West Bank and Gaza Strip

Economic Developments in the Five Years Since Oslo

Patricia Alonso-Gamo

Max Alier

Thomas Baunsgaard

Ulric Erickson von Allmen

International Monetary Fund

1999

© 1999 International Monetary Fund

Production: IMF Graphics Section

Cover design: Phil Torsani

Typesetting: Alicia Etchebarne-Bourdin

Cataloging-in-Publication Data

West Bank and Gaza Strip: economic developments in the five years since Oslo/ Patricia Alonso-Gamo … [et al.]—Washington, D.C.: Middle Eastern Department, International Monetary Fund, 1999.

• p. cm.

• Includes bibliographical references.

• ISBN 9781557758279

1. West Bank—Economic conditions. 2. Gaza Strip—Economic conditions. 3. West Bank—Fiscal policy. 4. Gaza Strip—Fiscal Policy. 5. Banks and banking—West Bank. 6. Banks and banking—Gaza Strip. 7. Infrastructure (Economics)—West Bank. 8. Infrastructure (Economics)—Gaza Strip. I. Alonso-Gamo, Patricia. II. International Monetary Fund. Middle Eastern Dept.

HC415.254.W37 1999

Price: $19.00

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Contents

• Preface

• Definition of Acronyms

• 1. Overview

• 2. Economic Developments in 1994-98

  • Introduction

  • Overall Macroeconomic Developments

  • Factors Explaining the Poor Economic Performance

  • Conclusion

• 3. Fiscal Developments Since Oslo and Future Challenges

  • Introduction

  • Fiscal Developments

  • Progress in Institution Building

  • The Challenges Ahead

• 4. The Reemerging Banking Sector

  • Introduction

  • Growth of the Banking System

  • The Role of the PMA and the Banking System in Economic Development

• 5. Donor Assistance and the Public Investment Program

  • Introduction

  • Donor Assistance

  • The Role of Public Investment

  • Development Planning

  • Future Prospects and Challenges

• 6. The Palestinian Labor Market Since Oslo

  • Introduction

  • The Palestinian Labor Force

  • The Unemployment Problem

  • Employment of Palestinians in Israel

  • Public Sector Employment

  • Future Prospects and Challenges

• 7. Social Issues and Social Expenditure

  • Introduction

  • Household Income and Expenditure

  • General Socioeconomic Conditions

  • Implications for Social Expenditure

  • Future Prospects and Challenges

• 8. Medium-Term Economic Prospects: Could the Future Be Brighter?

  • Introduction

  • The Challenge from Demographic Trends

  • An Illustrative Medium-Term Scenario

  • Factors for Higher Medium-Term Growth

  • Conclusion

• Annex: Pension Issues

• Boxes

  • 2.1 Economic Data

  • 2.2 Structure of the Economy

  • 2.3 Competitiveness

  • 2.4 The Effects from Closures

  • 2.5 The World Bank Medium-Term Projections in 1993

  • 3.1 The Revenue Clearance System

  • 3.2 Public Sector Employment

  • 3.3 The New Civil Service Law

  • 3.4 Public Expenditure Review

  • 4.1 Bank Licensing and Prudential Regulations

  • 4.2 The Payment System

  • 4.3 The PMA Law

  • 4.4 The Palestinian Securities Exchange

  • 4.5 Seigniorage

  • 5.1 Private Sector Financing of Infrastructure Investment

  • 5.2 Institutional Developments in the Planning Process

  • 6.1 Labor Force Survey: Concepts and Definitions

  • 6.2 The Palestinian Labor Force in Numbers

  • 6.3 Labor Market Institutions

  • 6.4 Wage Structure and Real Wage Changes

  • 6.5 Employment-Generation Projects

  • 7.1 Population Data

  • A.1 Common Terms Used in Characterizing Pension Systems

  • A.2 Summary of Present Pension Schemes for Public Employees

  • A.3 The Design of Pension Systems

• Figures

  • 2.1 Real GDP and Real GNI

  • 2.2 Growth Performance

  • 2.3 Developments in Investment, Aid, and Employment

  • 2.4 Inflation

  • 2.5 Inflation and Labor Flows

  • 2.6 Real Per Capita GNI

  • 3.1 Current Revenue and Expenditure of the PA

  • 3.2 Comparison of Tax Revenue

  • 3.3 Comparison of Current Expenditure

  • 3.4 Comparison of Public Sector Wage Bill

  • 4.1 Credit and Deposit Ratios

  • 4.2 Currency Composition of Bank Deposits and Credit

  • 5.1 Comparative Annual Aid Disbursements, 1994-96

  • 6.1 Labor Force Data

  • 6.2 Employment in Israel and Public Sector Employment in the PA

  • 7.1 Real Household Consumption, 1995/96-97

  • 7.2 Household Consumption by Region, 1997

  • 7.3 Household Consumption by Source of Income and Level of Education, 1997

• Tables

  • 2.1 Selected Economic Indicators

  • 2.2 National Accounts

  • 3.1 Fiscal Operations of the Palestinian Authority

  • 3.2 Current Fiscal Revenue of the Palestinian Authority

  • 4.1 Consolidated Banking System

  • 5.1 Disbursements to the PA, UNRWA, and NGOs Through the Development Plan

  • 5.2 Disbursements Through the Development Plan by Donor

  • 5.3 Disbursements Through the Development Plan to the PA, UNRWA, and NGOs by Category

  • 5.4 Disbursements Through the Development Plan to the PA, UNRWA, and NGOs by Sector

  • 6.1 Population, Labor Force, and Employment

  • 6.2 Employment by Sector

  • 6.3 Palestinian and Foreign Workers in Israel

  • 6.4 Public Sector Employment

  • 7.1 Social Indicators for Selected Middle Eastern Countries

  • 7.2 Immunization and Malnourishment Among Children, 1996

  • 7.3 School Attendance by Age Group, 1995

  • 7.4 Public and Private Schools

  • 7.5 Students at Primary and Secondary Level

  • 7.6 Number of Students Attending School

  • 7.7 Students Attending One-Shift and Two-Shift Schools

  • 7.8 Housing Situation, 1997

  • 7.9 Housing Characteristics, 1995-97

  • 7.10 Health Insurance Coverage

  • 7.11 Social Expenditure

  • 8.1 Illustrative Medium-Term Scenario

• References

Preface

The authors are grateful for helpful comments and suggestions from a large number of IMF colleagues, in particular for the detailed comments provided by David Burton, Pierre Dhonte, Salam Fayyad, Antonio Furtado, and Enrique de la Piedra. The authors are also grateful to Gail Berre of the External Relations Department who edited the paper for publication and coordinated production.

The views expressed in this study are those of the authors and do not necessarily reflect those of the IMF or its Executive Directors.

Definition of Acronyms