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BBC: Palestinian Economy Is Dangerously Fragile

Notwithstanding the mysterious enthusiasm of the IMF for Palestinian statehood, the Palestinian Authority still remains at least half-dependent on foreign donations. The withdrawal of a significant portion of that aid would likely result in the collapse of the economy. The PA’s embrace of Hamas and push for unilateral statehood directly endangers the flow of that aid and therefore has the potential to ensure the PA’s eventual status as a failed state.

The international media has been largely mum on this elementary point, but Jon Donnison of the BBC has noticed:

Palestinians in the West Bank and Gaza receive more foreign aid per head of population than any other group of people in the world. According to research done by The Economist magazine, in 2008 it amounted to $675 (£414) per person, per year. A good amount of that money comes from the European Union.

“The EU contributes around 500m euros a year, with roughly the same amount coming from individual member states,” says Christian Berger, the EU representative to the Palestinian territories.

Some observers have called it buying economic peace.

And the vast injections of foreign money have seen the Palestinian economy grow. According to the International Monetary Fund, in the West Bank it grew by over 9% in 2010.

The removal or relaxation of some Israeli military checkpoints in the West Bank has also made it easier for Palestinians to do business.

The BBC piece goes on to discuss the tangible change that has resulted in Ramallah, which has seen an efflorescence of buildings, restaurants and (a little curiously) bars. However, “Most Palestinians cannot afford to come [to Jasmine, a trendy new hot-spot]. The United Nations estimates that 25% of Palestinians live below the poverty line.”

What would happen if the spigot went dry? “Salaries would not be paid,” says Nasser Abdul Karim, an economist at the West Bank’s Bir Zeit University. “Employees would stop spending. People could not pay rent or bank loans or electricity bills. The domino effect would play a major role in crippling the whole economy.”

And how might Hamas’s reentry into the picture affect funding? “Last time Hamas were in the government, having won parliamentary elections in 2006, the big donors pulled Palestinian funding,” the article notes. “Tens of thousands of people went without salaries for six months. Some politicians in the US Congress are already calling for American aid to stop now that Hamas is back in the frame.”

Okay, American money might dry up. But what about the EU, the PA’s biggest donor?

What, them worry? “At the moment, we’re not talking about Hamas joining a government,” says EU Representative Berger. After all, as he notes, the unity deal is intended to establish an interim government made up of independent politicians. “After that, there will be elections in a year’s time. We’re going to concentrate on what’s happening now — not in a year’s time,” he says.

Even the most casual observers are willing to bet that Hamas will be running its slate as independents, an obvious tactic and one to which its the Muslim Brotherhood in Egypt subscribed throughout the decades that it was outlawed.  But until their candidates self-identify as Hamas, thereby disqualifying themselves, the EU is apparently prepared to turn a blind eye (for a while, at least).

Nevertheless, there are apprehensions in the territories. “During the past few weeks, I have heard a range of words used to describe the scenario if foreign aid were to be cut — from ‘stagnation’ to ‘collapse’ to ‘explosion,'” Donnison writes. Nassir Abdul Karim believes the very severity of the likely consequences mitigates the likelihood that an aid cut-off would be allowed to happen. “The donors are not stupid,” he says. Others, unnamed by Donnison, are equally sanguine. “[If] the big foreign donors did decide to officially cut funding, they would find less transparent channels to keep the money coming, possibly by funnelling it through aid agencies and NGOs,” he writes.

Ah, yes, Good old NGOs.