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UN: Palestinian Economy on Verge of Collapse


A new U.N. report warns the Palestinian economy is on the verge of collapse. In its annual report on Assistance to the Palestinian People, the U.N. Conference on Trade and Development is calling for intensified aid and urgent action to prevent this from happening.

The report finds dwindling donor support has left the Palestinian Authority in a perilous financial position. UNCTAD projections indicate that per-capita income for 2006 will be half pre-2000 levels. It says unemployment will affect half the Palestinian workforce by the end of the year, and two out of three Palestinian households will fall below the poverty level.

Coordinator of UNCTAD Assistance to the Palestinian People Raja Khalidi says it is possible to help the Palestinian economy recover given the right remedies. But he adds that requires both political and economic factors that do not appear to be at hand.

"The scale of decline is such that recovery will take a lot longer than it would have taken - that it took, say, in the last three years between 2002 to 2005," Khalidi says. "So, it is not an irreversible situation, but there are no, for the moment, there are no indications of any political or financial means of reversing it."

The report notes the Palestinian economy is small, highly integrated and dependent on Israel. It says between 2002 and 2005, the Palestinian trade deficit widened by 60 percent, increasing to $2.7 billion in 2005.

It says international aid to the Palestinian people was not sufficient to pay for the unbalanced trade with Israel.

Also, since the increase of violence and the election of the Hamas-led government, the number of Palestinians working in Israel has been reduced from 150,000 to less than 50,000.

Since Hamas took power five months ago, the international community has withheld aid, except for humanitarian needs, because of the militant group's refusal to recognize Israel and renounce violence.

As a consequence, UNCTAD says the Palestine Authority has not been able to pay the salaries of 150,000 civil servants. They no longer have the money to support the local economy.

Khalidi also points out that tax receipts in trade collected by Israel on behalf of the Palestine Authority have not been transferred during the past six months.

"We are talking about a $1.5 billion per annum cut in transfers received either from the donor community or from tax collected by Israel on their behalf. Most of that went to the government budget and for the moment that is not coming in. It has now been six months. So, we are talking about losses which are up to already over $500 million in terms of the income that the economy otherwise would have had in this year. So, that is a pretty dire situation," Khalidi says.

Khalidi says this serious economic deprivation has led to an increase in criminality and in mental illnesses. He says professionals are looking for jobs in other countries and this will cause a so-called brain drain.

He says the international community should try to separate politics from the developmental needs of the Palestinian people.