Because of the severe limitations of the available data that are discussed in Appendix I, only the broadest conclusions can be made about the structure and the recent evolution of the WBGS balance of payments. In 1995–96, the balance of payments was characterized by the following.

(i) Large trade deficits, averaging US$1.2 billion (or 38 percent of GDP) annually, were recorded, incurred largely in trade with Israel as a result of the existing trade arrangements (see below)(Table 9). Exports, estimated at under US$0.4 billion in 1996, were mainly related to subcontracting in labor-intensive sectors such as shoes and clothing, and a few agricultural goods;

Table 9.

West Bank and Gaza Strip: Balance of Payments, 1992–97

(In millions of U.S. dollars)

Sources: Israeli Central Bureau of Statistics; Ministry of Planning and International Cooperation; Palestinian Monetary Authority; and IMF staff estimates.

Table 9.

West Bank and Gaza Strip: Balance of Payments, 1992–97

(In millions of U.S. dollars)

				1992	1993	1994	Est. 1995	Est. 1996	Proj. 1997
Current account				–149	–240	–152	–574	–708	–746
Current account, excluding grants				–373	–522	–530	–1,171	–1,112	–1,079
	Goods and services			–384	–536	–545	–1,187	–1,129	–1,096
		Exports of goods and services		1,295	831	712	735	631	799
		Imports of goods and services		1,679	1,367	1,256	1,923	1,760	1896
Trade balance				–933	–902	–798	–1,287	–1,179	–1,252
	Exports, f.o.b.			299	236	227	373	316	366
		Of which: Israel		249	178	204	345	278	--
	Imports, c.i.f.			1,232	1,138	1,024	1,660	1,495	1618
		Public sector		--	--	85	241	187	252
		Private sector		1,232	1,138	939	1,419	1308	1366
			Of which: Israel	1,106	990	920	1,521	1,350	--
Services (net)				549	366	253	100	50	156
	Remittances (net)			898	552	386	248	204	321
		Receipts		930	586	400	262	218	329
		Payments		32	34	14	14	14	8
	Public investment income (net)			--	--	--	--	–1	–3
		Receipts		--	--	--	--	--	--
		Payments		--	--	--	--	1	3
	Nonfactor services (net)			–349	–186	–133	–148	–153	–163
		Receipts		66	9	85	100	97	104
		Payments		415	195	218	248	250	267
Unrequited transfers				235	296	393	613	421	351
	Public			224	282	378	597	404	333
		UNRWA		163	169	111	103	100	70
		Israel		61	113	43	22	--	--
		EAP grants		--	--	224	471	304	263
Private				11	14	15	17	17	18
Capital account				149	240	152	1,149	1,018	1308
	Public sector			…	…	16	15	57	95
		Loans		…	…	16	15	82	102
		Amortization		…	…	--	--	25	8
	Other (incl. net errors and omissions)			149	240	136	1134	961	1213
Overall balance				…	…	…	575	310	562
Financing (commercial banks (net))				…	…	…	–575	–310	–562
Memorandum items:
	GDP in U.S. dollars			2,686	2,557	3,077	3,222	3,234	3,546
	External outstanding debt			--	--	16	31	88	182
		As percent of GDP		--	--	1	1	3	5

Sources: Israeli Central Bureau of Statistics; Ministry of Planning and International Cooperation; Palestinian Monetary Authority; and IMF staff estimates.

View Table

Table 9.

West Bank and Gaza Strip: Balance of Payments, 1992–97

(In millions of U.S. dollars)

				1992	1993	1994	Est. 1995	Est. 1996	Proj. 1997
Current account				–149	–240	–152	–574	–708	–746
Current account, excluding grants				–373	–522	–530	–1,171	–1,112	–1,079
	Goods and services			–384	–536	–545	–1,187	–1,129	–1,096
		Exports of goods and services		1,295	831	712	735	631	799
		Imports of goods and services		1,679	1,367	1,256	1,923	1,760	1896
Trade balance				–933	–902	–798	–1,287	–1,179	–1,252
	Exports, f.o.b.			299	236	227	373	316	366
		Of which: Israel		249	178	204	345	278	--
	Imports, c.i.f.			1,232	1,138	1,024	1,660	1,495	1618
		Public sector		--	--	85	241	187	252
		Private sector		1,232	1,138	939	1,419	1308	1366
			Of which: Israel	1,106	990	920	1,521	1,350	--
Services (net)				549	366	253	100	50	156
	Remittances (net)			898	552	386	248	204	321
		Receipts		930	586	400	262	218	329
		Payments		32	34	14	14	14	8
	Public investment income (net)			--	--	--	--	–1	–3
		Receipts		--	--	--	--	--	--
		Payments		--	--	--	--	1	3
	Nonfactor services (net)			–349	–186	–133	–148	–153	–163
		Receipts		66	9	85	100	97	104
		Payments		415	195	218	248	250	267
Unrequited transfers				235	296	393	613	421	351
	Public			224	282	378	597	404	333
		UNRWA		163	169	111	103	100	70
		Israel		61	113	43	22	--	--
		EAP grants		--	--	224	471	304	263
Private				11	14	15	17	17	18
Capital account				149	240	152	1,149	1,018	1308
	Public sector			…	…	16	15	57	95
		Loans		…	…	16	15	82	102
		Amortization		…	…	--	--	25	8
	Other (incl. net errors and omissions)			149	240	136	1134	961	1213
Overall balance				…	…	…	575	310	562
Financing (commercial banks (net))				…	…	…	–575	–310	–562
Memorandum items:
	GDP in U.S. dollars			2,686	2,557	3,077	3,222	3,234	3,546
	External outstanding debt			--	--	16	31	88	182
		As percent of GDP		--	--	1	1	3	5

Sources: Israeli Central Bureau of Statistics; Ministry of Planning and International Cooperation; Palestinian Monetary Authority; and IMF staff estimates.

(ii) Labor income from the employment of Palestinians in Israel, averaging almost 8 percent of GDP annually (compared with an annual average of 29 percent of GDP in 1992–93), partly financed the trade deficits;

(iii) Substantial donor assistance, accounting for average annual inflows of 17 percent of GDP, also financed a substantial part of the trade deficits (see Box 6); and

(iv) The goods and services deficit, as well as a build-up of net foreign assets equivalent to 14 percent of GDP annually in 1995–96, was financed mainly by private capital inflows and/or unrequited transfers (an average of 33 percent of GDP annually).

This amount includes a portfolio shift out of currency and into bank deposits on the part of the population as well as other capital and transfer inflows from Palestinians working in the diaspora, but nevertheless cannot be fully explained.¹²

After the steady decline in both commodity exports and imports in 1993–94, both are estimated to have increased in 1995.¹³ The trade deficit in 1995 was almost US$1.3 billion. At the same time, the surplus in the services account narrowed sharply, reflecting primarily the decline in workers’ remittances. The number of Palestinian workers in Israel is estimated to have declined by about 39 percent to a little over 32,000 workers. As a result, the deficit in the goods and services account peaked at 37 percent of GDP. This deficit was financed by the sharp increase in unexplained private capital inflows and/or unrequited transfers as well as public external assistance.

The border closures and the weakening of economic activity in 1996 resulted in the narrowing of the deficit in the goods and services account of the WBGS. In particular, exports declined by about 15 percent and imports by about 10 percent. Given, however, the very low base of exports compared with imports, the deficit in the trade balance declined in 1996 to less than US$1.2 billion, or about 37 percent of GDP, from 40 percent of GDP in 1995. On the other hand, the surplus in the services account, reflecting the impact of border closures on worker remittances, fell by almost two percentage points of GDP. However, the recurrent deficit was financed by private capital inflows and/or private unrequited transfers that are expected to remain high, although about US$170 million less than in 1995.