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IMF 'pessimistic' about Palestinian economy

April 9, 2014 at 11:15 am

IMF Representative in Palestine, Dr Udo Kock, expressed his pessimism regarding prospects of the Palestinian economy, which he believes will be determined by progress in the political arena.

Kock delivered his remarks during a lecture on Wednesday hosted by The Palestine Economic Policy Research Institute- MAS in cooperation with the International Monetary Fund-IMF, titled “Between a Rock and a Hard Place: Recent Developments in the Palestinian Economy”.

Kock pointed out that economic growth has experienced decline over the past three years, which in turn increased unemployment rates. The financial status of the Palestinian Authority (PA) has witnessed relative improvement, he said, but it is not enough. The government’s debts have been accumulating, reaching the highest rates in 2013. He warned of the dangers of accumulated bank debts which would genuinely affect the economic situation. Most importantly, he argued, the PA should continue undertaking its responsibilities.

“The IMF is pessimistic regarding the situation in Gaza and the West Bank,” Kock said, adding that growth rates this year reached 2.5%. He expected the same rates for next year if the status quo remains intact and if negotiations continue for another year.

According to Kock, the 2014 budget carries some risks in light of a funding gap of up to $380 million, and the reforms expected from the government, such as reducing fuel subsidies and bolstering resources through an effective application of the tax system and improving electricity tax collection.

If budget deficit continues to rise, it will reach a maximum limit, and there won’t be a quick solution. However, the government can implement measures on the medium term (3-5 years) including reforms in the pension system, civil service, and the government’s transition from consumption to investment.

Kock pointed out that a major portion of donor aid goes to salaries, which is not sufficient to build an economic base. He added that the government should invest in development and investment of the education and energy sectors, and that Palestinian resources are not used effectively, such as Gaza’s gas.

Concerning the role of the IMF vis-à-vis Israeli barriers, Kock said a committee was established two years ago for that purpose, and that cooperation with the Israelis is a prerequisite for achieving positive results.