Cost of occupation: How Israel stifles Palestinian economy

The devastating Israeli occupation for decades has brought down the Palestinian economy to its knees.
Israel controls every access point, which enables it to oversee all imports and exports. It creates bureaucratic hurdles that Palestinians say kill entrepreneurship.
Israel’s restrictions and rising fiscal constraints in the Palestinian territories are severely impacting the economic conditions of Palestinians and hindering their access to timely life-saving healthcare, the World Bank said on Monday.
Poverty in the Palestinian territories is on the rise, with one out of four Palestinians living below the poverty line.
Israel’s restrictions on movement and trade in the occupied West Bank, the blockade imposed on the Gaza Strip and the divide between the two Palestinian territories are among several factors that had put the Palestinian economy at high risk, according to the World Bank.
The restrictions, including “a lengthy, bureaucratic regime of permits”, often makes it hard to provide timely life-saving healthcare to Palestinians, Stefan Emblad, the World Bank’s director for the West Bank and Gaza, said.
Thousands of Palestinians from the West Bank and Gaza Strip cross annually into Israel for medical treatment unavailable in the impoverished Palestinian territories.
Israel’s restrictions stifle much of Palestinian economic life.
Palestinian economic growth is expected to soften in 2023, the World Bank said in May.
While the economy had continued to rebound at a rate of 4% in 2022, this was driven by the ongoing recovery of private consumption as Covid-19 restrictions eased.
However, increased tensions in the Palestinian territories and the spillovers from the Russian invasion of Ukraine continue to pose significant downside risks.
“Despite signs of recovery in 2022, growth remains sensitive to the escalation of tensions in the Palestinian territories and the ongoing restrictions on mobility, access and trade. Raising living standards, improving the sustainability of fiscal accounts, and reducing unemployment in a meaningful manner will all require significantly higher growth rates, Emblad said in the May report.
While the Palestinian Authority (PA) continues to try to cover the fiscal gap, the large and growing stock of arrears to the private sector, the pension fund, and public employees pose risks to long-term macroeconomic stability.
The exposure of the banking sector to the public sector remains high, which requires continued monitoring by the authorities.
“The Palestinian Authority should continue to advance priority reforms to increase revenues, strengthen debt management, and improve fiscal sustainability. However, the PA cannot do it alone. Donor support and cooperation by the Government of Israel are vital to achieve fiscal consolidation and put the economy on a more solid footing,” Emblad said.
The reform efforts should continue to tackle the size of the wage bill and the generous public pension system, as well as increase the efficiency of public expenditure, notably by better targeting transfers to the poorest and most vulnerable, he added.
Israel’s all-encompassing stranglehold over the Palestine territories explains the plight of an estimated 6mn people.
The Palestinian economy is dependent on foreign aid and affected by Israel, which, citing security concerns, enforces travel restrictions in the occupied West Bank.
Overall, the Palestinian economy has been stagnating for the past five years, Emblad said, adding it was not expected to improve unless policies on the ground change.
“Given population growth trends, income per capita is thus expected to stagnate,” the World Bank said.
The restrictions in the West Bank and the near-blockade imposed on Gaza remain among the most important obstacles to stability, growth and private sector development in the Palestinian territories as cited by previous World Bank reports.
If not eased or lifted, the Palestinian economy is expected to continue operating well below its potential.