In This Issue 33539 1. Tertiary Education Project in the West Bank and Gaza /3 2. The Humanitarian Situation: Year in Review 2004 /5 3. Recent Economic Developments /9 4. The Economy and Fiscal Developments /21 5. Land Administration Project /28 6. NGO Developmental Grant /30 A Quarterly Publication of the West Bank and Gaza Office June 2005 2 Contact Numbers West Bank Office Numbers: Switchboard 02-2366500 Fax: 02-2366543 Country Director Water and Energy Projects Disbursments Nigel Roberts Khairy Al-Jamal Adel Odeh Tel. 02-2366506 08-2823422 Tel. 02-2366515 Samira Hillis Deputy Head of Office/ Health Tel. 08-2823422 Human Development Anne Johansen Sima Kanaan Tel. 02-2366514 Public Information Tel. 02-2366541 Mary Koussa Infrastructure Development Tel. 02-2366529 Economics Ibrahim Dajani Aniruddha Bonnerjee Tel. 02-2366553 Tel. 02-2366528 Community Studies Legal Reform Tanja Hohe Paul Prettitore Nithya Nagarajan 02-2366534 Tel. 02-2366511/61 Gaza Office: International Finance Corporation Coordinator Investment Officer Husam Abu Dagga Youssef Habesch Tel. 08-2823422/2824746 Tel. 02-2366517 Fax: 08–2824296 Fax: 02-2366521 For further infrmation and free subscription please contact: Mary Koussa email: mkoussa@worldbank.org Newsletter at Internet: http://www.worldbank.org/we 3 Tertiary Education Project in the West Bank and Gaza Challenges Faced by the Objectives of the Project Tertiary Education System in The Tertiary Education Project is a US$10 million grant the West Bank and Gaza from the Trust Fund for Gaza and West Bank, to support the PA in contributing to the overall economic and The challenges faced by the West Bank & Gaza (WB&G) social development of West Bank and Gaza. Specifically, tertiary education system are similar to the challenges faced the project will focus on: (i) improving the regulatory by most tertiary systems around the world. However, they environment for tertiary education management, are also unique. As in most countries, the system faces the governance and quality assurance; (ii) increasing internal need to satisfy the increasing demand from the growing and external efficiency of the tertiary education system, population of secondary education graduates, while keeping as a first step towards achieving sustainability; and (iii) the quality and relevance of programs offered capable of creating incentives and provide the basis for improvements meeting the changing demands of the global economy. In in efficiency, quality and relevance of tertiary education addition, there is the challenge of competition for public institutions in order to meet the socioeconomic needs of funds, from within the sector and from the current emergency the Palestinian population. and critical economic situation faced by the PA.. Despite the many challenges and constraints, the Tertiary Education System in the WB&G has reached an important level of development, sharing indicators comparable to Consensus Building around those with middle-income countries. Enrollment rates are much higher than the average for the MENA region, and vision for Tertiary Education comparable to middle-income countries such as Mexico, Costa Rica and Malaysia. The system is composed of 11 Reform universities, 4 university colleges and 24 technical colleges, Extensive consultations took place during the course of offering a variety of programs, from 2 year programs to project preparation, and its conceptualization emerged higher level degrees. from thorough analysis and strategic planning conducted Public support to Universities has historically been low and by the MOEHE with technical assistance and support from has declined since 1990. This has led Tertiary Education the World Bank. The project components were defined Institutions to rely on student fees, which currently account based on the Palestinian Higher Education Financing for 60% of university and college operating expenditures. Strategy, developed by MOEHE with Bank’s support. Most Universities today are facing financial deficits. The The project objectives are aligned with the overall Bank’s financial crisis has been aggravated by the intifada and strategy for the West Bank and Gaza in several domains:. road closures imposed by Israel, as the economic crisis They contribute to the medium-term development is felt not only by the PA but also has diminished the program and nation-building efforts, as tertiary education capacity of families to pay for student fees. institutions and graduates play a key role in the process June 2005 4 of reconstruction, nation-building and the promotion to improve the quality and relevance of the programs of a democratic society and political system. They also they offer, and develop new programs, relevant for respond to the social and economic needs of the PA the Palestinian economic development, as stated in the by enabling the tertiary education system to adapt to Medium-Term Development Plan. the human capital development needs in the current economic environment. 1. The main objectives of the QIF are to provide support to improve the quality of Palestinian TEIs and programs and facilitate a change of culture in the financing of tertiary education in WG&G. All TEIs in the WB&G which are licensed and accredited by the MOEHE are eligible to apply Project Components for QIF grants. A transparent mechanism for grant approval has been established, and a QIF Board Component 1: (US$ 2.4 million). Strengthening the with members from the West Bank and Gaza policy-making role of the Ministry of Education & academic sector, private sector and civil society is Higher Education (MOEHE), Council for Higher in place. Education (CHE) and Accreditation and Quality Assurance Commission (AQAC). Component 4: (US$ 0.8 million). Building capacity to improve and expand the student aid program. The The objective of this component is to strengthen the current Student Loan Revolving Fund (SLRF) is a critical MOEHE, CHE, and AQAC to formulate, plan and monitor component of the financing strategy of Higher Education the tertiary education policy framework for the WB&G. To in WB/G. However, its management needs to be improved achieve these objectives, the project will provide support in order to make it a sustainable and equitable financing to: mechanism. The project will support the improvement 1. Tertiary education policy development and of the management and performance of the student management. aid program by strengthening the current management and operating structure of the SRLF, and will introduce 2. Accreditation and Quality Assurance Commission. targeting mechanisms for allocation of grants and loans, 3. Establishment of the tertiary education management with repayment collection and monitoring mechanisms, in and information system. order to improve loan performance. Through the project, a reformed student- aide program will be developed, aimed Component 2: (US$ 1.3 million). Increasing the to optimize a variety of factors and a mix of instruments internal and external efficiency of tertiary education to achieve sustainability, equity and relevance. institutions. This will be achieved through the following activities: 1. Supporting Universities and Colleges to conduct institutional self-assessment and initiate strategic plans to improve their efficiency. Project Management and 2. Conducting a comparative study about existing Implementation management and practices at Universities and Colleges, and establishing a set of standard The project will be launched in June 2005, and will be managed by MOEHE. It will have an implementation management procedures and practices, including period of 4 years, at the end of which it is expected that budgeting, program development, and human and the performance of the tertiary education system will financial resources management. be improved, measured by an increased efficiency. Co- Component 3: (US$5.5 million). Improving quality at financing for the project is expected from the European tertiary education institutions. Through a competitive Commission. Given that the procedures for the QIF and funding mechanism, the Quality Improvement Fund for overall project implementation are in place, the project (QIF) will provide grants to Universities and Colleges, is well placed to receive financing from other donors. 5 The Humanitarian Situation in the occupied Palestinian territory (oPt): Year in Review 2004 By United Nations Office for the Coordination of Humanitarian Affairs (OCHA) OCHA released its Review of 2004 in March 2005. This article summarises the main findings. Humanitarian Trends in 2004 Humanitarian Needs in the oPt Impoverishment and Growing Throughout 2004, violence continued, particularly in the Dependency on Aid Gaza Strip, affecting the lives of thousands of Palestinians and Israelis. The year saw little significant easing of the In 2004, the number of poor persons reached more than underlying causes of crisis and the continuing construction 2.2 million1. The number of unemployed rose to 238,000 of the Barrier resulted in further hardships. in 20042 - the unemployment rate stood at 28.7% in the West Bank and 41.3% in the Gaza Strip3. Each working The PA was planning for transition from crisis to individual supported 6.4 non-employed persons4. recovery. This transition is crucial: Palestinians depend on humanitarian assistance, and it risks becoming a structural Expenditure of 58.2% Palestinians households dropped in feature of the Palestinian economy. Yet, transition is only 2004 and 71.8% of households confirmed a need for aid5. possible if conflict eases and Palestinian access within Furthermore, 600,000 Palestinians could not afford even the oPt and to other countries improves. Progress on the the basic necessities for subsistence6. political front must be translated into access improvements if the role of humanitarian assistance is to be reduced. Falling agricultural production Palestinian agricultural incomes fell as a result of loss 1 See PCBS Second Quarter 2004 Report on Palestinian Socio-Economic of access to markets, movement restrictions, levelling Conditions, December 2004 of agricultural areas and the isolation of land and wells 2 See PCBS Second Quarter 2004 Report on Palestinian Socio-Economic behind the Barrier. Conditions, December 2004 3 PCBS data .This definition of unemployment includes ‘discouraged In Beit Hanoun in the Gaza Strip for instance, 289 hectares workers’ – persons without jobs who, because of their pessimism about finding work, have stopped looking. The International Labour Organisation of land – mainly citrus groves – were cleared in July 2004 employs a stricter definition, only including those workers who are actively in response to Palestinian militants firing rockets into looking for work. 4 See PCBS Second Quarter 2004 Report on Palestinian Socio-Economic Israeli towns. In the last four years, more than 50% of Beit Conditions, December 2004 Hanoun’s agricultural land has been destroyed7. 5 See PCBS Second Quarter 2004 Report on Palestinian Socio-Economic Conditions, December 2004 In areas close to the West Bank Barrier, agricultural 6 See Four Years – Intifada, Closure and Palestinian Economic Crisis, World production fell because of difficulty accessing land in the Bank, October 2004. 7 ‘closed area’ between the Barrier and the Green Line8. The OCHA analysis of satellite images 2000 to 2004. 8 According to the plan for Barrier construction published by the IDF on 30 isolation of 37 water wells further damaged agricultural June 2004, a total 60,288 hectares of land will be confiscated for construction productivity9. of the Barrier, and a further 15,586 hectares will be enclosed in enclaves between the Green Line and the Barrier (OCHA calculations, July 2004). 9 See Mid Year Review of the Consolidated Appeals Process for oPt, United Nations, June 2004. June 2005 6 Preventing Fragmentation of Water and sanitation Communities and Declining The quality of water provision has been compromised: Humanitarian Services • PA resources were diverted into repairing damage rather than maintaining and developing the water In 2004, closures limited the ability to access health and and sanitation network. education services. • Contamination of water supplies increased as a Health consequence of degraded infrastructure and the Access and quality assurance remained a problem: inability of the MoH to monitor water quality14. • Thirty-nine percent of Palestinians reported that Assisting Areas of Acute Need they had to find alternative health facilities10. Palestinians in the Gaza Strip had acute needs. • The number of home deliveries was higher in West Bank areas that were heavily affected by internal The Gaza Strip closures. Access to mental health services was In 2004, IDF made military incursions into the Gaza Strip limited11. – Rafah (May), Beit Hanoun (July) and Jabalia (October). This was in response to Palestinian militants firing • Outreach services in remote areas in Hebron, homemade rockets and mortars into the Israeli town of Bethlehem, and Nablus governorates could no Sderot and settlements and the targeting of Israeli security longer be conducted due to Israeli restrictions on forces at the main Gaza Strip crossing points resulting the Ministry of Health (MoH) staff. Gazans were in Israeli deaths. The humanitarian implications of this not able to travel to Israel or a third country for outbreak in violence included: medical services. House Demolitions and Homelessness • Supervision and monitoring have decreased in 13,510 Gazans were made homeless in 2004 as a result frequency and timeliness. The Barrier rendered of the demolition of 1,443 buildings15. In Rafah, for management of medical emergencies – e.g. example, 298 buildings were destroyed and 270 buildings obstetric complications – difficult12. partially damaged during ‘Operation Rainbow’, as a part Education of an attempt to eliminate Palestinian smuggling tunnels The quality of Palestinian education has fallen: between Rafah and Egypt, leaving almost 3,800 people homeless. Re-housing was difficult because land in the • The school day shortened in areas near the Barrier, Gaza Strip was in short supply. because Barrier gate opening times prevented children from crossing freely13. Access to Israel and the Rest of the World Only Gazan workers, critical medical cases and senior • Teachers were often delayed, or unable to reach officials in the PA16 were able to cross in and out of the schools. Gaza Strip at Erez Crossing (closed 156 days in 2004). • Teaching quality suffered due to the recruitment Other Palestinians had to travel through Rafah Crossing of teachers living nearby – often not the best (closed 82 days in 2004)17. Palestinian men between the ages of 16 and 35 were not able to use Rafah Crossing qualified. since April 200418. 8 According to the plan for Barrier construction published by the IDF on 30 June 2004, a total 60,288 hectares of land will be confiscated for construction of the Barrier, and a further 15,586 hectares will be enclosed in enclaves between the Green Line and the Barrier (OCHA calculations, July 2004). 14 9 See Mid Year Review of the Consolidated Appeals Process for oPt, United See Four Years – Intifada, Closure and Palestinian Economic Crisis, World Nations, June 2004. Bank, October 2004. 15 10 See Palestinian Public Perceptions report VII, August 2004. Source: UNRWA 16 11 71% of people seeking mental health care in the last six months did not Source UNSCO and Al-Mezan. Figures through 11 December 2004. Erez receive any (IUED). Crossing has been closed since 31 August 2004, following the discovery by 12 Patients now need to use long deviations to get the appropriate services. the IDF of an explosives belt on a worker. 17 Of the 210,000 inhabitants affected by the Barrier, one fifth (42,000) are For more information, please see “Rafah Terminal Situation Report” children and almost the same number are women of childbearing age. The OCHA http://www.ochaopt.org Barrier has severely impacted their ability to obtain antenatal, postnatal and 18 Source: UNSCO and Al-Mezan. Figures for Karni Crossing are through 11 well-baby services. December 2004, figures for Rafah Crossing are from Al-Mezan and are for 13 Source: UNICEF. the entire 2004 year. 7 Restrictions on the Gaza Strip coastline In 2004, the fishing area for Palestinian fishermen was limited to six nautical miles and no fishing was permitted along approximately 40% of the Gazan coastline. Ensuring Protection of Civilians and Humanitarian Access The need for physical and social protection There was a marked increase in Palestinian casualties Closures of crossing points between the Gaza Strip and in 2004: 881 were killed compared with 664 in 200319. Israel prevented humanitarian agencies’ staff movement 118 Israelis were killed - down from 212 in 200320. Since and delayed or prevented the delivery of humanitarian September 2000, 625 Palestinian children and 104 Israeli food and medicine25. The international community, children were killed as a result of the conflict21. through its Task Force on Project Implementation26 sought constructive dialogue with the GOI to resolve continuing access problems with little success. The Humanitarian Crisis West Bank Closures and the Barrier27 At the end of 2004, West Bank closures consisted of approximately 700 checkpoints and physical obstacles across roads, and the Barrier. Securing humanitarian access to affected populations22 Access for health workers In 2004, ambulance operators reported 523 incidents in which the provision of first aid and/or medical evacuations was delayed, obstructed or prevented by the IDF or Israeli Border Police23. Access for relief agencies Similarly, relief agencies filed 1,063 incident reports24 in which the delivery of aid and/or the movement of The constructed Barrier was approximately 205 kilometres personnel were obstructed. long, of which 24 kilometres were concrete slabs and 181 kilometres were fence. A further 72 kilometres was under 19 Source: Palestinian Red Crescent Society construction. In total, the length of the completed Barrier 20 Sources: Harel, Amos “Palestinian attacks kill 118 in 2004, down from 44% 2003” 29 December 2004. http://www.haaretz.com (link for article is was projected to be 621 kilometres28. The Barrier has lead on the Israel Ministry of Foreign Affairs website); UN OCHA Humanitarian to the emergence of a new underprivileged segment of Briefing Notes http://www.ochaopt.org the Palestinian community29. 21 Source: for Palestinian children Palestinian Red Crescent Society; source for Israeli children UNICEF 25 For further details see UNRWA/OCHA ‘Rafah Humanitarian Needs 22 Information from The Monthly Humanitarian Monitoring Reports, which Assessment’ June 2004, available at http://www.ochaopt.org. are compiled by OCHA, and assess commitments regarding health, water, access for international organisations and issues regarding fishing and olive 26 The TFPI consist of USAID, UNSCO, The World Bank and the EC. harvest made by the government of Israel to Ms Catherine Bertini, personal 27 Military observation towers and Barrier gates are not included humanitarian envoy to UN Secretary-General Kofi Annan , during a mission 28 UN OCHA Barrier Statistics November 2004. The advisory opinion of to the region from 12 to 19 August 2002. To see the reports for individual the International Court of Justice (ICJ) in July 2004 called for an immediate months in 2004 please see Humanitarian Monitoring Report at http://www. halt to construction of the Barrier, and dismantlement of the parts that ochaopt.org had already been built. Israeli High Court of Justice decisions throughout 23 Ambulance operators include PRCS, MoH and UNRWA, among other 2004 and the positions taken by the Israeli Attorney General, led to the health operators that report incidents to OCHA re-examination of many sections of the Barrier route, and in some cases, 24 These figures apply only to the humanitarian aid organisations that delayed and called for revisions of the route. reported incidents at checkpoints to OCHA. 29 See Palestinian Public Perceptions report VII, August 2004. June 2005 8 Role of Humanitarian The Continuing Crisis: Assistance Opportunities for Transition? The provision of food aid during 2004 to more than 1.4 Given these considerations, it is important to seize current million Palestinians stabilised food security, supplemented opportunities for transition to recovery and reconstruction. household incomes, lowered the proportion of those living By proposing a three-year Medium Term Development in deep poverty30 and contributed to a slight improvement Plan, the PA is signaling its preparedness to manage this in some health indicators31. process. The increasing role of emergency assistance was a However, for recovery to take place, the following necessary adaptation to the crisis. Needs existed and while conditions must change. closures and conflict continued, genuine economic and social development would have been difficult to achieve. • Closure is still heavily imposed, limiting Nonetheless, over the past two years, there has been a Palestinians’ access to services and hindering modest shift towards development assistance, although economic activity. the humanitarian focus remains dominant. • Unemployment is rising, and Palestinians are turning to subsistence agriculture and petty trading There is a danger that external assistance becomes a structural feature of the Palestinian economy: for survival. • House demolitions, land levelling and • UNRWA and the World Food Programme provide confiscation contribute to homelessness and food food aid to 1,480,000 beneficiaries – 39% of the insecurity. Palestinian population. UNRWA supplies ten times more beneficiaries with food aid than before • Conditions in the Gaza Strip deteriorated in September 2000. 2004 because of frequent closure of the Gaza Strip, military operations and income loss. • Around 166,000 Palestinians are employed by the PA, UN agencies or NGOs. Humanitarian agencies continue to face the dilemma as to whether to provide relief when Israel, as the occupying power, is obliged to provide services to the Palestinian population. 30 The World Bank estimates that, at the end of 2003, emergency relief had served to lower the proportion of those living in deep poverty from 22% to 16%. See Deep Palestinian Poverty in the midst of economic crisis, World Bank, October 2004. 31 For example, anaemia in children aged 9 months has fallen from 73.3% in 2002 to 40.5% in 2003, and the neonatal mortality rate has fallen from 14.1 (2002) to 11 (2003) per 1000 live births (Ministry of Health figures). 9 Recent Economic Developments Table 1. Macroeconomic Projections 2004-2007 Economic Output 2004 2005 2006 2007 Most recent economic data available (Palestinian imports GDP (US$ million) 3,609 3,927 3,947 3,995 from / exports to Israel for the last six months of 2004; real growth rate 6.2% 5.7% -0.2% -0.6% Palestinian employment data through the first quarter of 2005 and in Israel through February; banking sector data GDP per capita (US$) 1,064 1,119 1,086 1,063 through end-March; fiscal and price data through April) real growth rate 2.5% 2.0% -3.6% -2.7% continue to provide evidence that the modest economic recovery that began in 2003 continues to extend into this GDI per capita (US$) 1,624 1,654 1,556 1,478 year in the West Bank while in Gaza, due to closures imposed on Palestinian workers during the third and real growth rate 0.3% 1.8% -5.9% -5.0% fourth quarter of 2004 that continued into the first half of Unemployment Rate 27% 25% 29% 31% the first quarter 2005, growth stalled and, quite possibly, declined. Poverty Rate 46% 45% 48% 50% Underlying this growth were diminished levels of violence, World Bank staff projections, May 2005, “Disengagement” scenario. fewer curfews, and more predictable (albeit still intense) Gross Domestic Product (GDP) measures productive activity within closures, as well as adaptation by Palestinian businesses West Bank and Gaza; Gross Disposable Income (GDI) measures to the contours of a constrained West Bank economy. total income, including workers’ remittances, foreign aid, and other current transfers. Looking forward, the extent to which this admittedly fragile growth path can be sustained depends greatly upon the extent of Israeli disengagement from Gaza and Under a “disengagement” scenario as outlined by Israeli the northern West Bank, the overall political/security government authorities, economic performance in the situation, and the degree to which travel and transit West Bank and Gaza will continue to be considerably restrictions elsewhere within the West Bank are eased or below its previous (and potential) levels, with the domestic tightened. Of particular impact will be whether closures economy unable to generate the employment necessary to of Israeli labor markets to Palestinian workers persist (as absorb the increasing number of new entrants to the labor Government of Israel policy statements suggest) or are force. Private investment will continue to be depressed relaxed. and increased foreign investment unlikely (Table 1). June 2005 10 Foreign Trade Trade traditionally played an important role in the small and open Palestinian economy. Throughout the past five years, imports of final goods, services, equipment and intermediate inputs represented approximately 70 percent of GDP, while exports of goods and services represented less than 20 percent of GDP. Unfortunately trade is badly registered, as most of it takes place between the West Bank and Israel, where no custom Source : Israeli Central Bureau of Statistics. stations exist (unlike trade between Gaza and Israel). The Israeli Central Bureau of Statistics nevertheless estimates such flows, and we rely on their data to depict the evolution Trends in merchandise exports to Israel have followed of trade since 1998. This only covers Palestinian trade a similar pattern: decline through summer 2002; some with Israel and not with the rest of the world. However, rebound in the second half of that year; two consecutive trade with Israel represents the bulk of total Palestinian quarters of decline in 2003, followed by an uptick in the trade1. Furthermore, significant shares of imported goods third quarter. Unlike imports, fourth quarter 2003 saw a from Israel are actually originating from third countries decline. But starting in the first quarter of 2004 exports – “indirect imports”. In addition, it does not appear that continued to grow, surpassing pre-Intifada levels by the these relationships are considerably impacted by exchange second half of the year. Fourth quarter exports (NIS 372 rate movements; neither the depreciation of the New million, US$84.5 million equivalent) were 18.8 percent Israeli Shekel in the first half of 2002 nor its subsequent above third quarter 2000 (Figure 2). appreciation during 2003 are thought to have significantly altered the composition of Palestinian imports in terms of trading partners. (See Figure 13 for shekel-dollar exchange rate movements.) The impact of closures following the outbreak of the Intifada and their progressive tightening through summer 2002 were clearly reflected in the reduction of Palestinian imports from Israel. While both first and second quarter 2003 again witnessed reduction from the levels seen in the second half of 2002 (which, in turn, represented a rebound from the depressed second quarter 2002, the height of Israeli military operations in the West Bank), starting in the third quarter 2003 a strong upward trend Source : Israeli Central Bureau of Statistics. in import levels was noted, which continued through the third quarter of 2004. By then imports (NIS 2,061 million; At least three factors explained the reduction in exports USD 457.6 million equivalent) actually surpassed their witnessed during the first three years of the Intifada: pre-Intifada level. increased costs in transportation resulting from closure making Palestinian products less competitive (see Figure This strong performance was short-lived, however. Fourth 14); foreign purchasers switching to more reliable quarter 2004 imports (NIS 1447 million; USD 329 million alternative sources of supply in the face of production equivalent) declined considerably; compared to the pre- and shipping interruptions; and Palestinian producers Intifada third quarter of 2000, the decline in imports is switching to service domestic markets. Looking forward, 25.5 percent (Figure 1). the degree of external access permitted by the Israeli authorities – particularly in Gaza – will determine whether recent export growth rates can be sustained. 1 In 2000, imports from and via Israel represented 73 percent of total imports, while exports to Israel represented 92 percent of total exports. 11 in conducting business within the West Bank and Gaza as a result of internal closures and curfews, particularly in Labor Markets 2002, which resulted in significant increases in transaction costs, disruptions in production cycles, losses of perishable As a result of external closures nearly 100,000 Palestinian output, and lower economies of scale. workers have lost their jobs in Israel since September By second quarter 2003 domestic employment had 2000. According to Palestinian Central Bureau of Statistics recovered to the extent that the number of Palestinians (PCBS) data, 146,000 Palestinians (116,000 from the employed within the West Bank and Gaza surpassed the West Bank, incl. East Jerusalem, and 30,000 from Gaza) levels prior to the Intifada. At the same time, however, were working in Israel and Israeli industrial estates and the number of unemployed has continued to grow, from settlements during the third quarter 2000. 74,000 in the pre-Intifada third quarter 2000 to 208,000 currently (see Table 2). At its low point during the second quarter of 2002 this number had fallen to 33,000 before rebounding in the In first quarter 2005 the number of Palestinians working following quarter to 53,000; since then, the number of inside the West Bank was 358,000 compared to 357,000 Palestinian workers in Israel and settlements has been just before the Intifada. At its low point in second and roughly stable, fluctuating in accordance with the extent third quarter 2002, their number had fallen to 288,000 and of closure imposed in the wake of specific terror incidents. 281,000 respectively. Fourth quarter 2002 saw an increase In first quarter 2005, the number of workers stood at in jobs in the West Bank to 323,000, but this growth was 60,000 (with less than 1,000 coming from Gaza). short-lived, concentrated in agriculture (related to the olive harvest and reversed in the first quarter of 2003) and Fewer jobs in Israel translate directly into a decline in some one-off infrastructure repair generating employment workers remittances. According to the Israeli Central in construction. Bureau of Statistics, third quarter 2000 remittances totaled From a first quarter 2003 decline to 290,000, second US$328 million; in fourth quarter 2004, only $58million quarter 2003 saw strong growth (to 358,000), stability in – a 82.0 percent decline (see Figure 3) – was remitted. the third (359,000) and some growth in the fourth quarter (367,000). 2004 witnessed similar patterns, with decline in the first quarter (largely reflecting seasonal factors in agriculture and construction, the sectors responsible for the growth witnessed in the latter half of 2003) followed by a pick up in employment in the second, third, and fourth quarters of 2004. Seasonal factors again led to a decline in first quarter 2005 (to 358,000). In the Gaza Strip 158,000 Gazans were domestically employed during third quarter 2000. By third quarter 2002, the low point during the Intifada, this number had fallen to 106,000 (a 33 percent decline). Four quarters of continuous job growth found 171,000 Gazans employed Source : Israeli Central Bureau of Statistics. domestically, before the decline registered during the fourth quarter of 2003 reduced the number of employed to 163,000. Since then job levels within Gaza have This decrease has had direct consequence on the income fluctuated, with the first quarter 2005 job level of 168,000 of Palestinian households, as workers’ remittances virtually unchanged from the level one year previous. In from Israel represented some 18 percent of their total the interim, the deteriorating security environment in Gaza disposable incomes in 1999. In turn, lower incomes during spring 2004, coupled with the loss of income from inevitably affected the demand for Palestinian goods and closing Israel and Erez Industrial Estate to Gazan worker, services and hence, labor demand for Palestinian workers were reflected in the worsening employment numbers producing such goods and services within the West Bank witnessed in the second quarter (146,000) and only partial and Gaza. recovery in third and fourth quarter 2004 (154,000 and 163,000 respectively ). The negative impact that job losses in Israel has had on Despite the recent increases in employment, with domestic employment was aggravated by the difficulties population growing at approximately 4.3 percent per June 2005 12 year, dependency ratios – the total population divided (Under International Labor Organization (ILO) standard by the number of employed persons – have increased definitions, a person must be actively seeking work in significantly over the Intifada period. Whereas in the order to be considered “unemployed”.) third quarter of 2000 each job holder in the West Bank was supporting 4.3 persons, by the first quarter of 2005 Following a decline in the unemployment rate in the West each employed person was supporting 5.6 persons. In Bank in the fourth quarter of 2003 to 20.7 percent (down Gaza the dependency ratio increased more dramatically, from its Intifada peak of 31.4 percent in first quarter 2003) from 5.9 to 8.2. first quarter 2004 again saw an increase, to 24.6 percent with 136,000 persons unemployed. Third and fourth Growing population and labor force, declining levels of quarters noted slight improvement, but the number grew Palestinian employment in Israel and Israeli settlements, again in first quarter 2005 with 122,000 persons without and a lack of domestic job creation during the first jobs – an unemployment rate of 22.6 percent (see Figures two years of the Intifada, led to dramatic increases in 4 and 6). (By contrast, during the third quarter of 2000 unemployment and unemployment rates. Despite the the number of West Bank unemployed was 37,900 and job growth in recent quarters, the absolute number of the unemployment rate stood at 7.5 percent.) unemployed remains far in excess of pre-Intifada levels. Table 2. Number of Palestinians Employed and Unemployed (thousands) Q-3 Q-4 Q-4 Q-4 Q-1 Q-2 Q-3 Q-4 Q-1 Q-2 Q-3 Q-4 Q-1 2000 2000 2001 2002 2003 2003 2003 2003 2004 2004 2004 2004 2005 Working in West Bank 357 319 313 323 290 358 359 367 349 367 371 394 358 Working in Gaza 158 116 130 144 163 167 171 163 167 146 154 163 168 Working in Israel 116 40 65 47 42 47 56 51 47 45 53 48 60 – from West Bank Working in Israel 30 3 2 7 6 4 8 4 6 0 1 1 0 – from Gaza Strip Total Employed 661 479 511 523 501 577 595 585 569 559 581 605 586 Unemployed (ILO) 74 189 181 196 218 185 184 188 202 224 212 208 208 "Discouraged Workers" 94 127 99 109 105 105 74 72 68 67 69 64 64 Total, Unemployed 167 316 280 305 323 291 258 260 271 291 281 272 272 and Discouraged Source: PCBS. Note: Israel includes employment in Israeli settlements and industrial estates. West Bank includes East Jerusalem. 13 Source: PCBS. Data for West Bank includes East Jerusalem. Source: PCBS. Data for West Bank includes East Jerusalem. In Gaza, first quarter 2005 unemployment stood at 33.8 percent (86,000 individuals); the third quarter of modest improvement from second quarter 2004, when the unemployment rate stood at 39.7 percent, 96,600 persons – the highest number of unemployed ever recorded in Gaza). Prior to the Intifada the unemployment rate in Gaza was 15.4 percent (35,700 persons). (Figures 5 and 7.) Including in the labor force “discouraged workers” – persons without jobs who, because of their pessimism regarding the prospect of actually finding work, have stopped looking – produces a “relaxed definition” of unemployment showing similar trends: the relaxed definition unemployment rate in the West Bank has increased from 16.9 percent (95,000 individuals) in third quarter 2000 to 28.8 percent (169,000) in first quarter Source: PCBS. 2005; in Gaza, from 27.1 percent (71,000 individuals) to 38.0 percent (103,000) over the same period (see Figures 6 and 7). For wage earners continuing to be employed, the impact of the increase in dependency ratios during the course of the Intifada (and the implied obligation of working Palestinians to support greater numbers of extended family member) is exacerbated by the decline in average real wages over much of the period of the Intifada, fairly consistently in both the West Bank and in Gaza. In the West Bank, real wages have declined 14.9 percent since fourth quarter 2000; in Gaza, they have decreased 3.7 percent (see Figure 8). Source: PCBS. June 2005 14 Such behavior helps explain why the decline in labor demand witnessed during the Intifada has resulted primarily in higher unemployment and only to a lesser extent in lower real wages. Indeed the decline in real wages has mostly been the result of increase consumer prices and not decreased nominal wages. Even so, the decline in real wages during the Intifada period is much less than experienced in the 1995-96 period of external closure, when real wages declined more than 20 percent in response to a reduction in the number of Palestinians working in Israel – a reduction much smaller than that of the current Intifada. Source: PCBS average wage data; World Bank staff calculations. West Bank includes East Jerusalem. Data are deflated by consumer Monthly labor force data from the Israeli Central Bureau price indices for West Bank and Gaza, re-based to Fourth Quarter of Statistics showed a growth in (“legal”) Palestinian 2000 = 100. employment in Israel in February 2005, the second monthly increase following four months of decrease. January’s Average nominal wages have actually increased (3.2 monthly average of 9,500 workers and February’s 11,200 percent in the West Bank and 10.3 percent in Gaza) over compare with 15,200 and 14,900 in January and February the 52 months since third quarter 2000 (Figure 9). The 2004, respectively, and 16,900 in January 2003 (which was average daily wage in the West Bank stood at NIS 71.1 in the highest level during the Intifada)2. Approximately first quarter 2005 and at NIS 59.8 in Gaza; these compare one-half of these workers are employed in construction, with an average daily wage of NIS 121.8 received by while one-third are working in agriculture, and the Palestinians working in Israel and Israeli settlements. remaining one-sixth in all other sectors. This distribution has been consistent throughout the Intifada, however, prior to its outbreak the relative shares of agriculture and service sectors were reversed. Source: PCBS. West Bank includes East Jerusalem. One explanation for the stickiness of nominal wages may be the physical partitioning of the labor market – the result of travel restrictions associated with internal closure – which has resulted in increased mis-matches between 2 PCBS Quarterly Labor Surveys consistently report higher levels of supply and demand for various types of labor in the local Palestinian employment in Israel than does ICBS, the result of two factors: first, PCBS data includes Palestinians who hold Israeli identity cards labor market. Unemployed workers – even those willing (primarily East Jerusalem residents) or foreign passports as well as persons to work for less than the prevailing wage – who cannot who hold Palestinian identity – presumably ICBS considers foreign passport holders as foreigners and Israeli identity card holders as Israelis; second, reach potential jobs remain jobless; at the same time, firms PCBS data includes “illegal” (non-permit holding) workers, whereas these that face a shortage of labor are, therefore, not inclined to undocumented workers are likely to be under-counted by ICBS, as ICBS reports foreigners’ employment on the basis of employers reporting to the reduce workers’ compensation. National Insurance Institute. 15 almost 3 percent above budgetary expectations of NIS 239.8 monthly. But after payments of tax refunds and Fiscal Developments “net lending” to municipalities (which so far this year is higher than anticipated), thus far in 2005 a monthly Ministry of Finance data through April shows that PA average of NIS 292.3 million (US$67.0 million equivalent) revenue collection is running approximately 5 percent was available to meet PA expenditure – 13.3 percent below average monthly amounts projected in the 2005 below monthly anticipation in the budget (Table 3). budget. Domestic revenue has averaged NIS 120.2 million monthly (US$27.6 million equivalent) compared Just as available revenue has been below target, budgetary to the budgeted NIS 149.3 million – a 20 percent support from the international donor community over shortfall. However, gross clearance revenue (i.e., before the first four months of 2005 has also fallen short of deductions taken by the Government of Israel, primarily expectations. Anticipating US$654 million in foreign for municipalities’ obligations due Israeli utility companies financing to cover recurrent expenditure (US$54.5 million that are accounted for in the budget as “net lending”) have monthly), averaged NIS 246.9 million (US$56.6 million equivalent), Table 3: PA revenue and expenditure – January-April 2005 (million NIS and million US$) Budget 2004 Year to Date (January-September) Monthly Average Monthly Average NIS US$ NIS US$ Percent Total Gross Revenue 389.13 88.46 367.07 84.16 94.3% Domestic Revenue 149.30 34.32 120.19 27.57 80.5% Domestic tax revenue 85.59 19.68 77.12 17.67 90.1% Domestic non-tax revenue 63.71 14.65 43.07 9.89 67.6% Clearance Revenue 239.84 55.13 246.88 56.59 102.9% Less: Tax Refunds 5.63 1.29 2.40 0.55 42.6% Total Net Revenue 383.51 88.16 364.67 83.61 95.1% Less: Deductions for "Net Lending" 47.08 10.82 72.37 16.58 153.7% Total Available Net Revenue 336.42 77.34 292.30 67.03 86.9% Total Expenditure 660.36 151.81 487.38 111.73 73.8% Wages and Salaries 339.22 77.98 344.01 78.86 101.4% Non-Wage Current Expenditure 312.84 71.92 136.37 31.26 43.6% PA-financed Capital Expenditure 8.30 1.91 7.01 1.61 84.4% Deficit Before Financing -323.94 -74.47 -195.08 -44.71 60.2% Source: Ministry of Finance website. February, March, and April data preliminary. Note: Budget 2005 projected an average exchange rate of NIS 4.35/US$1; actual average exchange rate for period January-April was 4.362. US dollar equivalent of NIS revenue and expenditure year-to-date shown in above table calculated at actual average exchange rates each month, summed, and then averaged for four months. Percentage comparisons with budget forecasts are calculated in NIS to avoid impact of different exchange rates. Before transferring monthly clearance revenue to the PA, the Government of Israel deducts payments due Israeli utilities by Palestinian municipalities. These deductions are considered as “Net Lending” and have the effect of reducing revenue available to the PA to meet other expenditures. According to MOF, the US$20 million monthly “Social Safety Net” program will not be implemented in the absence of specific funding. June 2005 16 This tightening, however, has been limited to non-wage 2002, medical care prices rose only 0.5 percent.) For the expenditures; wages and salaries, averaging NIS 344.0 January-April 2005 period, Beverages and Tobacco (up million (US$78.9 million equivalent), are actually running 5.4 percent), Furniture and Household Goods (up 5.2 1.4 percent of the level projected in the 2005 budget. percent), and Housing (up 4.9 percent) have driven West Non-wage current expenditures (transfers and operating Bank inflation, with the largest increases compared to the expenditures), which averaged NIS 136.4 million (US$ similar four-month period in 2004. 31.3 million) are being executed at only43.6 percent of budgetary expectation thus far this year. Even subtracting Last year in Gaza, the Food Index represented the second out the $20 million monthly budgeted (but unfunded social largest increase among the components of the consumer safety net program) from the budgetary expectation, non- price index, rising 4.8 percent (compared to a 3.5 percent wage current expenditures are but 60.4 percent of the increase in 2003.) Food costs decreased during the first forecast level. four months of 2005, with the January-April average 1.3 percent above that one year ago. Leading the increases this year are Housing, up 6.9 percent; and Beverages and Tobacco, up 4.8 percent. Of all components, it was the Prices Transport and Communications price index that rose the most in 2004 – up 5.7 percent. This represents a significant Consumer prices, measured in NI shekels, increased in change from 2003, when Transport and Communications both the West Bank and Gaza in the twelve month period prices rose 3 percent. Thus far in 2005, Transport and January-December 2004, by 2.9 percent in the West Bank Communications prices are up 3.7 percent – more than and 3.2 percent in Gaza. For the West Bank, this represents twice the rate of increase registered so far in the overall a reduction from 2003’s inflation rate of 4.3 percent, and CPI for Gaza. a slight increase over the 2.5 percent recorded last year in Gaza. During the first four months of 2005, inflation in As Figure 10 indicates, much of 2004’s increase in overall the West Bank has accelerated just slightly, to 3.0 percent, consumer prices occurred during the first quarter of while in Gaza, it has fallen back to 1.7 percent, compared 2004, followed by modest declines in mid-year and price to the January-April 2004 level (Figure 10). increases in the last three months. The price increases during the last two quarters was driven by increases in Transport and Communications prices. Similar seasonality was observed in 2003. Food prices generally exhibit strong seasonality effects, peaking during the first quarter (see Figure 11). Usually, food prices then decline in the third quarter before rising modestly in the fourth quarter of the year, a pattern likely to continue through 2005. Over the course of 2004, the Food price index increased 1.5 percent in the West Bank and 4.7 percent in Gaza; comparing January-April 2005 to the first four months of 2004, food prices have increased 2.2 percent in West Bank but only 1.3 percent in Gaza. Source: World Bank calculations based on PCBS data. Figure shows three-month moving averages, re-based to Third Quarter (July-September) 2000 = 100. Leading the increase in 2003 in the West Bank was the Transport and Communications price index, up 7.9% last year (compared to 21.7 percent in 2002) and, somewhat surprisingly, Medical Care, up 8.0 percent. (In 2002, the Leading the increase in 2004 in the West Bank was the Transport and Communications price index, up 5.6% last year (compared to 7.9 percent in 2003) and Medical Care, up 5.4 percent. (In 2003, somewhat surprisingly, the West Source: World Bank calculations based on PCBS data. Figure shows Bank Medical Care index up 8.0 percent; in the period three-month moving averages, re-based to Third Quarter (July- from the beginning of the Intifada through December September) 2000 = 100. 17 Excluding food, the consumer price index in the West December 2001 until May 2002 the Shekel weakened a Bank has risen by 3.5 percent in the first four months of further 15.9 percent. As a result, prices of goods, expressed 2005; in Gaza, the non-food CPI increased 2.1 percent so in shekels, imported into Israel from overseas – and by far this year – rates similar to those in 2004, but below extension, into the West Bank and Gaza – mechanically what were witnessed in previous years. (In 2001, non- increased and the overall consumer price index, also food prices rose 4.6 percent in the West Bank and fell 0.3 measured in shekels, increased – not by the same amount, percent in Gaza; in 2002, non-food prices rose 8.7 percent but to the extent that the CPI market basket consists of in the West Bank and by 2.8 percent in Gaza; in 2003, 4.0 imported goods and of services priced in dollars (such percent in the West Bank and 1.8 percent in Gaza.) as rents). With an appreciating shekel – from February 2003 through December 2003 the shekel strengthened When the Transportation and Communication price 9.7 percent against the dollar (11.7 percent since the index is also excluded – transportation prices being shekel’s weakest point in May 2002) – imports become most affected by changes in the closure regime (and cheaper, and inflation measured in shekels lessens (to the also by changes in world energy prices, which can be extent that importers actually pass on these reductions quite erratic) – a clearer portrait of general price changes to consumers). During 2004, the shekel first weakened emerges. Non-food, non-transportation prices in the West against the dollar, depreciating by 4.6 percent through Bank increased 3 percent in 2004 and by 1.2 percent in Gaza (Figure 12). In 2003, non-food, non-transportation May, and then strengthened; by year’s end, the shekel prices rose 2.7 percent in the West Bank and 1.5 percent gained 1.2 percent. In the first four months of 2005 the in Gaza (During 2002, non-food, non-transportation shekel has weakened moderately, losing 0.7 percent in prices rose 4.6 percent in the West Bank and 2.6 percent value against the dollar. Should NIS depreciation again in Gaza. In 2001, these prices rose 2.0 percent in the West accelerate, inflation tendencies might be expected to pick Bank and fell 1.6 percent in Gaza.) During the first four up. months of 2005, this measure of “core inflation” increased 3.4 percent in the West Bank and 1.6 percent in Gaza. Source: Central Bank of Israel. Source: World Bank calculations based on PCBS data. Figure shows three-month moving averages, re-based to Third Quarter While exchange rate movements help explain basic (July-September) 2000 = 100. trends in tradable consumer goods prices (particularly in non-food prices, which are less affected by seasonality) There is also a relationship between price movements in tightened closure during the Intifada period also impacted the West Bank and Gaza and changes in the shekel-dollar consumer prices overall. This effect came through both exchange rate. The depreciation of the Israeli shekel in direct and indirect channels: changes in the transportation 2001 and early 2002 (particularly strong in the period component of the consumer price index (which measures November 2001-April 2002; depreciation is represented transportation prices that have increased directly as a result as an upward movement in Figure 13) and its subsequent of heightened closure) and indirectly through increased appreciation, especially in the period February-July 2003 costs of shipping for producers and distributors, which (downward movement in the figure) explains to a large are in turn passed on as increases in the final price of all extent the acceleration of inflation: during the 2002 and goods faced by consumers in the market place, and would its subsequent slowing down in 2003. be seen in increases in these components’ price indices. From December 2000 to December 2001 the Shekel lost 4.9 percent of its value with respect to the US dollar; from June 2005 18 Thus the tightening of closure associated with the outbreak of the Intifada in fall 2000 affected both Gaza and the West Bank, while Israeli military interventions in Banking Sector the West Bank in autumn 2001 and spring 2002 explain the difference in movement in the transportation price The decline in overall economic activity in the West Bank index in the West Bank and Gaza during these years. In and Gaza since the beginning of the Intifada is clearly effect, these were negative shocks that raised the level evident in the total value of checks cleared by banks of the West Bank transportation price index (seen as operating in the West Bank and Gaza Strip, particularly in upward steps in Figure 14). In 2004, both West Bank and the periods of increased Israeli military operations. During Gaza witnessed proportional increases in transportation the first nine months of 2000, i.e., prior to the Intifada, the prices: 5.6 percent in the West Bank, and 5.7 percent in value of checks presented for clearing averaged US$449 Gaza. January-April 2005 has continued to show parallel million (US$301 million in the West Bank, $148 million increases of 3.7 percent in both Gaza and the West Bank, in Gaza) per month. During the twelve months of 2002, compared to the first four months of 2004. monthly values averaged less than half the pre-Intifada levels: US$148 million in the West Bank; $67 million in Gaza; total, US$216 million. 2004 saw US$289.2 million cleared in the West Bank and US$85 million in Gaza. Compared to the twelve months of 2003, the total value of checks cleared has increased 24 percent (30.6 percent in the West Bank and 7.5 percent in Gaza). However, this apparently strong increase in the West Bank is deceptive, reflecting the depressed volume in the January-April 2003 period. Indeed, the average monthly value cleared in the West Bank during the first four months of 2004 ($207 million) is below the monthly average for the July-December 2003 period ($214 million). Comparing the monthly average thus far in 2004 for Gaza with the average monthly level recorded during Source: World Bank calculations based on PCBS data. Figure the second half of 2003 shows no change ($80 million). shows three-month moving averages, re-based to Third Quarter (July-September) 2000 = 100. Source: Palestinian Monetary Authority (PMA). The Palestinian banking sector weathered the difficult economic setting of recent years by maintaining their very conservative investment positions. To this day, banks remain very liquid with substantial placements overseas and in the West Bank and Gaza, increasing their liquidity ratios since September 2000 at the expense of lending to the resident private sector. 19 By end-March 2005, 18.5 percent of the combined assets of commercial banks operating in the West Bank and Gaza were held in cash or deposits with other Palestinian banks; a further 42.7 percent of assets were held as deposits in foreign banks. Lending to the private sector represented 19.2 percent of total assets. These represent significant changes in asset allocation compared to September 2000, when 14.3 percent of total assets were maintained in cash and local bank deposits, 47.6 percent were in deposits with foreign banks, and 22.1 percent in private sector loans (Figure 16). While it is quite probable that the quality of bank’s loan portfolios suffered (with non-performing Source: Palestinian Monetary Authority (PMA). loans having increased and some collateral having been destroyed as the result of military operations), the low Resident private sector deposits witnessed a considerable percentage of loans to total assets mitigated solvency decline in the first two months of the Intifada in both concerns for most banks. the West Bank and Gaza; however in subsequent months different patterns emerged. In the West Bank, deposits levels quickly recovered; from May 2001 to April 2002 their level was essentially as in September 2000. Further growth in the second quarter of 2002 was followed by another period of stability until April 2003; over the next twenty-three months deposits have continued to grow, crossing the $3.0 billion level in February 2005. By end-March deposits stood 17 percent above September 2000 (Figure 18). Source: Palestinian Monetary Authority (PMA). Along with the increase in liquid assets, commercial bank lending activity declined considerably during the first two years of the Intifada, and is only recently beginning to climb. This reflected both lower demand on the part of borrowers and greater risk aversion on the part of bankers during a period of economic downturn and political uncertainty. In such a climate, the granting of Source: Palestinian Monetary Authority (PMA). new credits was scaled back and existing lending and overdraft facilities were rolled-over far less automatically. In Gaza, deposits stood at $1.13 billion prior to the More recently, increases in lending to the resident private Intifada, declining to $1.0 billion at end-2000. In 2001, sector have been noted. From its low point in March they fell an additional 18.5 percent to end the year at 2003, when the stock of credit outstanding was US$737 $814 million; 2002 saw further decline in the first quarter million, lending has increased; at end-March 2005, the followed by relative stability, ending the year at $752 stock amounted to just over US$1 billion. Nevertheless million. 2003 witnessed a return to deposit growth that this still represents a 5.7 percent decline from pre-Intifada continued largely uninterrupted through December 2004, September 2000, when US$1.06 billion in credit was closing that year at $976 million. The first quarter of 2005 outstanding (Figure 17). has witnessed some fall-off; at end March, total deposits in Gaza were $952 million, an amount 15 percent below the pre-Intifada level at end-September 2000 (Figure 19). June 2005 20 The difference in deposit behavior between Gaza and the The difference in deposit behavior between Gaza and the West Bank likely reflects the higher rates of unemployment West Bank likely reflects the higher rates of unemployment and poverty, and hence lower savings, in Gaza as well as and poverty, and hence lower savings, in Gaza as well as the fact that West Bank residents have greater family ties the fact that West Bank residents have greater family ties abroad (primarily Jordan), a source of financial transfers abroad (primarily Jordan), a source of financial transfers and support. and support. Source: Palestinian Monetary Authority (PMA). 21 WBG: The Economy and Fiscal Developments1 By the International Monetary Fund In the monetary sector, demand deposits with commercial banks grew by about 5 percent, while credit to the private The Economy and Monetary sector rose significantly, by about 24 percent in 2004. Sector The increase in credit has been mainly in response to an increase in demand for personal loans. Commercial banks Developments have increased their lending to individuals, including real estate-related loans, using personal income streams Economic activity in WBG remains volatile and is highly (wages) along with other personal guarantees as collateral2. dependent on political and security developments, including Although the increase in economic activity and the relative closures by Israel and the impact of the separation wall. Real improvement in security have stimulated investment in GDP growth in 2004 is estimated to have been modest at slightly housing, this has not been reflected in an increase in bank above 3.0 percent, driven by the manufacturing sector, trade, loans for investment projects. On the whole, the financial and construction. However, growth remains constrained by situation of commercial banks improved in 2004: banks’ closures and curfews, which have a direct impact on trade asset profitability and quality improved and the share of and private investment, as well as on the employment of non performing loans at commercial banks has decreased Palestinian workers in Israel. Price developments in 2004 from 22 percent at end-2003 to 11 percent in the third have followed those of economic activity. Mainly, prices quarter of 2004. in the housing sector, textiles, and household goods have increased, reflecting increased demand, while prices in Outlook the transport sector receded due to some improvement in security. However, given the predominance of imports in the In 2005, the macroeconomic outlook will continue to CPI basket (49 percent) the appreciation of the New Israeli depend on political developments. Real GDP growth is Shekel against the dollar acted to reduce the overall level of projected at 3.5 percent, slightly over its 2004 level. This prices, such that the average inflation rate has fallen from 4.4 growth assumes, on the one hand, a slight improvement in in 2003 to 3.0 percent in 2004. the security and political environments, and on the other hand, an increasingly adverse effect of the separation In the labor market, although employment of Palestinian barrier on agriculture and on the flows of WBG labor to workers in Israel has fallen by 6 percent, employment Israel. As a result, unemployment is expected to increase in the WBG increased by 5.8 percent in 2004, mainly in slightly. Finally, inflation is expected to continue declining manufacturing and other services. However, this increase in to about 2 percent. employment was lower than the growth in the labor force, which grew by 6.1 percent. As a result, unemployment continued to be high and slightly over its level in 2003, reaching 26.8 percent, with acute unemployment in Gaza, where it reached 36 percent. Here, it is important to note that employment in Gaza actually fell in 2004 by about 4 percentage points, partly because of the closure of the 1 Report prepared by the WBG team - Karim Nashashibi, Joel Toujas Bernate, Eretz Industrial zone and a sharp reduction in access to Dominique Simard and Nisreen Farhan. the Israeli market of Gaza labor. 2 This was facilitated by the 15 percent increase in public sector wages. June 2005 22 Direct tax collection registered a 37 percent increase over 2003, owing mostly to improvements in tax administration. Fiscal developments, Non-tax revenue also contributed to the strong revenue financing and reforms performance. In particular, profits transferred to the budget from the Palestinian Investment Fund (PIF) The PA faces twin fiscal challenges: i) to stabilize the wage rose from US$ 39.2 million in 2003 to US$51.6 million bill and eventually reduce it through the implementation in 2004, reflecting an advance of about US$16.6 million of a civil service reform, and ii) to improve the quality on 2005 profits on top of the $35 million envisaged in of expenditures by redefining priorities and phasing out the 2004 budget. Excluding profit transfers from the PIF a number of activities that are hardly justified under the and the Palestinian Monetary Authority3, non-tax revenue existing severe fiscal constraints. increased by 21 percent. Overall fiscal position in 2004 Expenditure The fiscal stance has been constrained relative The wage bill exceeded budget projections only to the budget target because the strong revenue slightly, but wages of security personnel overshot performance did not fully offset shortfalls in their budget target by 0.4 percent of GDP. Overall, external budget support. The deficit excluding grants the wage bill increased by 17 percent relative to 2003, on was 14.1 percent of GDP in 2004, 3 percentage points account of a carry-over of wage increases linked to the of GDP lower than budgeted, due to a strong revenue new civil service law enacted in the last quarter of 2003, performance and expenditure compression. The grants- as well as to higher civil service and security personnel. inclusive deficit, at 5.1 percent of GDP, was higher than As a result, the wage bill represented about 90 percent of the budget target by 5 percentage points of GDP, implying total gross revenue in 2004, compared with 98 percent in a higher resort to domestic financing than anticipated in 2003. Civil service employees increased by 3,497 between the budget. Nonetheless, the grants-inclusive deficit was December 2003 and December 2004, which meets the lower than the 2003 deficit of 7.4 percent of GDP. 3,500 limit budgeted in 2004. However, the security forces incorporated 427 additional members, compared with an It should be emphasized however, that fiscal consolidation objective of zero net recruitment. This can be explained per se is not an objective in the WBG at this time. On the by a number of security employees who “reemerged” into contrary, if adequate financing were available, the deficit the 2004 payroll, after having taken leave in 2003. The excluding grants and non-wage expenditures would have net increase in employment in the social sectors4 was of been higher, relieving some serious bottleneck in the PA 3,598 persons, including 3,553 for health and education, administrations. The deficit would only narrow over time which represents an 8 percent increase since end- as PA revenue increases with the recovery in economic December 2003. Between December 2003 and October activity to its normal level. 2004, 90 percent of new PA employees joined the health and education sectors, bringing up employment in these Budgetary resources sectors to 35 percent of total PA employees. Revenue performance in 2004 was very strong Non-wage expenditure was 13 percent below the and exceeded budget expectations, mainly due to a budgeted amount, notwithstanding a 35 percent large increase in indirect taxes collected by Israel increase relative to 2003. Non-wage expenditure had on behalf of the Palestinian Authority (PA). Gross to be contained because of shortfalls in financing. The revenue, at US$ 965 million, increased by 27 percent, bulk of the adjustment fell on operating expenditures, from 21.5 percent of GDP in 2003 to 25.4 percent in 2004, and to a lesser extent, on transfers. There was a steady outperforming budget projections by about 3 percentage increase in transfers from February to August and during points of GDP. The increase in PA indirect tax revenue the last quarter. One third of total transfers was allocated collected by Israel was mainly due to improvements to Financial reserves5, about 30 percent to social affairs in operation and governance at the petroleum agency, along with strengthened tax administration. Sales by the PA petroleum agency in the WBG expanded substantially 3 US$4.2 million in 2003 and US$5.9 million in 2004. due to a more competitive price policy. Petroleum excise 4 Includes the Ministries of Education, Health, Social Affairs Justice and the High Judiciary Council. revenue increased by 85 percent between 2003 and 2004, 5 An account under the authority of the Ministry of Finance to meet unplanned while customs and VAT revenue rose by 21 percent and expenditure contingencies. Much of these reserves were spent during the 27 percent, respectively. last quarter for relief efforts in Gaza following the Israeli incursions. 23 and education, and 22 percent to pensions and prisoners, Following favorable Israeli court decisions pertaining in equal proportions. to court attachments of PA revenue on behalf of claimants, the Government of Israel released a net Regarding net lending, the PA continued to cover amount of US$ 97 million in withheld revenue, utility bills of the municipalities for an amount of including gross disbursements of US$ 120 million US$ 157 million in 2004, exceeding the budget target in the last quarter. These disbursements allowed the of US$ 120 million6 by about 0.8 percent of GDP. This Ministry of Finance to pay salaries at a time when external net lending to municipalities was, however, 9 percent budget support was low. The stock of withheld revenue, lower than in 2003 It covered primarily outstanding utility which had reached US$ 245 million by end August 2004, payments owed by municipalities and public agencies was reduced to US$ 97 million at end-2004. An additional to Israeli providers, which, if unpaid, accrue interest NIS50 million (US$11.5 million) were released at end penalties and could give rise to power cuts. February 2005. Further releases may take longer to occur, Total VAT receipts rose by 20 percent in 2004, while since the most contentious cases were left to the end. VAT refunds remained at the 2003 level. In fact, the A significant amount of additional financing was proportion of VAT refunded out of total VAT revenue provided by banks, which extended US$ 134 million declined from about 6 percent in 2003 to 3 percent in 2004. in new credit to the PA (about 3.5 percent of GDP), This is explained by the elimination of VAT deductions a 57 percent increase relative to 2003. This exceeds for foreign-financed projects, which is covered by the the range which commercial banks feel comfortable with, Authority since the beginning of 2004. This partly also and they expect some repayment in 2005. indicates the possibility that the PA may have accumulated additional VAT refunds arrears in 2004, due to the scarcity To compensate for shortfall in external budget of financing resources. support, financing was also provided by a buildup of arrears. The stock of arrears can be measured by Capital spending financed by the PA (US$19 million) uncashed checks issued by the Treasury (about US$400 remained unchanged relative to the 2003 outturn. million end 2004) and “unpaid bills” by line ministries Incomplete data on capital spending by donors in 2004 (about US$40 million). The stock of uncashed checks and budgeted at $250 million for that year is not yet increased in 2004 by US$118 million. Data on unpaid available. bills is not yet available but no significant increase was expected in 2004. Included in the stock of uncashed Financing checks was about US$165 million of arrears due to the Gaza Pension and Insurance Corporation by end 2004, External budget support, at US$352 million, fell short with a US$40 million increase over 2003. In addition, by of the ambitious budget target of US$650 million, but end 2004, the MoF owed US$80 million to suppliers of was 35 percent higher than in 2003. The World Bank fuel to the Gaza electricity generating company. Trust Fund contributed the bulk of the budget support grants (US$ 118 million), and also disbursed US$ 67 million through the ESSP. The EU contributed with US$ Key Reforms in the second half of 2004. 50 million and the United States with US$20 million. Saudi The PNA Cabinet’s decision on retiring civil Arabia provided US$ 77 million, as it did in 2003, fulfilling servants older than sixty years old continues to be all its commitments till end September 20047. Many Arab implemented in accordance with the Civil Service countries which had granted budget support in 2003 Law. A draft Unified Pension Law approved by the Council (Algeria, Bahrain, the Emirates, Kuwait, Qatar) did not do of Ministers in August 2004 has been submitted to the so in 2004. In some cases, political constraints resulted PLC. The draft law sets out the parameters, institutions, in sluggish disbursements. For instance, the Kuwaiti and management of a unified and sustainable public parliament needs to approve any budgetary support to scheme for both the civil service and the security forces. the Palestinian Authority. The law passed its first reading with substantive changes introduced by the PLC with the view of increasing benefits and tilting the balance between defined benefits and contributions toward defined benefits. Moreover, benefits 6 An exchange rate of NIS 4.7 per dollar was used when the budget was published. At the actual exchange rate the budget would have been $128 were increased substantially by PLC members relative million. to the government submission with the result that the 7 The Beirut Summit in March 2004 extended budget support for Arab scheme envisaged in the revised law may be financially League Countries till end September 2004. Beyond that date no commitment was made. unsustainable. The next step will be for MOF to present to June 2005 24 the PLC its own position and reach a compromise before the second reading. At the same time, a separate draft pension law for security personnel over 45 years old was Outlook for 2005 adopted on December 1, 20048. The new law provides for retirement benefits equivalent to almost 100 percent The 2005 budget assumes a continued strong of salary for older security personnel in the 45 to 60 year revenue performance and a wage bill in line with old segment. This reform, considered by the authorities the “wage bill containment plan”. External budget as essential in overhauling the security apparatus, is more support requested from the donors of about US$ 660 costly than initially intended under the Unified Pension million assumes full funding of operational expenses and Law9. Its implementation will require funding from the transfers including ongoing pension liabilities and the donor community. funding of substantial retirements by security personnel. In addition, Minister Fayyad is planning to establish a Improvements in internal audit procedures now broad social safety net scheme following his discussions allow the Minister of Finance to exercise tighter with various parties and international donors, for which control over budgetary expenditures. In July 2004, he is requesting US$ 240 million. Actual spending on the MoF issued an instruction manual detailing the criteria this scheme will only materialize to the extent external to be followed regarding procurement procedures for financing becomes available. operations and maintenance spending. In September a cabinet decision placed all financial controllers of Total revenue is projected to increase by 8.4 percent budgetary spending agencies under the authority of relative to 2004 (in NIS terms), with a strong increase in the MoF. In October, most ministries harmonized their domestic revenue (by about 10 percent) and a 7 percent ledgers following the distribution of a common computer increase in gross clearance revenue. The increase in software. Finally, Treasury regulations spelling out a domestic revenue would reflect the implementation of reporting methodology for expenditure commitments the new income tax law, as well as tax administration and payments have been completed. The proposed enhancements. The overall increase would be slightly codification of budgetary and treasury procedures is larger than nominal GDP growth, therefore resulting in a being reviewed by Fund staff. further increase in the revenue to GDP ratio. It is expected that the administrative reforms in tax administration which The new income tax, which benefited from IMF took place in 2004 will yield further benefits in 2005. input, became law effective January 1, 2005. It has only three rates (8, 12, and 16 percent) for individuals; On the expenditure side, the total wage bill is in line corporations will be subject to the 16 percent rate. The with the wage bill containment plan. It is projected new income tax has very few exemptions and is user to increase by 4.5 percent relative to 2004 (in NIS terms). friendly. It should broaden the tax base and result in Civil service employment is assumed to increase by higher income tax revenues in 2006. Other bills have been 2,874 people. Assumptions underpinning budgetary signed by Interim President Rawhi Fattouh toward the end appropriation for the security services wage bill (salary of 2004, including a law governing financial institutions and employment) imply that there would not be any which has established a Financial Market Authority to net increase in security employment and if there should regulate financial markets, insurance companies, and the be a salary increase, it would be offset by retirements. use of various financial instruments. Minister Fayyad indicated in the budget speech that the salary increase for security personnel recently adopted by the PLC would be implemented only in the context of restructuring security services, including the retirement or retrenchment of enough people to at least offset the salary increase. Consistent with this view, the transfer component in the budget includes US$35 million of payments of pensions to security personnel. In any event, staying within the overall envelope of a 2,000 net increase in total PNA employment, as assumed in the wage bill containment plan, would require a net decline in security personnel of at least 900. 8 Those under 45 years of age are covered by the Unified Pension Law. Non-wage spending is projected to increase by 43% 9 Benefits are 2.867% of income per year of service in contrast to 2% for the relative to 2004. This is mainly driven by a 50% increase Unified Pension Law. 25 in transfers including US$ 35 million in new payments of and budgetary operations through the adoption of the pensions to security retirees but excluding the US$ 240 “Palestinian financial system”, MOF has tendered contracts million on a social safety net for which MOF is seeking to international auditing firms, to conduct external audits separate financing. This social safety net spending is of selected public expenditures. Bids by these firms have meant to be quick disbursing, targeting the unemployed been already received. This is an unprecedented measure as a proxy for the poor. Given that, about half of the to fill in the gap in the auditing apparatus, until a fully population has now fallen below the poverty line and functional external audit institution is established. that unemployment has risen to 26% after the closure of the Eretz Industrial Zone and the sharp reduction in To the extent that the political environment continues work permits for Israel, Minister Fayyad feels that an to improve, further resources may be available extraordinary relief effort financed by donors needs to be relative to that of recent outturns, which would help made. However, no disbursement would be made under cover additional liabilities. It is hoped that, based this program unless it is financed externally. In his budget on assurances that President Abbas received from Gulf speech, Minister Fayyad stressed that in subsequent years countries during his recent visit and the London Meeting he did not want this social safety net to be dependent on March 1, 2005 (and the follow-up visit by the Minister on external assistance or become a burden on budget of Finance), support from Arab donors would increase resources. Consequently, the Ministry of Labor and Social significantly in 2005. In particular, Kuwait promised to Affairs will develop a self-financing unemployment discharge all of its commitment to the PNA under the Arab compensation scheme through employee and employer League scheme (estimated at US$ 150 million) before the contributions. March 22nd Arab Summit. It is estimated that the GCC countries (excluding Saudi Arabia), Libya and Algeria In its work on a possible new conditional cash transfer have undisbursed commitments of about $500 million. scheme, the World Bank estimates that a budget of about Larger contributions from Arab donors are particularly US$ 87 million in cash transfers would be sufficient to bring important considering that releases of withheld clearance 15 percent of the population, currently living in poverty, revenue by Israel will be much lower, as indicated above. above the poverty line. This scheme, if adopted, would Moreover, banks are expecting net repayments of bridge be integrated with the unemployment compensation loans to the PNA, unless prospects for external assistance scheme. improve significantly. Overall, this would leave limited resources to repay arrears, including those due to the The other category of nonwage expenditure, operations Pension Fund. and maintenance, is at about the same level as in the 2004 budget (in NIS terms), which is about 32 percent above The authorities are considering a set of measures to the 2004 outturn. be implemented only if financing is identified. The key expenditure reforms pertain to pensions, restructuring The 2005 budget includes a significant drop in net of the security apparatus, and funding social safety nets. lending to cover bills of municipalities and the Gaza With respect to governance, the PNA is also committed electricity distribution company. Its amount is projected to establishing a legal framework and systems to combat to decline by about US$30 million (at constant exchange corruption more effectively. A restructuring of the rate). Concrete policy measures to underpin this projection General Control Institute and the appointment of a new need to be adopted. Director should establish a professional, independent Finally, the budget projects the release of the and transparent external audit institution. New directors remaining stock of previously withheld clearance are also expected to be appointed to the General revenue, for an amount of about US$90 million. It is Personnel Council, the Capital Markets Authority, and assumed that these disbursements will be used to repay the Palestinian Monetary Authority. Other medium-term US$23 million of arrears and US$69 million of debt to reforms may be identified following the conclusion of a commercial banks. About US$35 million of withheld tax Public Expenditure Review (PER) the PNA is committed revenues, however, are still attached by Israeli courts to undertake with assistance from the World Bank. The decisions. PER will contribute to redefine expenditure priorities and improve the delivery of government services within On the reform side, budgetary policy aims at a given budgetary envelope. In addition to the short- fully implementing the unified pension scheme term financing required for these reforms, consideration and moving forward with harmonizing the should be given to their medium and long term impact on computerization of all tax departments in the the fiscal position. MOF. Together with the codification of all Treasury June 2005 26 Table 1: West Bank and Gaza: Central Government Fiscal Operations, 2001-05 (in millions of U.S. dollars, unless otherwise stated) 2001 2002 2003 2004 2005 Budget Prel. Budget 7/ Revenue 275 296 762 858 965 1.078 Gross domestic 275 224 291 327 347 396 Tax revenues 183 141 167 172 191 ... Non-tax revenues 92 82 124 155 156 ... Gross monthly clearance 1/ 0 72 472 531 618 682 Expenditure 1.117 1.017 1.104 1.384 1.344 1.592 Gross wages 678 642 743 866 871 938 Civilian 426 404 456 548 538 ... Security 225 239 288 318 333 ... Non-wage expenditure 417 352 324 500 437 629 o.w operating ... ... 124 235 180 244 o.w. transfers (incl pensions) ... ... 201 265 257 385 PA financed capital spending 22 23 36 19 36 25 Net lending 2/ 0 173 125 157 130 VAT refunds 2 5 16 15 16 20 Balance -845 -726 -531 -667 -551 664 External budget support excluding social safety net 530 467 261 680 353 664 External budget support including social safety net /3 530 467 261 680 353 903 Balance including budget support -315 -259 -270 -3 -198 -1 Total other financing 315 259 270 3 198 0 Gross withheld clearance revenues 4/ 0 82 300 188 97 92 Net change in arrears (- = repayment) 232 65 -115 -188 -32 -23 Net domestic bank financing 83 115 85 3 134 -69 (in percent of GDP) Gross revenue 7.4 9.4 21.0 25.0 24.7 26.3 Expenditure 5/ 29.9 32.4 30.3 40.4 34.4 44.6 wages 18.2 20.4 20.4 25.3 22.3 22.8 non wages 11.2 11.2 8.9 14.6 11.2 21.2 Net lending a nd VAT refunds 0.1 0.2 5.2 4.1 4.4 3.7 Deficit before grants -22.6 -23.1 -14.6 -19.5 -14.1 -22.0 Deficit after grants -8.4 -8.2 -7.4 -0.1 -5.1 0.0 Memorandum items Exchange rate NIS/$ (period average) 4.21 4.74 4.54 4.48 4.48 4.35 Government employment (end of period) 6/ 123.450 122.329 129.182 ... 134.595 o.w. civilian 70.034 70.157 72.542 ... 76.433 o.w. security 53.416 52.172 56.640 ... 58.162 Ministry of Finance and IMF estimates 1/ Includes payments deducted for dues owed to the Israeli water company Mekorot, while the budget figure is on a net basis. 2/ Payments deducted at source by GOI from disbursements of withheld clearance revenue for owed bills by Palestinian municipalities. 3/ In 2005, includes US$240 million to finance unemployment compensation. 4/ Monthly figures include deductions by GOI for utility bills, while the budget figure is on a net basis. 5/ Comprised of gross wages, nonwage expenditure, and PA financed capital spending (excluding donor-financed). 6/ There is a break in the series between 2002 and 2003 due to computerization of the payroll and the elimination of double counting. 7/ Budget valued at actual exchange rate. The exchange rate initially used was NIS 4.70 per USD. 27 Table 2: Details of external budget support in 2003-05 May 6, 2005 Quota as share Yearly 2003 2004 January - April in Arab League commitments 2005 Budget (percent) (in millions of US dollars) Total budget support 261 352 198 Multilateral assistance 229 332 198 Arab countries 100 662.4 131 98 111 Saudi Arabia 14 92.4 77 77 … Kuwait 14 92.4 15 … 40 UAE 7 46.8 21 … … Libya 12 79.2 1 14 … Qatar 5 33.6 5 … 11 Bahrain 2 13.2 3 … … Algeria 8 52.8 9 … 60 Tunisia 2 9.6 … 2 … Oman 2 13.2 … … … Iraq 10 66.0 … … … Egypt 9 60.0 … … … Morocco 5 33.6 … … … Other Arab 10 69.6 … 5 … European Union 58 50 … World Bank (ESSP) 39 67 13 World Bank Trust Fund … 117 74 EU … 56 25 WB … 20 … Norway … 12 16 Canada … 7 … UK … 12 … Japan … 10 30 France … … 3 Bilateral assistance 32 20 … Source: IMF staff estimates and projections June 2005 28 Land Administration Project Land and property in West Bank and Gaza (WBG), as in the quality of services offered by the land registration many parts of the developing world, is a common means offices, tackling any constraints limiting the public’s use of storing wealth. Over the years, secure land tenure of the registry, and enhancing awareness of its benefits so and property rights have taken on greater historical and as to activate demand for registration. cultural significance for Palestinians. Nevertheless, it is estimated that nearly 25 percent of the court disputes Currently, there is an abundance of laws governing land in the West Bank today are land related. All of these administration in WBG, which have been introduced over factors have made land titling, registration and efficient a long period of time following different legal regimes, administration a matter of paramount importance to and which have not been updated or consolidated since. Palestinians. Consequently, in the Palestine Development Indeed, some laws date as far back as the 1920s and many Plan (PDP), the PA emphasized that strengthening land laws come in two different sets for the WBG, including management and surveying capacity is one of its top the law on eminent domain (Law No. 24 of 1943 for Gaza, priorities. Similarly, the Socio-Economic Stabilization Law No. 2 of 1953 for the West Bank, and Decree No. Plan sought donors’ support for building the capacity of 73 of 1996) and property rights settlement (Law No. 9 of PA agencies in the areas of land policy and land planning 1928 for Gaza). In addition, the legal bases of land and and development. property registration in use in WBG are many: Settled (i.e. gone through the Jordanian Taswieh or titling settlement Much still needs to be done in terms of land property process), British (based on ground survey), Ottoman rights registration in WBG. Although close to 90 percent (Turkish Metes and Bounds Descriptions), Sporadic Land of land in Gaza has been registered, only about 28 percent Registration (labeled as Tasjeel Jedid), and Condominium of the land in the West Bank is registered. A systematic (new since the enactment of the new law No 1 of 1996). land titling program is therefore critically needed in the The result is a fragmented, incomplete and sometimes West Bank. The problem, however, is that 53 percent of conflicting legal framework, which makes it difficult to the land in the West Bank is under Israeli administrative operate an efficient and equitable land administration control (Area C) and physical movement of Palestinians in system. Over the past few years, there has been an effort to the rest of the West Bank (Areas A and B) is constrained deal with this confusing legal situation, with some revised by movement restrictions. Moreover, currently only about laws currently under the Palestinian Legislative Council ten percent of all transactions are registered with the (PLC) review (those dealing with land and buildings tax, Palestinian Land Authority (PLA), the main PA institution notary public, and land survey), but much still needs to mandated of such role. The rest use the “Kateb-el-Adel”, be done. which functions effectively as an expanded Notary Public (NP). One problem with the current reference law (decree) for the certification of the NP is that it does not require any legal qualifications for the job. The public appears to be using their services because of immediate convenience and because registration with the PLA is cumbersome and costly. As such, at this stage, the critical issues are building the necessary legal and technical capacity for titling adjudication, surveying and registration, improving 29 Until very recently, the registration and surveying component would support: (i) institutional development functions used to be housed in two different executive to the PLA to be able to undertake its mandate efficiently cabinet level agencies: the Ministry of Justice dealing with and effectively; (ii) strengthening of education programs land registration, and the Ministry of Housing dealing in land administration and management and surveying; with land surveys. There was little coordination between (iii) strengthening private sector capacity in surveying; both ministries, and this split was considered as one of (iv) public awareness and community participation; and the main obstacles of the land sector. The two functions (v) project management support for both the MOP and were consolidated in mid-2003 under the Palestinian the PLA. Land Authority, which was set up as an independent government agency reporting directly to the President’s This project is being financed by the World Bank (US$3.0 Office. The problem, however, is that the PLA is still million), the Government of Finland (US$2.1 million – of without the necessary resources and capacity to undertake which US$1.6 million will be administered by the Bank) its expanded mandate and bring together various interests and USAID (US$0.9 million at minimum). All parties have within the Government. Similarly, the Ministry of Planning highlighted the need for a clear framework to ensure (MOP), which is responsible for policy formulation efficient and effective use of resources and activities. including for land, has not yet effectively exercised its The implementation of this project will be by both the mandate in the land sector, with the result that there are MOP and the PLA, respectively through a Policy Research no established efforts or procedures for policymaking in Unit at MOP and Project Management Team at the PLA. this area. In particular, a Project Management and Coordination The objective of the Land Administration Project is to Committee (PMCC) at senior level of both institutions assess/learn the extent of commitment and readiness of will oversee the implementation assisted by a Project the Palestinian Authority to reforming land administration Management Teams located in both institutions. by introducing policy, legal and institutional changes to The MOP will be responsible for implementing Component achieve efficient procedures for the issuance of land titles 1 related to Land Policy Formulation and Development of and registration of property transactions, and transparent Regulatory Framework, and will closely collaborate with processes for the management and disposal of public land. the PLA in Component 3 related to the Inventorying of It is the first phase of a long-term Land Administration Public Land, given its capacity and ongoing efforts in this Program, which aims at enhancing economic growth field. The policy formulation process will be overseen by improving land tenure security and facilitating the by a high-level Land Policy Task Force, which was development of efficient land and property markets in established through a Cabinet decision on December 4, rural and urban areas through the development of an 2004 and will be chaired by MOP. The LPTF is comprised efficient system of land titling and registration based on of representatives from Ministries of Local Government, clear, transparent and coherent policies and laws and Finance, National Economy, Agriculture, Public Works supported by an appropriate institutional structure. and Housing, Justice, and the PLA). The mandate of The project will include the following components: the Task Force is to review policy recommendations, Component 1: Land Policy Formulation and Development oversee the policymaking process, its adoption and of Regulatory Framework: This component would support recommendations and take decisions to be forwarded to consensus building, though consultations and public Cabinet for approval. hearings, for the formulation of a national land policy document and an action-plan for implementation, and the revision of the regulatory framework governing land administration. Component 2: Piloting of Systematic Land Registration and Modern Land Office: This will include: (i) piloting land surveying, systematic titling and registration in areas A or B under PA jurisdiction; and (ii) pilot establishment of modern PLA offices in two locations. Component 3: Piloting of Public Land Inventory and For more information please contact: Management Strategy: This component would support Mr. Ibrahim Dajani the establishment of an inventory of public land in areas Operations Officer and Task Team Leader A and B in two municipalities and the development of World Bank Office in Al-Ram a public land management strategy and instruments. Office Phone: (02) 236 6553 Component 4: Institutional Development: This Cell Phone: (050) 559 9183 June 2005 30 A World Bank Funded Project Palestinian NGO Project – Phase II Developmental Grant A Success Story Launched in 2001, The Palestinian NGO Project (Phase II) Muhammad was able to: is a USD 21 million initiative funded by the World Bank, the Form an association called Al-Amal Association for Governments of United Kingdom, and Italy. The Project is the Deaf. aimed at strengthening the capacity of the NGO sector to provide sustainable services to poor and marginalized The Association was registered in 1994 after so many Palestinians. PNGO II works in three main areas: building problems with the Israeli Civil Administration at the time. strong community organizations; delivering needed What distinguishes the Association is that the whole board and urgent services; and connecting people and is composed of deaf members. organizations. Secure some initial funding from the local commercial One of the PNGO II’s components is the Development enterprises Grants Programs; a Program aimed at supporting Encourage deaf members to start working on income experienced NGOs manage and upscale medium-scale generation for the Association through embroidery programs that have a strong sustainability potential. and handicrafts Amongst the nineteen recipients of development grants is the Amal Association for the Deaf. Attached is a snapshot Start a school and convince the Ministry of Education on Mr. Mohammad Nazzal, the founder and Director of to assist them through supporting five teachers Al-Amal Association. Obtain a US$ 243,906 grant from the Welfare Association Consortium PNGO II for the construction MUHAMMAD NAZAL FROM QALQILIA and equipping of a vocational centre, based on a Muhammad Nazzal, a citizen of Qalqilia is like every very well-prepared proposal Palestinian man, except that he is also one of approximately Start a kindergarten for 150 speaking children - a 80,000 Palestinians who are physically disabled. To be great source for income generation. more specific, Muhammad lives with a hearing disability Where does he want to go? Muhammad’s story is one of courage, passion, persistence and success. It shows us that everyone can make a His main objective now is to develop the vocational difference in his/her own community, no matter what the centre into a formal educational college that would obstacles are. provide higher educational opportunities to the deaf students. At the age of six, Muhammad traveled to Egypt where he stayed for 12 years. He came back to Palestine with a Professional Diploma in sign language and printing. Immediately after his return, he realized the importance Thanks to Muhammad and to Al-Amal Association for the of taking action to assist his fellowmen in becoming proud Deaf, many deaf people in Qalqilia, can lead a “normal” life and productive citizens ….. now. 31 June 2005