The financial position of the West Bank and Gaza is continuing to worsen, according to a new report by the International Monetary Fund (IMF).
The overall fiscal deficit reached US$1 billion, and the report states that it is likely to increase further in 2007, to as much as $1.3 bn, equivalent to 30% of GDP.
Real GDP for the year is estimated to have decreased by between five and 10%.
“Notwithstanding the exceptional financial difficulties that the PA [Palestinian Authority] faced in 2006, the underlying position has deteriorated further,” the IMF reported.
The PA government suffered a decline in tax revenues of more than 10% last year, part of which the report says is due to payments withheld by some local banks to help cover the cost of the government’s debt servicing obligations.
Part of the decrease is due to strikes by government officials, which made it difficult to enforce and collect taxes.
The situation was not helped by an increase in the government wage bill of 17%, year on year.
The PA’s net debt to commercial banks was reduced by almost $100m last year, but part of this was because many banks liquidated assets they held as collateral.
The report states that an increase in private economic activity is needed. Project financing fell by almost half in 2006, to about $180m, compared to $330m in 2005.
Surprisingly, overall employment increased by 5% year on year, while inflation remained unchanged from 2005, at 3.6%.
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