incurred by further hampering private sector development - WBG because the US$900 million trade deficit with including between Palestinians and Israelis at the firm Israel constitutes a negative net transfer (as compared level. Together these factors undermined Palestinian to a non-discriminatory trade policy). In other words, economic growth. Israel gains more than WBG from preferential access to Palestinian markets under the customs union. Given the problems associated with the existing policy framework, the Bank's report examines options that On the other hand, WBG gains certain advantages will face Palestinian policymakers in the event of a from being in a customs union with Israel, such as peace agreement with Israel. The analysis is conducted preferential access to the large Israeli market, although in two stages: first, each policy area is analyzed this advantage is much attenuated during closures. In separately in a partial equilibrium context, without addition, Israel's recent trade liberalization allowed accounting for broader intersectoral relationships; liberalization for Palestinian imports as well. And the second, these separate areas are brought into a Israeli tax authorities collect taxes on behalf of the PA comprehensive and integrated framework. A range and remit the proceeds to the PA, greatly simplifying of assumptions vis-à-vis the nature of borders between the PA's role and reducing its administrative costs by WBG and Israel is delineated, tying together trade, an estimated US$48 million annually (Israeli payments labor and private sector development considerations have been largely suspended during the intifada, to measure their combined impact on growth however). prospects. The study develops scenarios to reflect Comparing a Customs Union (CU), Free Trade different combinations of future policy options linked (FTA) Area and Non-Discriminatory Trade Policy to the nature of borders with Israel. The simulation (NTDP). In Table 1, the costs and benefits of a CU exercise is used to illustrate the relative merits of each are compared to alternative trade regimes possible scenario, associated trade-offs, and the prospects for under a final status agreement, namely an NDTP and economic growth in the event of a peace agreement an FTA. Using 1998 data to quantify the costs and and a completion of final status negotiations. benefits of an NDTP compared to a CU, the losses incurred by the Palestinian economy under the existing Trade Policy Options customs union are estimated at US$225-266 million annually (depending on the degree of smuggling). Israel is by far WBG's most important trade partner, dominating both imports and exports. The modified An NDTP is also superior to an FTA (see Table 1). customs union currently in place is one-sided, favoring Under an FTA, trade between WBG and Israel is still Israel in several ways. The external tariff on third- free, implying the same welfare loss from the trade party countries is set by Israel without regard to deficit as under a CU (ranging from US$99-140 million). Palestinian comparative advantage. Although Israeli But there are additional costs for complying with the tariffs plus purchase tax average 11 percent, the rules of origin necessary to avoid trade deflection under an FTA. These costs are borne by the PA in December 2002 2 PDF-EN.PM5 2 1/15/103, 5:28 PM West Bank and Gaza Update Table 1: Net Gain of CU, FTA Compared to NDTP Labor Market Outcomes (US$ million per year) The costs borne by WBG through its membership in No Smuggling Smuggling a CU with Israel are partly offset by Palestinian access CU: to the Israeli job market, which increases aggregate Indirect imports (taxes) -174 -174 employment and raises incomes. On the other hand, this access distorts wages within the Palestinian Trade deficit (welfare) -140 -99 economy, hurting competitiveness. In the past, rapid Border cost savings 48 48 population growth strained the capacity of the Net Gain of CU -266 -225 Palestinian economy, leading to excess labor supply FTA: despite low labor force participation rates (particularly among women). As a result, many workers sought Trade deficit (welfare) -140 -99 employment elsewhere, primarily in Israel. Prior to Rules of Origin -85 -85 the ongoing crisis, nearly a quarter of Palestinian Net Gain of FTA -225 -184 employment was in Israeli jobs with wages significantly higher than in WBG. Israel began to restrict Palestinian labor inflows in the early 1990s by introducing work terms of border administration, as well as by exporters permit requirements. But the Oslo accords marked a and consumers through higher import prices. fundamental shift in Israeli labor policy, as mobility Moreover, there are no border savings to offset these restrictions were enforced, including periodic border losses. Thus an FTA would cost at least US$184-225 closures and at times extreme restrictions (i.e. internal million annually in net terms (depending on the degree closures), during which Palestinians could not leave of smuggling). The costs of an FTA would likely be their villages2. During closures, very few workers from even higher in light of potential trade diversion, welfare Gaza could reach their jobs in Israel or the settlements, losses due to WBG's higher propensity to import, and but West Bankers had slightly more flexibility due to enforcement complications resulting from multiple and the porous border with Israel. overlapping FTAs. Closures were particularly severe in 1995 and 1996, When a CU is weighed against an FTA, the CU is leading to a drop in labor flows to Israel and high superior from the perspective of tax revenues and Palestinian unemployment, which spiked to 25 percent administrative costs. An FTA would require setting up in 1996 (see Figure 1). This was a dramatic change and administering customs border stations, and this from the 1980s when unemployment was negligible added cost would not be accompanied by any benefit and movement restrictions did not exist. The PA from tax revenues on Israeli imports, which would responded to skyrocketing unemployment by creating continue to be free. Moreover, introducing rules of jobs in the civil service. Although this strategy origin would reduce Palestinian access to Israeli coincided with the PA's expanded responsibilities post- markets. Efficiency and welfare losses would also arise Oslo and the need to set up the main institutions of under an FTA from trade diversion (Palestinian governance and public service delivery, public producers would use more expensive Israeli imports employment grew faster than necessary, engendering rather than less costly alternatives from third-party an undesirably large wage bill. As the security climate sources in order to meet rules of origin criteria for improved, labor flows to Israel regained much of their exporting final goods to Israel duty-free). earlier importance in providing Palestinian jobs, and Analyzing trade policy choices in a partial equilibrium unemployment declined in 1998 and 1999, falling framework - that is, from a tax revenue and welfare below 10 percent in mid-2000. The September 2000 perspective, independent of other sectors of the outbreak of the intifada then led to sharply higher economy - indicates that an NDTP is superior to both unemployment as closures precluded workers from an FTA and the existing customs union, assuming open reaching their jobs, and prolonged civil strife disrupted and transparent trade policy enforced by credible lock- domestic economic activity. in mechanisms. If for political reasons the CU remains in effect under final status, several improvements could be made to counter Palestinian losses, such as adopting a macro-based revenue sharing formula, and/or direct Israeli compensation of WBG for the losses it incurs 2The situation is much more extreme today, particularly under curfews under a CU. that prohibit individuals from leaving their houses. December 2002 3 PDF-EN.PM5 3 1/15/103, 5:28 PM West Bank and Gaza Update Figure 1: Unemployment 40% 35% 30% WBG 25% WB 20% GS 15% 10% 5% 0% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Q4-00 Q1-01 Q2-01 Q3-01 Q4-01 Q1-02 Q1-3 Labor force survey data from the Palestinian Central value-added activities. This in turn does not facilitate Bureau of Statistics provides information on the skills acquisition through knowledge-sharing or characteristics of the employed and unemployed. For learning-by-doing - the expected gains from labor example, unemployed men tend to have less migration. In addition, the relatively high wage does education than unemployed women, and almost 80 not attract investors or technology to increase percent of Palestinians working in Israel have only 6 productivity in export sectors. During the Oslo period, years of schooling, reflecting a lower education level Palestinian growth and economic development was than among those employed within the domestic not export-led but rather was driven by consumption Palestinian economy. The data also indicate that through higher incomes from workers' remittances government employees are more educated than those from Israeli jobs. The positive consequences of this in the private sector, with 52 percent holding a post- growth model include higher household incomes and secondary degree or higher, compared to only 14 lower poverty when labor can move relatively freely. percent among non-PA workers. Similarly, But the downside - especially during periods of government employment employs a majority of the closure - involves uncertainty, income volatility, high highly-skilled, suggesting little private sector demand unemployment and poverty, non-competitive for such skills. domestic wages, and substantial vulnerability to Palestinian wages in WBG and Israel. Micro- external shocks. analysis on the determinants of earnings indicates that the returns to working in Israel are extremely Business Environment high. For example, a worker from Gaza earns 85 The existing trade and labor distortions described percent more in Israel than if employed domestically above both lead to low-productivity, low-growth in Gaza, and a West Banker working in Israel earns outcomes through export and labor specialization in 61 percent more than if employed within the West low value-added activities. This distorted incentive Bank. In this environment, the domestic economy framework was exacerbated by high risk and struggles to create adequate jobs for a fast-growing uncertainty linked to the interim political but fairly well-educated labor force, putting pressure arrangements, the unclear nature of future economic on the PA to step in by creating more civil service and political arrangements, and a lack of reliable jobs. Although the returns to education are positive property rights. Almost 80 percent of Palestinian and increasing, they are fully offset by the returns to private firms responding to a survey on the business working in Israel. Moreover, the higher Israeli wage environment in WBG prior to the intifada reported actually pulls up domestic wages in WBG, making policy instability and uncertainty as their greatest them less competitive and dampening domestic labor impediment. In addition, Israeli security measures demand. This distortion arising from limited access resulted in crippling transactions costs. to Israeli jobs hurts Palestinian economic development by creating a labor market that specializes in low Taken together, these features do not create an environment conducive to private investment in start- December 2002 4 PDF-EN.PM5 4 1/15/103, 5:28 PM West Bank and Gaza Update ups or expansion of existing businesses. Although for Palestinian trade in the long run? What are the the Paris Protocol attempted to address some of these costs and benefits associated with Palestinian access constraints, any potential progress and improvements to Israeli jobs, and what degree of access would best were severely compromised by the uncertainty, support Palestinian economic development? If a mobility restrictions and high transactions costs peace agreement is concluded and borders are attendant on security measures. The economy's defined, what type of economic relationship with growth prospects are brighter under scenarios of Israel would maximize Palestinian economic growth? normalization with Israel, assuming a resolution of Would increased economic integration with Israel the ongoing conflict. But addressing trade and labor work better than economic separation? policies alone will not automatically trigger a large private sector response, even though a negotiated To approach these questions, the study assesses the settlement would greatly improve the business economy's growth prospects under five economic and environment by reducing the risk associated with political scenarios, since realism requires that the two political and, ultimately, economic uncertainty. The factors be considered side-by-side. The five scenarios current prospects for extensive job creation in the reflect varying degrees of cooperation between the constrained Palestinian business environment are dim, two parties, and no particular likelihood is attached especially in view of rapid labor force growth. The to any one scenario. The scenarios do not purport to PA lacks the resources and capacity to continue represent an exhaustive list of possible future absorbing job seekers, implying that the private sector outcomes, but rather attempt to portray a reasonable will need to pick up the slack in order to support set of possible growth path expectations for the improved Palestinian economic performance. Palestinian economy. The scenarios reflect continued crisis (Scenario 1), a return to pre-crisis conditions In addition to the high cost of Israeli security (Scenario 2), continued post-crisis economic procedures, other distortions raise production costs, integration with Israel but with a well-implemented diminishing Palestinian competitiveness. High customs union (Scenario 3), separate economic transportation costs for the effectively land-locked development featuring a non-discriminatory trade WBG raise the final price of exports as well as the policy (Scenario 4), and Palestinian policy autonomy cost of imported inputs. The relatively high market in a cooperative environment featuring a free trade wage renders Palestinian labor-intensive products area between the Palestinian state and Israel more expensive. Palestinian producers also face (Scenario 5). relatively high prices for production facilities such as land, electricity, and water. The expensive cost The projected outcomes of these five scenarios are structure faced by manufacturers in WBG severely as follows: limits Palestinian competitiveness. (1)A continuation of the crisis would have dire Corrective policies. The PA nevertheless has some consequences for the Palestinian economy and tools at its disposal to ease constraints facing private its population, including declining per capita agents, improve the institutional framework for incomes, stagnant exports, and poverty rates investment, and enhance public-private interactions. increasing well beyond 50 percent of the These include policy measures to address areas population. currently within Palestinian control - namely, (2)A return to the situation prevailing in September strengthening the Rule of Law, promoting a strong 2000 would amount to a muddle-through financial system, reducing anticompetitive practices, solution embodying stagnation and increased increasing the accountability of the public sector, reliance on Israel. improving revenue administration, and raising the (3)A successfully-implemented Paris Protocol efficiency of the public sector by allowing the private would lead to higher per capita incomes and a sector to compete in service delivery. significant reduction in unemployment, but would fail to generate sustainable high Future Growth Prospects economic growth due to a lack of incentives to develop exports and thereby achieve significant In light of the distortions described above, the realities productivity gains. of the post-Oslo experience must be taken into (4)Economic separation via a more neutral trade account in designing future policies. The study regime aimed at diversifying the Palestinian therefore asks several key questions. Would economy away from Israeli dependence in favor alternatives to the existing customs union be better of greater integration with global markets December 2002 5 PDF-EN.PM5 5 1/15/103, 5:28 PM West Bank and Gaza Update would bring important dynamic gains in terms would lower unemployment, but would lead to of investment and productivity, and would lead only mediocre GDP and export growth and to strong export-driven GDP growth. However, would increase long-term Palestinian economic this scenario is associated with significant dependence on Israel. unemployment. The resulting outcomes associated with the five (5)Greater economic autonomy via the cooperative scenarios are illustrated in Figures 2, 3, 4 and 5 development of a free trade area with Israel below. Figure 2: Real Income Per Capita, Different Scenarios (1998 US$) 1,800 1,600 S1 1,400 S2 S3 1,200 S4 S5 1,000 800 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Figure 3: Real GDP, Different Scenarios (1998 US$ 8,500 7,500 S1 6,500 S2 S3 5,500 S4 S5 4,500 3,500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 December 2002 6 PDF-EN.PM5 6 1/15/103, 5:28 PM West Bank and Gaza Update Figure 4: Exports and TFP 2010, Figure 5: Unemployment Different Scenarios and Poverty 2010, 1,800 114 Different Scenarios 60% 1,600 112 mn) 1,400 50% 1,200 110 US$ 40% 1,000 108 (1998=100) (1998 800 106 30% 600 Index 104 20% 400 Exports TFP 200 102 10% 0 100 0% S1 S2 S3 S4 S5 S1 S2 S3 S4 S5 Exports TFP Unemployment Poverty Scenario 1 has nothing to recommend it. Scenario vary significantly. With increased economic 2 represents a political rapprochement without any integration and limited policy autonomy, slow fundamental changes in the policies governing productivity growth and capital accumulation are economic relations between WBG and Israel, and is compensated for by greater access to the Israeli labor likely to trap the Palestinian economy in a low-growth, market. Under economic separation, by contrast, low-income equilibrium. reduced access to the Israeli labor market and higher Scenario 3 represents no real change in trade policy, transaction costs are offset by a more neutral trade but improved mobility and lower transactions costs regime that reduces trade diversion, promotes offer the most rapid path to a recovery of Palestinian competition and encourages investment and more incomes; this approach is associated with only minor productive technologies, but with social costs in the improvements in output growth, however, as well as form of higher unemployment. weak export performance and continued dependence The choice of future trade and labor policies will on Israel. ultimately depend on the nature of the political The two scenarios characterized by new trade policies relationship between WBG and Israel. The post-Oslo - either through economic separation and a non- experience generated mediocre growth outcomes due discriminatory trade regime (Scenario 4) or through to distortionary trade and labor policies as well as a free trade area and continued labor market excessive Palestinian dependence on Israel. The integration (Scenario 5) - involve varying degrees resulting lack of risk diversification made the of decision-making flexibility on the Palestinian side, Palestinian economy vulnerable to external shocks, and different degrees of economic dependence on thus contributing to fluctuating economic performance Israel. Scenario 4 shifts to a higher export/productivity in response to Israeli closure policy and other factors path through trade diversification, but employment beyond Palestinian control. The pros and cons of recovers more slowly due to smaller labor flows to future policy options will need to be clearly Israel. With the free trade area posited in Scenario 5, considered in light of recent history - a history which, continued dependence on Israel through trade and in the minds of many Palestinian policymakers, now labor flows leads to only modest dynamic income argues for a policy of economic separation. gains from Palestinian trade with other countries, although employment recovers more rapidly. Comparing the results of the different policy scenarios does not point to a unique or optimal solution. Importantly, real GDP growth does not differ significantly in the long run (other than under the This article was written by Elizabeth Ruppert Bulmer, Senior Country Economist, Social & Economic Development Group, World dismal Scenario 1), but the factors driving growth Bank December 2002 7 PDF-EN.PM5 7 1/15/103, 5:28 PM West Bank and Gaza Update TECHNICAL ASSISTANCE TRUST FUND (TATF) The TATF received US$23 million in grants from twelve n Urban and Municipality Development (US$2 donors. The trust fund was administered jointly by the million); World Bank and PECDAR. Effective Date: June 1, 1994. n Finance (US$1.4 million); Closing Date: December 31, 2001. n Tourism and Culture (US$2 million); and n Transportation (US$3.8 million). The objective of the TATF was to help the newly emerging Palestinian Authority develop governing institutions, establish policies for key economic sectors, Use of TATF Funds By Sector and prepare pre-feasibility and feasibility studies. Seventy-nine projects in various sectors were Argriculture 1% implemented throughout the lifetime of the TATF. Water & Education Sanitation 6% 6% Urban & Municipal Energy (Electric Development 9% Power) 8% DONOR FUNDING (US$) Austria $1,645,847 Environment 2% Canada $1,083,708 Transportation 16% Finance 6% Denmark $ 958,702 Finland $1,048,951 Health 7% Italy $3,213,710 Housing 0% Japan $5,000,000 Legal Affairs 2% Netherlands $1,028,436 Private Sector Norway $2,078,164 Tourism & Culture 9% Development 1% Sweden $1,664,418 Switzerland $2,225,519 Telecommunication 5% Public Economic & Financial United Kingdom $2,025,540 Management 23% United States $1,000,000 Source: PECDAR -------------- Total $22,972,995 The education, health and housing sectors, which were severely undercapitalized, received significant donor Sector Allocation: The five sectors that received the support through the Holst Fund (a multi-donor fund largest disbursements through the TATF were: administered by the Bank) and other funding mechanisms. The role that the TATF played in these n Public Economic and Financial Management, and other sectors was to strengthen the capacity of public which included general public administration sector institutions to improve planning and management training (US$5.7 million); for these important sectors. Examples of the TATF achievements are illustrated below: OBJECTIVE EXAMPLES OF ACHIEVEMENTS Assist in building n Contributed to establishing a number of important PA institutions, such as the Palestinian institutions Palestinian Monetary Authority (PMA) and capacity building of most PA ministries and in enhancing and other institutions. Palestinian capacity for n Design of a Uniformed Accounting System for Municipalities. self-government. n Creation of the Palestine Economic Policy Research Institute (MAS) and preparation of more than 30 widely disseminated and used reports on multiple economic topics. December 2002 8 PDF-EN.PM5 8 1/15/103, 5:28 PM West Bank and Gaza Update n Design of the Customs Administration (CA) and support for institutional development of the CA. n Design of a Geographic Information System and support for the Palestinian Geographic Information Center (PALGRIC). n Funded development and institutional strengthening of PECDAR, which has played a key role in managing donor funds for both institutional and physical development through technical assistance, training, design studies and oversight of project implementation. n Creation of the National Institute for Information Technology as an academic training provider for Information Technology (IT). Facilitate the n Design and institutional support for the establishment of Joint Services Council implementation of for Solid Waste and Environmental Management. The Council is currently investment implementing a US$14 million "Solid Waste and Environmental Management Project (SWEMP)" for the Jenin District, financed by the World Bank and the European Union. n Design of donor funded schools and roads (the World Bank, Switzerland, Saudi Arabia, and Kuwait). n Preparation of traffic management systems studies that were used by municipalities n Design of the Government Health Insurance Information System (GHIS) that was the basis for World Bank investment in the GHIS and in the Ministry Of Health's Health Management Information System. Assist the Palestinian n Virtually all sector studies carried out through TATF addressed issues related to Authority in the design inter-sector planning; in particular: the Agricultural Policy Study; Pilot Urban of integrated policies Planning Study; Water Sector Strategic Planning Study; Wastewater Treatment and and programs. Reuse Strategy; Power Sector Policy Study; Cultural Resources Management; and the Institutional and Regulatory Framework for Telecommunications and Postal Services Study. n Many of the reports produced by MAS called for integrated economic and social policies and programs. Assess the feasibility of n While many of the studies supported by the TATF addressed both short and proposed physical longer term investment, the following four, in particular, focused on the longer investment for the term: (1) the Central Roads Administration Project; (2) the Water Sector Strategic longer term. Planning Study; (3) the Tourism Strategic Planning Study; and (4) the Pilot Urban Planning Study. Each of these studies resulted in significant donor investments. Encourage the growth n Three of the focus areas of Palestinian economic growth, information systems, of the private sector. tourism, and trade, were among the TATF-supported studies and projects. These were: (1) the National Institute for Information Technology; (2) the Tourism Strategic Planning Study; and (3) the National Trade Dialogue Project. n The TATF also supported studies in housing and telecommunications, two important sectors for private sector investment: (1) the Condominium Registration Study; and (2) the Telecommunications and Postal Services Institutional and Regulatory Framework Study, which served as the basis for privatization of the telecommunications system. n Strengthening of local consulting firms was also an indirect output of the TATF. Consulting firms became actively involved in the preparation of designs and studies, either independently or as joint venture partners with international firms . December 2002 9 PDF-EN.PM5 9 1/15/103, 5:28 PM West Bank and Gaza Update Training. About 6 percent of the TATF funds (nearly Since its founding, the NIIT has already been recognized US$1.5 million) were disbursed directly for training. And by Microsoft as an academic training provider, and has over 2,000 Palestinians received different kinds of carried out more than 15 short and longer-term courses, training. However, there was additional extensive training more than 700 students and others with varying training (including "on-the-job" skills development) degrees of experience in information technology. carried out through the institutional building, design, studies, and technical assistance components of the TATF. Activities such as training in international procurement and project management, as well as decision making for investment in the infrastructure sectors, therefore, dominated the early training agenda. The aim was to help policy makers determine priorities for the use of resources in the infrastructure and the utilities sectors, and to give PA senior personnel the skills and competence to analyze and prepare new projects to a standard acceptable to PA ministries and international financing agencies. National Institute for Information Technology (NIIT) Salah Eddin Road in Gaza - Design Financed by the TATF. One of the last achievements of the TATF was the establishment of The National Institute for Information Technology (NIIT) which was inaugurated in March 2001. The TATF provided seed funds for the NIIT for procurement of equipment and software; furniture; covered recurrent costs for the first year of operationThe NIIT will serve three primary functions: (1) as a lead institution for basic and advanced training in information technology; (2) as a development center for the design and initiation of business incubation and small business "start-ups;" and (3) as a center for research in broad areas of information technology. The NIIT has already attracted US$1 million in support from the Kuwait Fund, but plans to be self-sustaining in the longer term, supporting its operation through income- generating training, IT education, and technical assistance projects,. December 2002 10 PDF-EN.PM5 10 1/15/103, 5:28 PM West Bank and Gaza Update Recent Economic Developments number of channels: while external closures reduced workers remittances, which entailed a negative n Economic Output. multiplier effect on the demand for domestic goods, the combination of internal and external closures led Very limited statistical information on the Palestinian to a sharp increase in transaction costs, which, along economy precludes in-depth quantitative analysis of the with lower productive capacities, reduced productivity impact of the restrictions on movements of goods and and competitiveness of Palestinian firms. The people and the destructions of physical capital. But all partitioning of the economy into different blocks indicators up to end-September 2002 indicate a strong ("cantonization") also reduce the overall adjustment recession of the Palestinian economy since September capacity of the Palestinian economy to the decline in 2000. Economic losses, in terms of foregone output and activity and demand. This negative impact of closures impoverishment of the population are huge, not to is compounded by the structurally high dependency mention humanitarian costs. of Palestinian production on imported inputs, which leaves little possibility for substitution in the short run Figure 1. Real GNI and GDP per capita in favor of domestic inputs. 100 The economic situation was further aggravated by recent developments on the ground. First, the military 90 operation launched by the IDF on March 29, 2002, the Operation Defensive Shield, resulted in 80 considerable destruction of infrastructure and 70 productive capacities. Second, the frequent imposition of curfews in major Palestinian cities since April 2002 60 has virtually frozen much of economic activities. Third, 50 tighter internal and external restrictions imposed on GNI per capita GDP per capita the movement of goods and people have hampered 40 economies of scale and specialization, and have dried 1994 1995 1996 1997 1998 1999 2000 2001 2002 up the possibility of generating incomes abroad (via Source: World Bank Estimates. Date excludes East Jerusalem exports of goods or labor). Fourth, ongoing weakness in the Israeli economy, the depreciation of the Israeli Shekel during the period, and tightened Israeli fiscal The World Bank estimates that real GDP declined by 17 and monetary policies have all further impacted the percent from 1999 to 2001, and could decline a further Palestinian economy negatively. 22 percent in 2002. The decline in GNI from 1999 to The Palestinian Authority and, to a lesser extent, 2001 is greater - 23 percent - the consequence of a greater Palestinian households nevertheless managed to relative drop in workers remittances than in GDP. Under maintain minimum levels of consumption. The former a status quo set of assumptions, real GNI is projected to by indebting itself (on the back of the private Palestinian decline another 23 percent in 2002. In per capita terms, and Israeli sectors and the donor community), the latter the assessment in even worse, as population keeps on by depleting their private savings. The donor community increasing rapidly (at a projected 4.4. percent annual also helped to a significant extent cushioning the growth rate). The share of population under the poverty negative impact of the crisis on living standards by line could reach 60 percent in end-2002. sustaining public and private consumption. But this Many factors explain this very inferior economic inevitably produced negative effects on available savings performance, most of them obvious to even the most and investments, which, once combined with the severe casual observer of the situation in West Bank and Gaza. physical damages caused on infrastructure and Restrictions on the movement of goods and people productive capacities by the conflict, led to a large ("closures" - and in its most extreme form, "curfews") decline in the per capita capital stock. This would have had a profound negative effect on economic definitely affect the capacity of the Palestinian economy activity across all sectors, as it has reduced the overall to eventually rebound should conditions be met one productivity of the Palestinian economy through a day. December 2002 11 PDF-EN.PM5 11 1/15/103, 5:28 PM West Bank and Gaza Update In such circumstances, foreign assistance, though useful resolution of the Israeli-Palestinian conflict accompanied and timely, can just maintain minimum welfare and by a profound change in the Palestinian economic cannot pretend fostering economic recovery. Only a environment can encourage it. Table 1. Estimated Macroeconomic Trends, 1998-2002 1999 2000 2001 2002 Gross National Income (GNI), US$ mill. 5,166 5,419 4,501 3,273 Gross Domestic Product (GDP), US$ mill. 4,289 4,607 4,012 2,951 Real annual change: GNI per capita 3.9% -7.5% -23.2% -26.4% GDP per capita 3.1% -5.3% -19.5% -25.5% Private Consumption 7.5% -5.6% -15.5% -17.0% Public Consumption 20.3% 31.0% -2.1% -7.7% Total Fixed Investment -8.3% -28.3% -76.9% -84.2% Export 2.3% -8.8% -13.4% -34.8% Import 5.4% -16.2% -29.0% -17.3% Other items Poverty, share of population below poverty line 20.1% 30.7% 45.7% 60.0% NIS/US$ , annual average 4.14 4.08 4.21 4.75 CPI, annual change 5.5% 2.7% 2.1% 7.6% Population, mid-year (1,000) 2,842 2,966 3,096 3,231 Sources: World Bank Staff Calculation, PCBS, UNSCO. Note: All data excludes East Jerusalem. n Foreign Trade. Figure 2. Import and Export There is no doubt that foreign trade suffered (Index Q3-2000=100) extraordinarily from the closures, due to the extreme 100 Import Export difficulties in reaching markets outside the West Bank 90 and Gaza. Various indicators point to substantial decline 80 in both imports and exports. The decline in import 70 appeared almost immediately after the outbreak of the 60 Intifada, in step with the decline in the inflow of 50 remittances from Palestinian workers in Israel. In 2001 and early 2002, imports declined less rapidly, and were 40 2000 2000 2001 2001 2001 2001 2002 2002 by end March 2002 at about 50-55 percent of their pre- Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 intifada levels of September 2000 (in value terms), Source: Israel Central Bureau of Statistics according to data from the Israeli Central Bureau of Gaza and Israel). The data shown in figure 2 only covers Statistics (See Figure 2). Palestinian trade with Israel, and not with the rest of the The decline in exports has been more gradual, reflecting world. However, trade with Israel represents the bulk continuing loss of market shares abroad. But the data of total Palestinian trade1 - although a significant share from the Israeli Central Bureau of Statistics suggest that of imported goods from Israel actually originates in third export declined rapidly during the first quarter of 2002. 1 In 1998, imports from and via Israel represented 75 percent of total Trade is unfortunately badly registered, as most of it imports, while exports to Israel represented 96 percent of total exports takes place between the West Bank and Israel, where (Astrup and Dessus, 2001, Trade Options for the Palestinian Economy: Some Orders of Magnitude, MENA Discussion Paper Series, 21, The World no custom stations exist (in contrast to trade between Bank). December 2002 12 PDF-EN.PM5 12 1/15/103, 5:29 PM West Bank and Gaza Update countries, the so-called "indirect imports". In addition, Central government revenue fell from a monthly average and even after accounting for the depreciation of the of US$83 million in 1999 to US$29 million by Q3-2002. New Israeli Shekel in early 2002, there is no strong reason This collapse in tax revenue was to some extent to believe that the share of trade with Israel in total compensated by emergency budget support from donor trade significantly declined with the Intifada. countries, of which the PA received $972 million between November 2000 and end-September 2002. Nevertheless there remained an monthly budget deficit of n Fiscal Accounts. approximately US$20 million, which has been managed The fiscal situation of the Palestinian Authority continues through a combination of accumulating arrears to to be in dire straits, in spite of the extraordinary budget suppliers, taking occasional loans from domestic banks, support from the international community. and delaying the payment of certain non-salary expenses. The fiscal accounts have been severely impacted by the By the end of September 2002, the PA had accumulated crisis, via three main channels. First, the sharp decline at least US$577 million in arrears. This level of arrears in PA revenue collections associated with the decline in has had a pernicious impact on the private sector, economic activity and the disruption of tax resulting in liquidity shortage, mounting non-performing administration; second, the suspension since December loans in the banking system, and an increasing number 2000 by the Government of Israel of the transfer to the of insolvencies. Vendors have felt compelled to continue PA of the revenues it collects on the PA's behalf (the so- providing credit, but many have reached a point where called clearance revenues) - although the Israeli they are no longer willing, or able, to do so. Settling Government transferred a total of US$30 million in July/ these arrears will be a matter of top priority once Israel August 2002 and made an additional transfer in hands over the withheld clearance revenue (US$684 December 2002 - and third, the increase in emergency million in gross terms owed as of end-September 2002). expenditures. Table 2. PA Fiscal Accounts - Monthly Average (US$ million) 1999 2000 2001 Q1-02 Q2-02 Q3-02 Revenue 83 77 23 22 16 29 Domestic 31 29 23 22 16 19 Clearance 53 49 0 0 0 10 Current expenditure (commitment basis) 79 99 91 79 80 86 Wages 44 52 57 56 56 57 Non-wages 35 48 35 23 24 29 Recurrent balance 4 -23 -70 -57 -64 -57 PA-financed capital expenditure 0 1 2 0 1 0 Overall balance (commitment basis) 4 -23 -70 -57 -65 -57 Expenditure arrears (net accumulation) 1 5 23 11 14 19 Overall balance (cash basis) 5 -18 -47 -46 -51 -38 Financing -5 18 47 46 51 38 External budgetary financing 0 5 44 47 45 36 Arab states 0 3 36 42 35 20 European Union 0 2 8 6 6 13 Others 0 0 1 0 4 3 Domestic bank financing and residual -5 13 3 -1 5 0 Memorandum items: Stock of withheld revenue clearances (end of period) 0 10 507 615 681 684 Stock of expenditure arrears (end of period) 90 155 430 489 532 577 PA employment (thousand employees, end of period) 104 115 122 125 124 124 Source: IMF estimates based on PA. December 2002 13 PDF-EN.PM5 13 1/15/103, 5:29 PM West Bank and Gaza Update n Labor Markets. compared to the previous quarter, to 69,000 persons. Employment contracted markedly in Q2 and Q3, 2002, Since the PA and municipalities in Gaza together is as a result of the intensification of the conflict since April estimated to employs the vast majority of this number, 2002. In Q2-2002, it was particular in the West Bank that the implication is that private sector economic activity job were lost, as a result of the re-occupation of most effectively ceased to exist in Gaza during this period. urban centers in the West Bank, curfews, and very tight There is not obvious explanation for the sudden, restrictions on movements between towns and villages dramatic decline in private sector employment in Gaza in the West Bank. In total, some 37,000 persons in the during this period, and it seems questionable that data West Bank lost their jobs during this period. In particular correctly reflects the economic conditions in Gaza in workers in Israel and Israeli settlements (ISI) were hit as Q3-2002. 26,000 out of an already strongly decimated Palestinian In total, the number of employed persons in the West workforce in Israel lost their jobs, leaving only about Bank and Gaza has declined by 95,000 during the last 6 3,000 Palestinians from the West Bank working in ISI. months, lowering the level of total employment to where But also domestic employment declined. Within the West it was in the early years of the Peace Process. Since the Bank, about 11,000 jobs were lost in Q2-2002. In Q3- beginning of the Intifada, a total of about 250,000 jobs 2002, the number of Palestinians from the West Bank been lost, 110,000 of them in ISI and 140,000 within the working in Israel recovered somewhat, to about 20,000, West Bank and Gaza. Since public sector employment but there was no improvement in domestic employment, has been more or less stable during the Intifada, the which remained at a very low level of about 283,000. latter figure means that private sector employment within (see table 3) the West Bank and Gaza has dropped about 35 percent PCBS Data for Q3-2002 show a dramatic decline in since the beginning of the Intifada. employment in Gaza, which was almost halved Table 3. Number of Palestinian Jobs (thousands) Q3 95 Q3 00 Q4 00 Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Workers in West Bank 233 327 300 276 298 297 298 289 284 283 Workers in Gaza 107 164 120 125 127 129 134 138 132 69 Workers from West 53 98 21 50 54 41 47 37 4 19 Bank in Israel Workers from Gaza in Israel 4 30 3 4 2 3 2 2 2 1 Total 397 619 445 455 481 470 481 466 421 371 Source: World Bank estimates based on PCBS. Note: The employment figures reported differs from those published by the PCBS, as they exclude the estimated number of employed persons in East Jerusalem. It should be noted that the job losses reported above that some respondents reported that they were and their impact on productions and living standards employed, but due to the curfews not able to get to are most likely underestimated, for several reasons. First, their job. In general, the reduction in sample size means due to the extremely difficult conditions on the ground, that caution must be exercised when interpreting the PCBS was not able to complete all the planned interviews figures. for the Labor Force Survey in Q2 and Q3 2002. Only The steep drop in the number of employed has direct about 4,000-5,000 interviews were completed, which is implications for living standards in the West Bank and to be compared with the usual sample size of about Gaza, as fewer income earners have to support a steadily 7,500. And since it must be expected that a large share growing population. During the period from 1995 to of the people who the interviewers were not able to the outbreak of the Intifada, job creation outpaced contact was also unable to work, the estimated number population growth, although the latter is among the of employed persons is probably too high. In addition, highest in the world. In Q3-1995, which was the first since strict curfews was imposed on most of the urban time that PCBS carried out their labor force, each working areas in the West Bank during this period, it may be December 2002 14 PDF-EN.PM5 14 1/15/103, 5:29 PM West Bank and Gaza Update person on average supported 5½ persons (including external closures experience in 1995/6, when real wages him/or herself). At the time of the outbreak of the over one year declined more than 20 percent in response Intifada this number - the dependency ratio - had to a reduction in the number of Palestinians working in declined to 4½. But the dramatic contraction in the Israel that was much smaller than during the current level of employment over the last two years means that Intifada. each employed person in the West Bank and Gaza currently supports more than eight persons. NIS Figure 4. Nominal Daily Wages 75 Figure 3. Dependency Ratio 70 West Bank Gaza 10 65 9 60 8 55 7 6 50 5 45 4 40 3 35 2 30 1 95 96 97 97 98 98 99 99 00 00 01 01 02 0 Q3 Q3 Q1 Q3 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Source: PCBS 95 96 97 98 99 00 01 02 Source: World Bank Staff calculations based on PCBS data. According to the standard ILO definition, the The impact of the increase in the dependency ratio on unemployment rate in the West Bank and Gaza reached household's living standards is further exacerbated by 42 percent in Q3-2002, up from 29 percent six months the fact that real wages have declined during the Intifada, ago. PCBS also publish an alternative measure of although the decline has been modest. Nominal wages unemployment, which includes those respondent who have been remarkably stable during the Intifada: in declare that they have withdrawn from the labor force Q3-2002, the average daily wage of NIS70 in the West because the do not believe that it would be possible for Bank was almost identical to the wage prevailing them to find a job even if they tried. These "discouraged immediately before the Intifada. In Gaza, average daily workers" usually make up about 5 percent of the wages have increased fro about NIS50 just prior to the population aged 15 years and above, but in Q2-2002 Intifada to about NIS58 in Q3-2002. One explanation their share jumped to 8.5 percent. If the discouraged for the stickiness of nominal wages may be that the workers are included in the measure of unemployment, physical partitioning of the labor market, which has been the unemployment rate exceeded 50 percent Q3-2002. the result of the sharp tightening of the travel restrictions in the West Bank and Gaza, has resulted in increased Figure 5. Two Definitions of Unemployment mis-match between supply and demand for various types 60% of labor in the local labor market. As a simple illustration ILO "Relaxed" Discouraged workers of this fact, when workers are practically impeached to 50% access the marketplace, they remain unemployed. But 40% in the same time, firms face a shortage of labor, and are therefore not inclined to reduce workers' compensation. 30% This could explain that the decline in labor demand 20% primarily results in higher unemployment, and only to a lesser extent in lower wages. Consequently, the decline 10% in real wages has mostly been brought about by the increase in consumer prices during the Intifada. The 0% modest decline in real wages during the Intifada is in 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 sharp contrast to the experience from the period of Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q302 Source: PCBS December 2002 15 PDF-EN.PM5 15 1/15/103, 5:29 PM West Bank and Gaza Update The fact that the labor market adjustment to the sharp persons with less than 7 years of education, from a level contraction in economic activity has mostly taken place of about 10 percent in Q2-2000 to about 40 percent in through lower levels of employment rather than lower Q2-2002. By contrast, the unemployment rate in the real wage level imply of course that it is the households group with the highest level of education "only" in which a member has lost his or her job that particularly increased from about 10 percent in Q2-2000 to 20 percent suffer from the crisis. A higher degree of real wage in Q2-2002. flexibility would have spread out the negative impact on a larger segment of the population. Moreover, there are indications that in particular poorer households suffer n Prices. from the contracting labor market. One indication comes Consumer price inflation has been gradually increasing from previous World Bank research showing that there during 2002. The most recent figures from PCBS, is a strong negative link between the risk of being poor covering September 2002, show year-on-year changes and having a family member working in ISI. From 1996 in consumer prices of 6.6 percent in the West Bank and to 1998, the increase in the number of Palestinians 5.0 percent in Gaza (see figure 7). This is considerably working in ISI was the single most important factor higher than the trend in recent years during which behind the observed decline in poverty during this inflation rates have not exceeded 2 percent. period. Consequently, it must be expected that the virtual elimination of job opportunities for Palestinians in ISI % Figure 7. WBG Inflation Rates during the Intifada has pushed up poverty significantly. 9 WB G Figure 6. Unemployment Rate 7 and Educational Attainment 45% 5 40% 3 35% 1 30% -1 25% 20% -3 Q2-2000 Q2-2001 Q2-2002 15% -5 10% Sep-00 Nov-00 Jan-01 Mar-01 May-01 Jul-01 Sep-01 Nov-01 Jan-02 Mar-02 May-02 Jul-02 Sep-02 5% Source: PCBS 0% The sharp depreciation in the New Israel Shekel (NIS) 1-6 7-9 10-12 13+ is one straightforward explanation for the pick-up in Years of Schooling inflation. Although the NIS has recently strengthened Source: PCBS viv-a-vis the US$, it has still lost about 10 percent of its value compared to December last year. (See figure 8). Further support for the hypothesis that in particular poor When the NIS loses value, prices of imported goods households has been hit by the contraction in the labor mechanically increase, and consequently the overall CPI market comes from the fact that unemployment has in also increases. The magnitude of the increase in the particular increased among persons with low levels of CPI depends partly on how fast consumers and education, who are generally also have lower living producers switch consumption from imported goods to standards. Before the Intifada there was only small domestically produced goods. If substitution does not difference in the unemployment risk between persons take place to any large degree, the impact on the CPI with less that 7 years of schooling and those with e.g. will be larger than if consumers and producers to a 10-12 years of schooling. But during the Intifada, the large extent substitute domestic goods for imported unemployment rate has especially shot up among goods. December 2002 16 PDF-EN.PM5 16 1/15/103, 5:29 PM West Bank and Gaza Update August 2000 important that the prices of these basic commodities = 100 Figure 8. Exchange Rate, NIS/US$ 125 have not increase significantly, since basic goods make up a relatively large share of their total consumption. 120 Exchange rate September 2000 = 115 100 Figure 10. Prices of Essential Goods 108 110 WB G 105 106 100 104 95 102 90 Aug-00 Oct-00 Dec-00 Feb-01 Apr-01 Jun-01 Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 100 Aug-02 Source: PCBS Another contributing factor to the increase in inflation - 98 in particular in the West Bank - is a surge in transport cost. Due to the tight internal closures in the West Bank, 96 the cost of transport has increased by more than 40 percent during the Intifada. In Gaza, where internal Aug-00 Oct-00 Dec-00 Feb-01 Apr-01 Jun-01 Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02 closures have been less disruptive, transport costs have Source: PCBS only increased about 10 percent. (see figure 9) It should be noted that in general an increase in the CPI overestimate the impact on the average price of September Figure 9. Price of Transport 2000 = 100 household's total consumption basket. This is because 150 the calculation of the CPI assume a set of fixed weights West Bank Gaza for the various consumption items to calculate the 140 average price, while in reality people normally respond 130 to changes in relative prices by consuming more of the good that has become relatively cheaper. For example, 120 in the current CPI calculations, PCBS - based on data collected before the Intifada - assume that transport make 110 up about 13 percent of household's total consumption. However, since the price of transport has increased much 100 more rapidly than other consumption goods, it is likely 90 that households now have reduced their consumption of transport services. Aug-00 Oct-00 Dec-00 Feb-01 Apr-01 Jun-01 Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02 Source: PCBS n Financial sector Most other consumption items have seen only modest The Palestinian financial sector has been relatively increases in prices, although the effect of the depreciation unaffected by the current economic crisis thanks to the of the Shekel has been noticeable the last few months. very conservative investment positions it has taken over The average price of a bundle of "necessary" goods the years. After an initial drop in the first month of including food, beverages, clothing and housing, has intifada, residents' deposits remained stable, at about increased 6 percent in the West Bank and about 3 percent US$ 3.2 billion (see figure 11). They even grew after in Gaza during the Intifada (see figure 10). For the March 2002, when allegations of Israeli soldiers stealing poor and vulnerable segments of the population it is cash in searched homes started to circulate. This clearly December 2002 17 PDF-EN.PM5 17 1/15/103, 5:29 PM West Bank and Gaza Update illustrates the confidence that maintain Palestinian Besides, Bank's made the choice to reduce their lending households in their financial sector, perceived as a safe activity to maintain their solvency. Throughout the savings' haven. intifada, the volume of credit extended to the private sector has continued to decline, as bankers adopted a Figure 11. Resident Private Sector Deposits more conservative posture during the period of (end of period; US Dollars, millions) economic downturn and political uncertainty. In such a 3600 climate, the granting of new credits is scaled back; 3400 existing lending and overdraft facilities are rolled-over less automatically; liquidity is increased. Just as deposits 3200 took a dramatic downturn in the first month of the 3000 intifada, credit to the resident private sector fell by US$91 2800 million, or 7.2 percent, in October 2000. By September 2002, private sector credit had fallen US$242 million or 2600 24.4 percent (13.0 percent annualized) from its level 2400 two years prior (see Figure 13). Expressed as a share of total bank assets, private sector credit has fallen from 2200 20.6 percent to 17.1 percent. While the quality of banks' 2000 loan portfolios has suffered, with non-performing loans Sep 1999 Mar 2000 Sep 2000 Mar 2001 Sep 2001 Mar 2002 Sep 2002 increasing and some collateral having been destroyed Source: Palestinian Monetary Authority as the result of military operations, the low percentage of loans to total assets mitigates solvency concerns so Most bank have remained very liquid (with placements far for most banks. in West Bank and Gaza and abroad), and have even increased their liquidity ratios since September 2000. On the other hand, Banks' profitability has been severely Figure 13. Credit to Resident Private Sector affected, as the demand for their services, i.e. lending, (end of period; US Dollars, millions) retail banking, etc. sharply decreased with the crisis. As 1200 an illustration, the value of cleared checks declined 48 percent between September 2000 and June 2002 - even 1100 more rapidly than GDP, thus reflecting demonetisation 1000 of the economy (see figure 12). 900 800 Figure 12. Value of Checks Cleared (monthly; US Dollar equivalent, millions) 700 400 600 West Bank Gaza Strip 350 500 300 400 250 Sep 1999 Mar 2000 Sep 2000 Mar 2001 Sep 2001 Mar 2002 Sep 2002 Source: Palestinian Monetary Authority 200 c 150 100 50 0 Sep 1999 Mar 2000 Sep 2000 Mar 2001 Sep 2001 Mar 2002 Sep 2002 Source: Palestinian Monetary Authority December 2002 18 PDF-EN.PM5 18 1/15/103, 5:29 PM West Bank and Gaza Update Bank Group Department of International Description: The Project consisted of the Development (DFID) - British Contribution: following components: Operations US$2.16 million Grant. Effectiveness Date: 1. Upgrade Physical Infrastructure. This January 5, 2002. component aimed to: (a) rehabilitate Expected Closing Date: October 31, 2003. facilities, replace dangerous structures and A. Multi-Donor Fund The estimated total direct employment is substandard or undersized classrooms at Administration 35,000 person-days (18,000 in the West 24 elementary schools, and replace or Bank and 17,000 in Gaza). Ninety-five repair broken furniture; (b) construct and n Palestinian Economic Assistance percent of the funds have been committed furnish new schools in underprivileged and Cooperation Expansion to 32 sub-projects, and 20percent has been areas; and (c) upgrade, expand, replace, (PEACE) Facility. disbursed. Six sub-projects have been and furnish 10 primary health care facilities. The PEACE Facility, a multi-donor completed. To date 22,552 person-days has successor to the Holst Fund, was set up in been generated. 2. Improve Quality of Services. This response to the need expressed by a component aimed to: (a) initiate a Quality number of donors for a multilateral or IslamicDevelopmentBank(IDB):US$7 Improvement Program in primary and umbrella facility to support targeted million Grant. Effectiveness Date: July 3, secondary services through technical activities in the West Bank and Gaza 2002. Expected Closing Date: June 30, 2003. assistance and training; and (b) support a (WBG), ranging from technical assistance The estimated total direct employment is Health Education Program for schools. to projects. 160-170,000 person-days. Ten percent of 3. Develop Institutional Capacity. This Objective: The broad objective of the the fund has been disbursed. Under component aimed to: (a) provide technical PEACE Facility is to help relieve the PECDAR's Project Management assistance to develop a five-year plan for economic and social hardship caused by component, US$1.48 million is committed the health sector; (b) conduct a feasibility the current crisis in WBG and the resultant for 32 sub-projects in WBG. In Gaza, an study on communication links among West Israeli border closures. The current PEACE additional 36 projects in the amount of Bank and Gaza health facilities to enable Facility donors have focused on projects US$2.75 million are in various stages of the exchange of medical expertise and designed to create short-term employment tendering and evaluation. Under the enhance the referral system; and (c) opportunities for those most affected by Welfare Association Consortium (WAC) provide technical assistance and training the ongoing political crisis. component, some US$1.1 million is committed to 21 sub-projects in WBG. and operational support to the Project Coordination Units (PCUs). Project Progress: Italian Cooperation Contribution: Latest developments: The World Bank Canadian International Development EURO10 million Grant. Expected component has been closed and the Agency (CIDA) - Canadian Contribution: Effectiveness Date: December 15, 2002. Implementation Completion Report (ICR) US$3.25 million Grant. Effectiveness Date: Expected Closing Date: December 31, 2003. has been completed. Under the Saudi November 14, 2001. Expected Closing Date: The estimated total direct employment is Grant, 13 schools have been built and fully March 31, 2003. 210,000 person-days. The project is now furnished; four clinics, two hospitals (in The estimated total direct employment is fully prepared and the Grant Agreement is Dier Elbalah, Gaza, and in Yatta, West 80,000 person-days (42,000 in the West expected to be signed by the Palestinian Bank) and the extension of Rafidia Hospital Bank and 38,000 in Gaza). Ninety-eight Authority (PA) in the near future. in Nablus have been built, fully furnished, percent of the funds have been committed and equipment installed. The Ministry of to 47 sub-projects, and 96 percent has been Health's office building is under disbursed. Thirty- seven sub-projects have B. Investment Projects construction and is progressing well. Under been completed, and to date, 67,000 As of October 2002, the World Bank Group the Italian Grant, 11 schools and five person-days have been generated. has 20 projects under implementation, eight completed projects, and five projects under community centers for the handicapped Danish International Development preparation. have been built and fully furnished. Assistance (DANIDA). Construction of one school, extension of Danish Contribution: US$3.5 million Grant. another, and work on two community Effectiveness Date: November 25, 2001. Ongoing World Bank Projects centers for the handicapped are Expected Closing Date: December 31, n Education and Health progressing well. Equipment, and teaching 2002. Rehabilitation Project (EHRP). and learning aids have been supplied to The estimated total direct employment is World Bank: US$20 million; the schools and community centers for the 82, 000 person-days. One hundred percent Saudi Arabia: US$20 million; Italy: US$8.65 handicapped. Under the Australian Grant, of the funds have been committed to some million; strengthening of policy-making, planning, 32 sub-projects in the middle area of Gaza, Australia: US$0.4 million. and research capacity within the Ministry and 86 percent of the funds have been Approval Date: July 9, 1995. of Education, establishment of a school disbursed. Twenty-six sub-projects have World Bank Closing Date: June 30, 2001. mapping database, and a maintenance been completed. To date, 75,601 person- Saudi Arabia and Italy Closing Date: scheduling system for the Ministry have all days have been generated. December 31, 2002. been completed. December 2002 19 PDF-EN.PM5 19 1/15/103, 5:29 PM West Bank and Gaza Update n Education Action Project (EAP). upgrading of the primary health care Management Information System (FMIS), World Bank: US$7 million. network by replacing 40 substandard PHC and a Reformed Management Information Borrower (PA): US$0.63 million. facilities, including equipment and System (RMIS). Approval Date: July 18, 2001. furniture, and developing their functional Latest Developments: As the Closing Date Closing Date: September 30, 2004. standards. The second component approaches, all efforts are being made to Description: The Education Action Project supports the establishment of a Health commit and disburse all remaining funds. (EAP) aims to support the implementation Management Information System. The third The Implementation Completion Report is of the Ministry of Education's (MOE) Five- component supports improvement of the currently being prepared by the Bank and Year Development Plan. The objective of quality and efficiency of health care. The the Client and isexpected to be completed the Project is to improve the management fourth component provides support to the in February 2003. capacity of the education system to deliver Project Implementation Unit for Project quality services. The Project has two Coordination and Management. Reallocation of remaining funds: To complementary components.The first respond to the need for immediate Latest Developments: Due to the current directly supports strengthening the assistance to repair damage incurred by situation, some of the Project components management capacity of the Ministry of the recent incursions, the Bank has have been facing delays, especially in the Education for policy, planning, and reallocated US$2.5 million of the remaining West Bank. While the five Primary Health budgeting across departments. The second balance originally designated to Capacity Care centers in Gaza are functioning, supports specific investments in targeted Building for labor-intensive damage repair. construction of the nine PHC centers for programs in line with objectives of the The funds have been distributed not only the first phase in the West Bank and the MOE's Five-Year Plan, including a program among the five participating municipalities Health Information Center in Nablus have for school improvement through staff in this Project, but also among 25 smaller been delayed. Despite the delays, the review, a school development program, communities in need of assistance. All sub- Project has managed to: develop a the development of professional standards projects are due to be completed prior to Management Information System for the for headteachers, and support to Vocational the Closing Date. This component, together Treatment Abroad and Referral Department Education. with the original physical component, is and the Health Insurance Department; progressing well with all available funding Latest Developments: Despite the current develop the first version of the Clinic committed to some 356 physical sub- situation, the Project has made substantial Information System; prepare the first projects, including 260 micro-projects. So progress on most of its components since version of the Palestinian Data Dictionary; far, more than 220 km of roads and 100 credit effectiveness on November 21, 2001. and print and distribute the first version of km of water and sewage pipelines have A Project Launch Workshop was held on the Palestinian Essential Drug List and been constructed, and the upgrading of May 13, 2002. Work has already begun on Formularies. three neighborhood areas in Gaza City have the following activities: construction of a n Municipal Infrastructure been completed. two-floor extension to the existing MOE Development Project (MIDPI). building in Ramallah; preparation of a Reallocation of funds from the co-financing World Bank: US$40 million. Financial Management Manual; selected partners has also been completed with Greece: US$1.74 million. training for teachers and supervisors; US$0.5 million from the Greek Fund and Italy: EURO3.67 million. preparation of materials for training EURO0.2 million from the Italian Fund. Approval Date: June 12, 1996. modules for teachers and supervisors; and Reallocated funds will finance the Closing Date: December 31, 2002. identification of four sites to build rehabilitation of much needed vocational education units. Development Description: This Project aims at infrastructure in West Bank communities. of a vocational education curriculum and rehabilitating high priority municipal The Capacity Building component has been procurement of equipment and furniture infrastructure networks and systems in delayed as a result of the past 21 months' is underway. WBG by working directly with five selected municipalities (Gaza, Nablus, Hebron, political instability. To date, only Hebron, n Health System Development Rafah and Jenin), the Ministry of Local Gaza, and Rafah municipalities have Project (HSDP). Government (MLG), the Ministry of Public successfully completed their three-year World Bank: US$7.9 million. Works (MoPW), the Palestinian Water investment plans. Nablus and Jenin Approval Date: December 9, 1999. Authority (PWA), and PECDAR. The focus municipalities have completed the Closing Date: April 30, 2003. is on initiating institutional reform and diagnostic studies, but have been unable to continue the tendering process for the Description: The development objectives capacity building at the local government three-year investment plans. A Revenue of the Project are to enhance the level. Management Information System for 10 management capacity of the Ministry of The Capacity Building component which Participating Municipalities (PM) is being Health (MOH) and improve access to high- involved MLG and five selected implemented. An independent consultant quality and affordable Primary Health Care municipalities addressed issues related to has been appointed to review the ATS (PHC) services, especially in rural and developing the municipal planning and contract, visit the implementation at the PM, underserved areas. The Project has four financial management structures, primarily and advise on next steps to be adopted in components. The first supports the three-year investment plans, a Financial MIDP II. A Geographic Information System December 2002 20 PDF-EN.PM5 20 1/15/103, 5:29 PM West Bank and Gaza Update (GIS) has been implemented in Gaza Capacity Building component has been recognize the importance of public municipality, but Hebron and Nablus reduced due to current conditions. awareness campaigns and are gearing municipalities' bids were delayed by the Concentration will be on rolling over the themselves to solicit proposals from NGOs incursions. A state-of-the-art computer and Revenue Management Information System and local consulting firms to carry out this network center has been completed in (initiated under MIDP I) to cover 15 important task. Gaza, Jenin, Nablus and Rafah. An additional municipalities. electricity study was completed for the n Southern Area Water and Hebron municipality, but was stopped in Identified donors are still in the process of Sanitation Improvement Project Nablus due to the inability to complete the reviewing Project documents for the final (SAWSIP). study. decision to transfer funds. World Bank: US$21 million. EIB: EURO30 million. n Second Municipal Infrastructure n Solid Waste and Environmental Approval Date: June 5, 1999. Project (MIDP II). Management Project (SWEMP). Closing Date: June 30, 2003. World Bank: US$7.5 million. World Bank: US$9.5 million. Description: The Project consists of: (a) Saudi Arabia: US$5 million. (US$1.25 million is anticipated from the PA.) the provision of an international Operator (Italy is currently considering contributing Approval Date: October 10, 2000. under a four-year performance based a sum of US$5.7million, of which Closing Date: December 31, 2005. Management Contract to implement a US$2.5million will be for roads and US$3.2 Description: The Project is financing Service Improvement Program for the million for water). interventions in solid waste collection, Governorates of Bethlehem and Hebron Approval date: June 20, 2000. transfer, and disposal of waste for the in the West Bank; (b) the provision of Closing Date: December 31, 2004. District of Jenin. The Project is managed operating investment funds for the Description: The main objective of MIDP by the Joint Services Council for Solid Waste Operator built into the Management II is to improve infrastructure services Management (JSU) and is being executed Contract, to finance essential operations (roads, water, and drainage), including high through a Project Implementation Unit (JSC- and maintenance expenditures not covered priority sections of the regional road PIU). The Project is assisting in by the revenues collected and which are network and rehabilitation of village and strengthening capacity building of the required to achieve the yearly performance municipal water networks in WBG. The Environmental Quality Authority. targets in the Management Contract; (c) the Ministry of Public Works, Ministry of Local Latest Developments: Hydroplan provision of funds (by EIB) to finance Government, and the Palestinian Water (Germany) has been contracted (through design, implementation, and supervision Authority are the implementing agencies the International Competitive Bidding of capital improvements, such as, system for this Project. Process) to design the sanitary landfill at rehabilitation and improvement of water Zahrat Al-Finjan. Work is expected to start The Project will also provide support to supply services; bulk transmission mains; the first week of November 2002. In the Ministry of Public Works to establish distribution systems restructuring and consultation with the PA/Environmental its first Road Maintenance Management rehabilitation, as well as an investment in Quality Authority (EQA) and Jenin JSC for System. In addition, the Project will rural water supply; and (d) the provision Solid Waste Management, it was agreed to continue to provide support to the Ministry of technical assistance to support reallocate US$0.5 million towards damage of Local Government for an accounting strengthening the institutional capacity of repair in the environment sector. system and institutional reform. The scope PWA and WSSA, to support implementation Considering the current constraints, the JSC- of capacity building in the six municipalities and monitoring of the Project and provide PIU has also focused on closing in WBG will be reduced and funds independent auditors to monitor the uncontrolled dumpsites and rehabilitating reallocated to damage repairs. Operator's technical and financial others in order to extend their operational performance. The implementing agency Latest Developments: Reallocation of life until the delayed new regional landfill is the PWA. funds has also been performed in MIDP II proposed at Zahrat Al-Fanjan is operational. with a sum of US$3.1 million. The Ministry To date, 20 dumpsites have been Latest Developments: The Project was of Public Works and Housing is currently rehabilitated and closed, and four recently restructured to reflect the implementing this component, fixing dumpsites (Jenin, Srouj, Al Mahata and termination of the Management Contract damaged infrastructure, schools, clinics, Arabeh) are being rehabilitated to act as Operator due to the Operator's inability to and PA institutions, including the Ministries regional controlled dumpsites during the fulfill contractual obligations because of the of Local Government, Public Works and interim period. Access roads to these sites continued deterioration in the security Housing, Health, and Education. are also being rehabilitated. In addition, situation. The Project objectives remain the same. An Action Plan was put in place The MoPW is also progressing in the JSC has also been actively involved in to restructure the management of water and implementing the Physical component of cleaning up accumulated waste during the sanitation services in the Governorates of the MIDP II. Thus far, US$1.6 million has recent closures and military incursions. Bethlehem and Hebron. The responsibility been committed and implemented for Furthermore, the JSC-PIU has moved for implementing the Action Plan will be rehabilitation of regional roads. The PWA forward in preparing for the proposed undertaken by the Project Management is ready to award its component of US$0.50 construction of the Zahrat Al Fanjan Unit (PMU) of the PWA and supported by million for water rehabilitation. The MLG's Landfill. Both JSC-PIU and the EQA a team of experts. The Action Plan focuses December 2002 21 PDF-EN.PM5 21 1/15/103, 5:29 PM West Bank and Gaza Update on the establishment of an organization to 1997, 17 persons have been successfully allocated to Block Grants, a total of 195 carry out the key functions of a Water and recruited for positions at 11 PA Ministries sub-projects have been funded and Wastewater Utility. This approach is and Agencies, including: the Ministries of completed. designed to adapt itself to changing Finance, Health, Higher Education, Impact Assessment: The PMO had circumstances and to operate in the present Housing, the Palestine Broadcasting completed the fieldwork for assessing the period of political uncertainty. Corporation, the Palestine Monetary impact of both Block and Development Disbursements, as of September 30, 2002 Authority, and the Bethlehem 2000 Grant Schemes. The results of the fieldwork are approximately US$10 million, Committee. will serve as a basis for a formal assessment representing about 48 percent of the of the impact of the Project on the Credit. Latest Developments: The current crisis is seriously affecting the ability of current beneficiaries. The Impact Assessment n Legal Development Project participants in the Program to continue their Report will be made public once it becomes (LDP). work effectively, but they have shown available. World Bank: US$5.5 million. extraordinary fortitude and courage to keep n Palestinian NGO Project Saudi Arabia: US$12 million. working despite these difficulties. Under (PNGO II). Approval Date: June 24 1997. the circumstances, the Program will support World Bank: US$8 million. Closing Date: December 31, 2003. several medical specialists in ear, nose and UK/DFID: US$7.8 million. Description: The Project aims to initiate throat, and eye diseases that will visit the Italy: US$2.4 million. a long-term process of assisting the PA to West Bank and Gaza on short-term Approval Date: June 21, 2001. modernize and harmonize existing assignments. These specialists will perform Closing Date: February 15, 2004. legislation, to give rise to a legal framework operations that cannot currently be done Description: The Project is aimed at adequate to support a modern market in Gaza or the West Bank due to the lack strengthening the capacity of NGOs to economy, and to encourage the growth of of qualified doctors, and provide training deliver sustainable services to the poor and the private sector. It also supports the to their medical colleagues in their fields marginalized, while supporting the overall training of judges and court personnel in of specialization. professional and strategic development of order to increase the efficiency and n Palestinian NGO Project the Palestinian NGO sector. The Project is transparency of the judicial process. (PNGO I). being implemented by the Welfare Latest Development: In December 2001, World Bank: US$10 million. Association Consortium, consisting of the US$2.7 million of the Credit amount was Saudi Arabia: US$2.5 million. Welfare Association, the British Council, cancelled due to slow implementation of Italy: US$2.5 million. and the Charities Aid Foundation (CAF). certain Project components. The United Approval Date: December 1996. Kingdom has provided financing for Closing Date: June 2003. The Project has four main components: legislative drafting. As part of the overall 1. The Partnership Grants Program (US$9.5 Description: The Project is aimed at program of legal development in WBG, million) which awards Grants to "groups" delivering services to the poor and the construction of two courthouses is planned- of NGOs consisting of strong "lead" NGOs marginalized in Palestinian society through (one each in the West Bank and in Gaza), and smaller NGOs who, in partnership, will NGOs; improving the institutional capacity to be funded by the Kingdom of Saudi implement sub-projects that are inter-linked of the NGOs which receive grants under Arabia. In this regard, the shortlist of by a common objective, with a strong this Project; and enhance the working Consulting Engineering Firms was component of capacity building and relationship between the PA and the established, the Request for Proposals to networking. Palestinian NGO sector. The Project had produce the design and bidding documents two main Grant-Awarding Schemes: The 2. The Development Grants Program was issued to these firms, incoming Development Grants Program and the (US$2.5 million) which awards grants to proposals were evaluated and negotiations Block Grants Program. The Project is being NGOs or projects that have demonstrated with the top ranked firm were concluded. implemented by the Welfare Association success during PNGO I and which have a The Bank is awaiting the transfer of funds Consortium, consisting of the Welfare potential of longer-term self-sustainability. from the donor to clear contract award. Association, the British Council, and the 3. The Sector Support Program (US$1.5 n Palestinian Expatriate Charities Aid Foundation (CAF). million) works with NGO networks to (a) Professional Program (PEPP). Latest Development: The Project is promote strategic thinking on the role of World Bank: US$3 million. nearing completion, having disbursed a the sector; (b) sector learning and Netherlands: US$0.3 million. total of 94 percent of the total US$11.241 information exchange; (c) enhanced PA/ Approval Date: May 22, 1998. million that was made available for NGO dialogue and joint programming; and, Closing Date: June 30, 2003. financing both Grant Schemes. As of July (d) improved services by the Networks to Description: The PEPP supports the 2002, out of the 111 projects funded from their constituencies. recruitment of expatriate Palestinians to key the Development Grant funds of US$7.788 management and senior technical positions million, 88 have been completed, raising 4. An Emergency Grants Program (US$2.5 in PA institutions as an institution-building the disbursement rate to 92 percent of total million) which disburses grants to measure. Since the Program started in late funds available. Of the US$ 2,950.38 million emergency projects with shorter durations December 2002 22 PDF-EN.PM5 22 1/15/103, 5:29 PM West Bank and Gaza Update and a direct focus on alleviating hardship and vocational training services to 4. Overall Project Monitoring and Reporting and generating employment. Palestinian females subject to domestic Support: This component provides support Latest Developments: violence. It will be implemented through to MLG program monitoring, accounting 1. Partnership Grants: Seven Partnership an Italian-Palestinian NGO partnership and and reporting, and to environmental Grant Managers (NGOs) submitted in close cooperation with the Ministry of programming and monitoring activities. proposals for funding under this Social Affairs, who will assume eventual Latest Development: component. The submissions were responsibility for the Center. The Italian 1. Celebration Support: The Bethlehem reviewed by WAC's Technical Committee contribution will also be used to finance 2000 Project Authority has successfully and recommendations for the awarding of the core components of the PNGO II. staged the 1999 Christmas celebrations. Grants was submitted to the Supervisory n Bethlehem 2000 Project (B2000). Board for review in October 2002. World Bank: US$25 million. 2. Infrastructure Progress: (a) Roads--the Accordingly, it is expected that Grant Norway: US$1 million. planned IDA components are 100 percent Agreements with the aforementioned Italy: US$2.26 million. complete, implementation of activities submitting NGOs will be concluded before Austria: US$0.73 million. financed by the reallocated amounts from the end of 2003, allowing for Approval Date: November 2, 1998. the Credit proceeds for damage repair is implementation of sub-projects under this Closing Date: June 30, 2003. progressing well. The Artas Road, co- component to start, after a few months financed with Italy is complete. The Description: The Project is composed of delay. Shepherds Fields Road, co-financed by the following components: Norway, including landscaping works, is 2. Development Grants: Short-listed NGOs 1. Celebration Support: This component complete. (b) Water--the planned have submitted proposals for funding. It is provided broad support to the Bethlehem components are 100 percent complete. (c) expected that a decision of the Supervisory 2000 Project Authority to prepare for and Cultural Heritage--three of the four sub- Board on Grants to be awarded will be manage the celebrations. projects are complete. The fourth one, co- taken before the end of 2003. financed by Austria, was recently 2. Infrastructure and Cultural Rehabilitation 3. Sector Support: Based on the finalization completed. Little progress was achieved Works: This component supports physical of detailed reviews by commissioned toward the development of the rehabilitation works and includes two sub- consultants, an action plan for further Conservation Master Plan for the components: (a) Infrastructure implementation of this Project component Bethlehem Area, co-financed by Italy. Two Rehabilitation Works--this sub-component and its four sub-components is expected international experts were fielded into the provided support to the Bethlehem 2000 to be developed/finalized in the coming country to initiate the activities, and a draft Project Authority and Area Municipalities few weeks. Action Plan outlining all activities is being for the rehabilitation of high-priority revised. 4. Emergency Grants: As of November 2003, infrastructure and services, namely roads, and during the course of the year, the Ad water and sanitation; and (b) Support for 3. Building Capacity Support: (a) Support Hoc Committee had approved Emergency Cultural Heritage Rehabilitation Works--this to Bethlehem Area Municipalities (BAM)-- Grants in the amount of US$3.4 million. sub-component provides support to the Progress is being achieved on the following This includes financing from the Islamic Bethlehem 2000 Project Authority, Area sub-components: (i) Three-years Development Bank (US$ 1.1 million) and Municipalities and Department of Investment Plan: a request for proposals DFID (US$2.3 million). US$0.5 million of Antiquities for the rehabilitation of the was issued to shortlisted consulting firms, the funds provided by DFID were allocated historic cores of Beit Sahour and Beit Jala. technical and financial proposals are being to repair damage inflicted by a selected evaluated, contract award will be executed 3. Capacity Building Support: This number of NGOs as a result of the soon; (ii) Operation and Maintenance component provides capacity building incursions of 2002. By year-end, the WAC Program: a request for Expressions of support to Area Municipalities and Cultural should complete the implementation of Interest was advertised, Expressions of Heritage Authorities. It includes two sub- emergency projects financed by CIDA to Interest were received and currently are components: (a) Support to Bethlehem the total of an estimated US$600thousand. being evaluated to establish the shortlist, a Area Municipalities--this sub-component draft Terms of Reference (TOR) is being Additional Italian Co-Financing for the provides support to the five Bethlehem finalized; (ii) Accounting System Reform: Establishment of a Center for Women with Area Municipalities for strengthening their the consulting firm, contracted by MLG, Difficult Circumstances: A Grant capacity to plan, finance, manage, and visited the BAM and met with the Agreement formalizing the contribution by maintain municipal infrastructure and accountants. The firm will draft an Action Italy of a total of US$5 million to the PNGO services; and (b) Support Cultural Heritage Plan for this sub-component, outlining all has been concluded. An estimated half of Preservation--this sub-component provides activities by end of November 2002; and this amount will be used to finance the support to the Department of Antiquities (iv) Joint Services Council: discussions with establishment of a Center for Women with in the Ministry of Tourism and to the the BAM regarding establishing the JSC are Difficult Circumstances in Bethlehem. The Ministry of Culture for policy and institution ongoing. (b) Support to Cultural Heritage Project has as its objective to provide reform and development. Preservation--Progress is being achieved on support, therapy, advocacy, empowerment, the following sub-components: (i) Legal December 2002 23 PDF-EN.PM5 23 1/15/103, 5:29 PM West Bank and Gaza Update and Institutional Reform: The Bethlehem Italy (US$5 million). access to information and training for the 2000 Project Authority has issued the Approval Date: February 28, 2002. poor and marginalized. The first batch of Request for Proposals for the drafting of Closing Date: June 30, 2004. microprojects addressing various Legislation for the Protection of Palestinian Description: The Project aims at enabling infrastructure sectors was tendered last Cultural and Natural Heritage to the Social Service Delivery Ministries and launch. shortlisted consulting firms, technical and Municipalities at sustaining the provision financial proposals were received and of basic social services, thereby Completed World Bank Projects evaluated, request for contract award is ameliorating further deterioration in the being cleared by the Bank, individual standard of living of the Palestinian n The Second Community consultants were selected to conduct population. The Project focuses on Development Project (CDP II). Organizational Development and supporting health, education, social World Bank: US$8 million. Management Studies; and (ii) Program welfare, and basic municipal services (solid OPEC Fund: US$8 million. Development: individual consultants were waste, water, and electricity supply). With Approval Date: March 30, 1999. selected to conduct Documentation of the its focus on providing operating cost Closing Date: October 31 2002. Palestinian Experience pertaining to finance, this Project compliments the Under CDP II over 180 infrastructure Cultural and Natural Heritage Preservation financing of the national budget that is projects, such as rehabilitation of roads, and Adaptive Reuse Feasibility Studies. provided to the PA by the Gulf countries schools, health centers, and water supply n Electric Sector Investment and and the European Commission (EU). The systems have been committed, of which Management Project (ESIMP). Ministry of Finance manages the ESSP, with 160 have been completed. The World Bank funds have been fully disbursed. Projects World Bank: US$15 million. direct implementation handled by the have targeted poor and marginalized EIB: US$38 million. Ministries of Health, Education, Social communities, including refugee camps. The Italy: US$35 million. Affairs, and Local Government. current crisis has impacted the PA: US$3 million. Latest Developments: As of November implementation of CDP II through delays Approval Date: August 31, 1999. 2002, delivery against IDA funds stands at and difficulties within communities to Closing Date: June 30, 2004. 70 percent; Dutch Funds (20 percent), EC contribute to Project costs. Nevertheless, Description: The objectives of this US$91 Funds (50 percent) and DFID Funds (20 the Project has continued to make progress million Project are to rehabilitate the power percent). It is expected that all World Bank and has provided much needed work in distribution systems in the central and funds will be disbursed by year-end while villages and small municipalities. On the southern West Bank, and to address the other co-financing will be disbursed within co-financing side, while OPEC-funded institutional structure for longer-term sector the initial funds of 2003. activities are continuing, the EIB management. n The Integrated Community contribution has been suspended after Latest Development: Despite the present Development Project (ICDP). disbursement of about EURO3 million. unrest, the implementation of the main World Bank: US$10 million. Implementing Agency: PECDAR. activities (JDECo and PEA components) is Approval Date: May 23, 2002. n Microenterprise Project (MEP). progressing satisfactorily. Implementation Closing Date: June 30, 2006. World Bank: US$5 million. of the HEPCo and SELCo components is The Project seeks to improve the quality IFC: US$7.5 million. progressing slowly due to the present and availability of basic social and Netherlands: US$3 million. situation. TA consulting services for SELCo economic services in poor and Participating Banks: US$7.5 million. is already in place. marginalized communities of West Bank Approval date: April 8, 1997. In October 2002, a supervision mission took and Gaza. This new Project is a Closing Date: July 31, 2002. place to follow-up on the start-up of the continuation of community development Description: The Project initiated a SELCo and HEPCo companies. Another interventions financed through the World program to finance microenterprises in the mission for a mid-term review is planned Bank under Community Development WBG through the banking system in order for February 2003. About US$8.5 million Projects I and II. Investments will finance to: (a) promote employment through of the US$15 million has been disbursed rehabilitation of roads, water supply and private sector development; (b) achieve to date. sanitation systems, schools, clinics, and commercial viability and sustainability for thereby preserve and extend the capital microenterprise lending; and (c) build n Emergency Services Support stock of villages and small municipalities. capacity in both the participating banks and Project (ESSP). The Project will also fund interventions in the microenterprises by providing technical World Bank: US$20 million. the agricultural sector, including assistance. UK/DFID: US$7.8 million. rehabilitation of wells, roads, and terraces. Netherlands: US$5.9 million. Lastly, the Project would pilot new Latest Developments: As of August 29, EU: US$9.6 million. initiatives in Information and 2002, this Project was officially closed. A Additional Co-Financing Approved: Communication Technology (ICT) by total of just over US$2.8 million was Sweden (US$ 4.7 million); Finland (US$ 1.2 financing the establishment of Multi- disbursed under the Trust Fund Credit in million); Denmark (US$2.7 million); and purpose Telecenters and thereby improve financing a portion of over 1,100 loans valued at over US$12.7 million. The December 2002 24 PDF-EN.PM5 24 1/15/103, 5:29 PM West Bank and Gaza Update disbursed loans were estimated to have All available funding has been committed World Bank Projects Under created over 1,400 new full- and part-time to 77 sub-projects. All 77 sub-projects in Preparation jobs. A Project Implementation the road, water, wastewater, and school Completion Report is now under sectors (including 42 labor-intensive micro n Proposed Gaza Water and preparation. The balance of remaining projects) have been completed. The Sanitation Services Project financing has been returned to the Trust Project was implemented through (GWSSP II). Fund for Gaza and the West Bank for PECDAR in coordination with the WBG World Bank: US$25 million. future emergency operations. municipalities. Approximately 123 km of This Project is a follow-up to the ongoing GWSSP. The development objectives of n Emergency Response Program roads and about 110 km of water and this Project are: (a) to develop a (ESRP). sewage pipelines have been constructed. sustainable institutional structure of the World Bank: US$11.61 million. An Implementation Completion Report for water and wastewater sector in Gaza by Approval and Effective Date: December the Project has been completed. supporting the functional establishment of 6, 2000. n CommunityDevelopmentProject a Coastal Municipalities Water Utility Closing Date: August 31, 2001. (CDP I). (CMWU), as well as by enhancing and The overall objective of the ERP was to World Bank: US$10 million. deepening the involvement of the private alleviate economic hardship through the OPEC Fund: US$10 million. sector through an eight-year operating provision of temporary employment for Approval Date: May 15, 1997. contract and strengthening the regulatory unskilled and semi-skilled laborers. The Closing Date: December 31,1999. and institutional capacity of the Palestinian implementing agencies included PECDAR, About 260 infrastructure microprojects Water Authority (PWA); and (b) to the Ministry of Local Government (MLG), (roads, schools, community centers, sewer continue improving the water and Local Government Units (LGUs) and lines, and water reservoirs) were sanitation services by rehabilitation, NGOs. implemented. There was strong upgrading and expansion of existing The Project was successful in achieving community participation and ownership, systems and facilities. Project preparation its objectives. More than 246,000 person- including beneficiary contributions in cash has been delayed because of the days of employment were generated over averaging 10 percent of the Project costs. deteriorating political situation. The a period of eight months. The average The Project was implemented by PECDAR. request for pre-qualification for labor content of the Project was about 28 prospective international Operators has percent. Closed Multi-Donor Fund been completed and four Operators/joint ventures were pre-qualified. The Request A total of 209 sub-projects were Administration for Proposals will be issued in early 2003. implemented. Local NGOs implemented n Holst Fund. Like the GWSSP, this Project is part of a a total of 33 sub-projects. An US$291 million from 27 donors. larger parallel capital program to improve Implementation Completion Report has Approval Date: July 29, 1994. water and sanitation services in Gaza. The been completed. Closing Date: August 31, 2001. Project includes substantial investments in n Emergency Rehabilitation The multi-donor Holst Fund closed after the establishment of a bulk water supply Project (ERP I). seven years of operation. US$222.5 million network connecting the various World Bank: US$30 million. was used to finance the creation and municipalities in Gaza, in the sewerage Saudi Arabia, Denmark, Switzerland, operation of Palestinian institutions - network, and in wastewater treatment Kuwait: namely, the Ministries of Health and plants. These investments, totaling about US$63.5 million. Education. About US$63.2 million was US$340 million for 2000-2005, will be Approval Date: November 29, 1994. allocated towards funding Employment financed by soft loans and grants from Closing Date: December 31, 1998. Generation Programs, targeting areas that EIB, USAID, and KfW. were severely affected by border closures The Project (implemented by PECDAR) and the current sociopolitical crisis. The n Second Health System financed a total of 140 infrastructure Holst Fund financed over 1,000 labor- Development Project (HSDP II). projects, including construction of 418 intensive microprojects, and it is estimated World Bank: US$8 million. classrooms, paving of 260 km of roads, that over three million labor-days of Expected Board Approval Date: April and construction of approximately 410 km employment were generated. The Project 2003. of water supply pipelines, 80 km of sewer Completion Report is expected to be sent The Project objectives are to improve the lines and storm water lines and five water to all 27 donors shortly. quality, access, and cost-effectiveness of reservoirs. essential secondary and tertiary care health n Second Emergency Rehabi- n TechnicalAssistanceTrustFund services for the population residing in the litation Project (ERP II). (TATF). northern Gaza and West Bank regions. In World Bank: US$20 million. See article p.8 the original plan, the Project intended to Italy: US$3.7 million. replace and upgrade two hospital systems: Approval Date: May 10 1997. Al Shifa Hospital in Gaza and Al Watani Closing Date: June 30, 1999. Hospital in Nablus, and to also build upon December 2002 25 PDF-EN.PM5 25 1/15/103, 5:29 PM West Bank and Gaza Update the experience of the First Health System Commitments and Disbursements1 Development Project to extend the development of integrated information Disbursements Under World Bank Projects (In US$ Million) - As of October 30, 2002. and management systems to improve the Current Allocated Amounts Disbursed Total productivity and quality of health care Projects TFGWB Joint TFGWB Joint Disbursed services in the targeted hospitals. MIDP 40.00 5.41 36.96 4.58 41.54 Due to the current political situation, the EHRP 20.00 29.10 20.00 17.79 37.79 preparation work for the Second Health Gaza Water System Development Project (HSDP II) /San. 31.00 30.90 30.90 has been delayed by more than one and Housing 18.00 2.63 2.63 a half years due to the inability of the Legal 2.79 15.00 2.36 2.36 preparation missions to visit the Project PEPP 3.00 0.32 1.53 0.32 1.85 sites. In addition, the amount of financing NGO 10.00 4.60 10.00 4.90 14.90 available, both from the Bank and from GIE 10.00 4.37 4.37 co-financing sources, has been Beth. 2000 25.00 3.61 22.79 3.41 26.20 significantly reduced as a result of the SAWSIP 21.00 9.14 9.14 crisis. Consequently, the scope of the ESIMP 15.00 8.92 8.92 Project has been considerably reduced. Health 7.90 3.93 3.93 The following components from the MIDP II 7.50 5.00 1.19 1.19 original plan will be retained in the revised Solid Waste 9.50 1.59 1.59 plan for the HSDP II: (a) a regional EAP 7.00 0.46 0.46 Hospital Rationalization Plan for the NGO II 8.00 7.15 1.55 0.06 1.61 Northern West Bank; (b) hospital master ESSP 20.00 22.26 12.57 7.12 19.69 plans for Shifa Hospital in Gaza City and ICDP 10.00 0.50 0.50 New Watani Hospital in Nablus; (c) a Completed Projects waste management pilot program; (d) a ERP I 30.00 71.24 30.00 63.48 93.48 management information system; and (e) MIGA Fund 10.00 10.00 10.00 quality improvement. ERP II 20.00 3.50 20.00 3.70 23.70 n Emergency Municipal Services CDP I 10.00 2.81 10.00 2.73 12.73 Rehabilitation Project (EMSRP). Microent. 2.4 2.19 2.19 Total estimated cost: US$70 million. ERSP* 12.00 World Bank: US$20 million. CDP II 8.00 8.00 8.00 EU: US$30.5 million. TOTAL 358.09 170.00 251.58 108.09 359.67 Belgium: US$7.2 million. Multi-Donor Trust Fund PA: US$3 million. Donor Total Expected Board Approval: End of this Allocation Disbursed year. The Holst Fund 285.72 285.72 A two-year Emergency Recovery Grant TATF 22.77 23.60 Loan will include the following PEACE Facility 26.16 4.09 components: (a) Emergency Program TOTAL 334.65 313.41 Assistance (US$67.0 million, of which * The Bank's US$12 million Grant was channeled through the Holst Fund. US$17.5 million from the World Bank); (b) Municipal Fund Design and 1These figures do not include parallel and IFC financing. Management (US$1.5 million, of which US$1.5 million from the World Bank; and (c) Technical Assistance and Capacity Building (US$1.50 million, of which US$1.0 million from the World Bank). In programmatic response to emergency who have lost jobs inside Israel, or due to light of the complementary roles assistance needs at the local government the economic contraction in WBG; and performed by the different governmental level. (c) introduce a mechanism - a Municipal bodies involved in the sector, and The Project objectives are to: (a) Mitigate Fund - to link central and local recognizing the need for coordination at further deterioration in the quality and government budgetary planning processes the central government level, a Project coverage of municipal services, to strengthen Palestinian emergency Steering Committee (PSC) was formed by particularly solid waste collection, response capacity, enhance mobilization the Minister of Local Government in electricity, water, and sanitation services; of donor assistance, and improve the October, comprised of MLG, MOF, and (b) generate temporary employment efficiency and equity of resource transfers MOPIC to ensure a coordinated opportunities for unemployed workers to local governments. December 2002 26 PDF-EN.PM5 26 1/15/103, 5:29 PM West Bank and Gaza Update n Proposed Emergency Water n Gaza Industrial Estate (GIE). Guarantees, provided that the investment Project (EWP). World Bank: US$10 million. is brought in from outside WBG. The Fund World Bank: US$8 million. IFC: US$9 million; US$7 million syndicated currently has the capacity to issue Please see details under the "Bank Group loans. Guarantees for up to US$5 million per News" section on p. 29 EIB, USAID, the PA: US$65.5 million. project. If a project requires more Approval Date: March 24, 1998. insurance capacity, requested by the project n Second Emergency Services Closing Date: June 30, 2004. sponsor(s), MIGA will explore the Support Project(ESSP II). Description: The GIE is located on a 50 possibility of obtaining coinsurance with Please see details under the "Bank Group hectare site at Al-Muntar in the northeast public and private underwriters, including News" section on p. 29 of Gaza (adjacent to the Israeli border) and coinsurance under MIGA's Cooperative is the first largely export-oriented industrial Underwriting Program. During FY99, World Bank and IFC Joint Projects estate established to generate sustainable MIGA issued its first Contract of Guarantee employment and stimulate industrial on behalf of the Trust Fund for a project in n Housing Project. development in Gaza. The Project has the tourism industry. However, this World Bank: US$25 million. attracted foreign and local investment, and contract was cancelled in FY01. The Trust IFC: Up to US$4 million in equity has facilitated joint ventures between Fund remains open for applications. Since investment. Palestinians and other investors. The GIE inception of the Fund, over 20 applications Approval Date: April 14, 1998. is managed and operated by PIEDCO, a have been received for almost US$400 Closing Date: March 2004. private sector company; regulatory million in investments in WBG's Description: The Project's major oversight and some offsite infrastructure infrastructure, manufacturing, real estate, component is the Palestine Mortgage and services are provided by the PIEFZA. The services, and tourism sectors. The interest Housing Corporation (PMHC) that World Bank and USAID are providing of seeking investment guarantees from the facilitates the flow of private capital into financing for off-site infrastructure and Trust Fund continues to be strong. housing. PMHC commenced operations in institutional development, while IFC and September 2000 and has accumulated a EIB are financing the developer/operator IFC Projects modest portfolio over the past two years. of the Project. Although the present situation has IFC Portfolio significantly slowed PMHC's operations, Latest Developments: Despite the Including the three joint-projects above, IFC both affiliates, the Liquidity Facility, depressed business environment in WBG has committed US$25.89 million to three providing long-term funds for lending by generally, 18 firms continue to operate at projects under the Mainstream Program. banks and other primary mortgage lenders the GIE, with one new tenant entering the Under the Extended Reach Initiative, in WBG; and the Mortgage Insurance Fund, site in June 2002 and two additional tenants which supported projects in the US$0.25-5 providing partial risk coverage for primary seriously considering setting up new million range, seven projects were lenders, continue to increase their operations. As of July 2002, just over 800 committed for US$7.42 million, out of respective portfolios. Canada Mortgage and workers are employed at the GIE. which US$4.92 million was disbursed. The Housing Corporation is the technical Although further expansion in the Extended Reach Initiative was discontinued partner for the PMHC providing technical development of the site has been in mid-2000. assistance and capacity building support. postponed, PIEFZA is considering ways of The Project also includes a component for improving the competitiveness of GIE All IFC-financed projects have been policy and institutional development in the tenant firms by providing support to affected by the ongoing political crisis. sector that is implemented by the Ministry upgrade management and production Most private sector activity has been of Public Works and Housing. operations through targeted incubation noticeably reduced, and most WBG services, particularly focusing on the companies are facing liquidity and severe Latest Developments: This Project was garment manufacturing cluster. operational difficulties due to the internal recently restructured, and the Closing Date border closure. extended two years to March 31, 2004. As part of this process, an Action Plan for MIGA Operation n Mainstream Projects business growth for PMHC was agreed, and n Investment Guarantee Fund monitoring targets set. A review of these (MIGA). Arab Palestine Investment Bank targets is scheduled for March 2003. The World Bank: US$10 million. (APIB). Policy and Institutional component was The Fund, which is administered by MIGA, IFC approved the US$3.74 million equity also extended, with the objective of provides Guarantees in the form of investment in May 1994. revisiting housing policy and public sector insurance against political risk for private Arab Palestinian Investment Bank was IFC's capacity in the context of the newly merged investment in WBG. Under the terms of first investment in the West Bank and Gaza, Ministry. the Fund, investors who are nationals of, and was established in Ramallah in 1996 by or companies incorporated in a MIGA the Arab Bank, DEG, Enterprise Investment member country, or who are Palestinian Company and IFC. APIB was also the first residents of WBG, are eligible to obtain comprehensive commercial and investment December 2002 27 PDF-EN.PM5 27 1/15/103, 5:29 PM West Bank and Gaza Update banking institution to be established in the The Project was the first international hotel other international lending institution. The West Bank and Gaza. Its primary focus was in the West Bank. The 250 key hotel was complex opened for commercial operations intended to be in trade finance (e.g., letters built in Bethlehem at an estimated Project in late 1998. However, due to the ongoing of credits and discounting of bills), term cost of US$52 million that included the crisis and closure, the Project was forced financing (for industrial and commercial renovation of the famous Jacir Palace to cease operations in early October 2000. projects for expansion, modernization and landmark. EIB provided the Project with working capital needs), foreign exchange about EURO12 million in a long-term loan. ArabPalestinianStorageCompany and money transfers, financial advisory (APSC). services (to the local corporate sector and The Project became fully operational under IFC approved the US$0.2 million loan in overseas investors) and agency Intercontinental Hotel Company July 1998. arrangements. APIB was expected to management in September 2000. But due The Project consisted of establishing a cold mobilize wholesale funding from the to the ongoing crisis in the West Bank and storage facility in Gaza with a capacity to domestic and overseas markets. Further Gaza, tourism was one of the hardest hit store about 5,000 tons of perishable food expansion of APIB's operations was to sectors, and the complex was forced to products. The storage method included include money and capital markets activities, cease all operations in March 2001. The both freezing, as well as chilling, to treasury management services, portfolio complex sustained some physical damage preserve the products for long periods of management, and private banking. during the past year and remains closed. time. The Project also involved trading in As of December 31, 2001, APIB approved fruits and vegetables, mainly for sale in the 27 loans worth US$12.6 million, and had n Extended Reach Projects off-season. IFC provided a loan of US$0.2 an outstanding portfolio of US$8.8 million. million out of a total project cost of US$5.9 Due to the ongoing crisis, the pipeline for Arab Concrete Products Company million. The Project started operations in new lending has significantly decreased, (ACPC). September 1999. However, the border and focus has shifted to managing the IFC approved the US$0.8 million loan in closures in Gaza, and the ongoing crisis, existing portfolio. June 1997. have significantly reduced the Project's volume of operations, and in some Peace Technology Fund (PTF). This Project enabled Arab Concrete instances, operations were brought to a The Project was approved in August 1998, Products Company to fully utilize its complete stop. with IFC investing up to US$12.6 million. production capacity of ready-mix concrete, and expand its distribution capacity. IFC The Peace Technology Fund was set up provided a long-term loan of US$0.8 million with a committed capital of US$63.2 million out of a total Project cost of US$2.6 million. n IFC Technical Assistance to provide equity capital for productive Due to the crisis and mobility problems of IFC's technical assistance efforts have been investments in the West Bank and Gaza. labor and raw materials, the Project has aimed at supporting the Palestinian PTF was to encourage economic witnessed a significant drop in operational Authority's efforts to further broaden and cooperation between Palestinian and Israeli levels, and at certain times, it has come to deepen the Palestinian financial sector. IFC companies and, if appropriate, invest in a complete standstill. has also worked closely with the Palestinian joint ventures between Palestinian Authority and the private sector to companies and Israeli or international Jericho Motels Company (JMC). encourage the emergence of new companies, thereby encouraging transfer IFC approved the US$1.17 million loan in instruments and players in the financial of technology and employment generation August 1998. sector and capital markets through the in the West Bank and Gaza. PTF was development of framework laws and expected to invest primarily in small- and Developed on 31,000 m2 of land, the institutions. IFC was involved with the medium- sized companies across a broad Jericho Resort Village consists of a 60-room preparation of draft laws for Insurance, spectrum of high value added and/or hotel, 48 bungalows, and recreational Securities, Capital Markets Authority, employment generating industries. facilities. At a total cost of US$8.1 million, Mutual Funds, Mortgage, Tax, and IFC provided a 10.5-year, US$1.17 million Competition. Prior to September 2000, PTF invested loan, and the financing plan included long- US$11 million in three projects, but because term loans from two local banks and one of the ongoing crisis, all pipeline investments have been put on hold. Palestine Tourism Investment Company Ltd. (PTIC). The Project was approved in April 1999, and IFC invested US$1.35 million in equity and US$8 million in long-term loans. December 2002 28 PDF-EN.PM5 28 1/15/103, 5:29 PM West Bank and Gaza Update Bank Group News Project is currently estimated to be about STAFF NEWS New World Bank Projects: US$70 million, out of which US$20 million is proposed to be financed by the World n New Country Program Officer n Proposed Emergency Water Bank. See more details on p.26 under for West Bank and Gaza Office Project (EWP). "World Bank Projects Under Preparation". Mr. Kazuki Itaya joined the WBG Country The main objectives of the project would Office in August 2002. Before taking up be to provide small towns and villages in World Bank Missions to West his new position, Mr. Itaya has worked as the southern West Bank with additional Bank and Gaza an economist in the World Bank Institute, water supply, and to provide emergency n Pensions Reform and North Africa Department. financing for maintaining service levels in A World Bank mission visited West Bank Gaza. The project would include the and Gaza between Nov 04 - Nov 25th to following components: (a) emergency discuss a report entitled "Pensions in water supply repair and rehabilitation in New Bank Publications Palestine": Reform in a context of civil remote rural areas of the southern West unrest' with counterparts and donors, and n A Sourcebook for Poverty Bank; (b) undertake repair and make progress on the pension reform Reduction Strategies (2-volume set). rehabilitation in order to maintain water dialogue currently under way. During the A Sourcebook for Poverty Reduction and sanitation service levels in the Gaza mission the team met with the pension Strategies is a guide intended to help low- Strip at the high levels achieved under the reform committee, the civil service reform income countries with the development Gaza Water and Sanitation Project despite committee and the donor community. The and strengthening of their poverty the deteriorating economic and security team also interacted with another Bank reduction strategies. This book has been conditions; and (c) Technical Assistance mission on civil service reform. Despite designed as a resource for analysis and and Capacity Building provided to PWA difficult working conditions progress was discourse on poverty reduction policies and the recently established Coastal made on dissemination and on policy and programs at the country level. Each Municipal Water Utility (CMWU) in the dialogues with counterparts in the PA. The chapter adopts a layered approach, with Gaza Strip and form pilot joint services key messages that emerged from this a short summary providing overall councils for smaller towns in the southern mission were: (a) the fiscal imperative to assistance on issues, a detailed guide West Bank. It is anticipated that the project undergo pension reform very soon and providing approaches to analysis and will be appraised in February 2003 and the necessity of donor assistance; (b) the policy development along with supporting presented for approval in May 2003. necessity of protecting the elderly via an materials including country case studies, n Emergency Services Support universal old age social pension; and (c) technical notes, and recommendations for further reading. Project - Phase II (ESSP II) ensuring transparency and efficiency in On 14 November 2002, negotiations were fund administration. The first draft of an n The Right to Tell: The Role of concluded between the World Bank and updated report should be ready by Mass Media in Economic the Palestinian Authority for an additional December 30, 2002. Development. financing of a Second Phase ESSP in the n Institutional Reforms for the The Right to Tell: The Role of Mass Media amount of US$ 25 million. Like ESSP I, Palestinian Authority. in Economic Development contains an ESSP II will support the financing of the A World Bank mission visited West Bank outstanding list of contributors from Nobel operating budgets of the social ministries and Gaza November 12-22 to advance Prize winner and former World Bank chief thereby helping sustain public services work on ministerial and civil service economist, Joseph Stiglitz to Robert J. delivery to the Palestinian population. reform. In particular, the mission sought Shiller author of Irrational Exuberance, Unlike ESSP I, ESSP II will not provide to deepen the analysis of pay and and Nobel Prize winner and novelist budgetary support to Municipalities since employment issues. Working jointly with Gabriel Garcia Marquez. Contributors to that will be done through an Emergency a World Bank pensions reform mission, this volume explore the role of the media Municipal Services Rehabilitation Project the mission received further information as a watchdog of government and the that the Bank will launch in the coming necessary to provide costed options for corporate sector, and the policies that few weeks. The ESSP II project will be civil service re-dimensioning and to prevent the media from exercising that submitted to the Bank's Board of Directors analyze the fiscal implications of present role. The Right to Tell assesses the media's for approval in mid-December with an civil service wage and employment function as transmitters of new ideas and expected project starting date of January conditions. Upon receipt of required data information. This book also evaluates the 2003. The total budget for the ESSP II from counterparts, modelling exercises damaging effects that an unethical or program has been estimated at US$84 and scenario analysis will be conducted. irresponsible press can cause to a society. million, covering a budgetary period of one year. Several of the book's contributors describe the role of the media and the challenges n Emergency Municipal Services they face in specific countries including Rehabilitation Project (EMSRP). Bangladesh, Egypt, the former Soviet The project comes in response to a request Union, Thailand, and Zimbabwe. These of the Palestinian Authority. It is expected fascinating case studies highlight the to be presented to the Board by the end media's ability to act as a catalyst for of this year. The total cost of the proposed change and growth December 2002 29 PDF-EN.PM5 29 1/15/103, 5:29 PM West Bank and Gaza Update n Social Reinsurance: A New Contact Numbers Approach to Sustainable Community Health Financing. Social Reinsurance details community- West Bank Office Numbers: Health/Education based approaches to insuring people Switchboard 02 - 2366500 Salam Kanaan against medical risk not based on Fax 02 - 2366543 02-2366534 individual risk rating as in private insurance, but rather using decentralized Country Director Institutional Development social insurance based on the average risk. Nigel Roberts Stefano Mocci This book shows how the concept of 02-2366535 social insurance can be implemented in 02 - 2366505 countries that do not have the capacity to Deputy Head of Office/ Projects Disbursements finance or organize large-scale systems. Adel Odeh It also details the strategies and public Social Development/NGOs policies that countries can use to mitigate Sima Kanaan 02-2366515 the shortcomings of community-financing 02-2366506 plans designed along the lines of micro- External Affairs & Aid insurance. Reinsurance is stressed as a tool Senior Economist Coordination Department for enlarging the risk pool and spreading John Wetter Ma'moon Sbeih risks across larger population groups, 02-2366522 02-2366511 which no single micro-insurance scheme can do on its own. Social Reinsurance also Country Program Officer Public Information Center discusses other measures to strengthen Kazuki Itaya Mary Koussa micro-insurance-based community- 02-2366529 financing programs. 02-2366501 Infrastructure Development Majed El-Bayya Gaza Office Numbers: Middle East and North 08-2824746 Africa: Coordinator n Reducing Vulnerability and Husam Abu Dagga Increasing Opportunity: Social 08-2823422/2824746 Protection in Middle East and North Fax:08-2824296 Africa International Finance Corporation n CulturalHeritageandDevelopment: A Framework for Action in the Middle Tel: 02-2366517, Fax: 02-2366521 East and North Africa n Poverty Alleviation in Jordan in the 1990s: Lessons for the Future. West Bank and Gaza Update editorial team n Globalization and Firm Ma'moon Sbeih - Editor Competitiveness in the Middle East and Mary Koussa North Africa Kazuki Itaya Sebastien Dessus Claus Astrup Yousef Habesch With special thanks to Mary Saba For further information contact: Mamoon Sbeih Tel. (972) 2 2366511 email: msbeih@worldbank.org For more about latest World Bank Publications, please send your EMail address to: The West Bank and Gaza Update can also be found on the Internet at: "mkoussa@worldbank.org". http://www.worldbank.org/we December 2002 30 PDF-EN.PM5 30 1/15/103, 5:29 PM