Impact of War on Gaza - West Bank

Impacts of the Conflict in the Middle East on the Palestinian Economy

Source: World Bank Economic Monitoring Report, September 2024 Update - "Impacts of the Conflict in the Middle East on the Palestinian Economy" -- see https://www.un.org/unispal/document/world-bank-report-26sep24/#:~:text=Official%20data%20reveals%20a%2035,percent%20contraction%20in%20Q1%2D2024.

Date: September 2024

Main Themes:

• Economic Collapse: The conflict has led to a historic economic decline in the Palestinian territories, with Gaza nearing economic freefall. Real GDP plummeted 35% in Q1 2024, with Gaza's economy contracting by a staggering 86%.
• Humanitarian Crisis: The situation in Gaza has escalated into a humanitarian catastrophe, marked by widespread food insecurity, severe shortages of essential supplies, and displacement of nearly 1.9 million people. Reports of famine-like conditions are increasing.
• Fiscal Crisis: The Palestinian Authority (PA) faces a projected financing gap of US$1.86 billion in 2024, more than double the previous year. Increased Israeli deductions from Clearance Revenues and declining aid have crippled the PA's ability to fund essential services.
• Private Sector Strain: Both the West Bank and Gaza have seen private sector activity severely affected. Businesses have been damaged or destroyed, supply chains disrupted, and unemployment has reached record highs.
• Financial Sector Vulnerability: The historically stable Palestinian financial sector is under increasing strain. While banking infrastructure remains resilient, the cash shortage in Gaza, the risk to loan portfolios, and the dependence on correspondent banking relationships with Israeli banks pose significant threats.

Key Findings:

• Gaza's Economic Collapse: The conflict has brought Gaza's economy to the brink of collapse, with its share of the Palestinian economy plummeting from 17% to less than 5%. "The conflict has brought Gaza’s economy to the brink of total collapse, with a staggering 86 percent contraction in Q1-2024."
• Humanitarian Crisis: An estimated 40,000 people have died and 30,000 severely injured, with limited access to essential aid. "The humanitarian situation is exacerbated by the displacement of approximately 1.9 million people...Reports of famine-like conditions, malnutrition and disease are increasing."
• Severe Food Insecurity: Nearly the entire Gaza population faces acute food insecurity. "The latest IPC analysis indicates that 15 percent of the population (350,000 individuals) is experiencing famine-like conditions, with an almost complete lack of food."
• Education and Health System Collapse: The education system in Gaza has collapsed, with nearly all schools damaged or destroyed. The health system is severely compromised, with most primary care centers non-functional and hospitals operating at overcapacity. "Gaza’s health system has been significantly compromised...The destruction of water supply infrastructure and solar panels combined with a lack of grid electricity...have caused 80 percent of the primary care centers (PHCs) to no longer be functional."
• Record Unemployment: Unemployment in the Palestinian territories reached 50% in June 2024, the highest rate on record.
• Financial Sector Risks: A severe cash shortage in Gaza hampers access to financial services, while the dependence on correspondent banking relationships with Israeli banks poses a systemic risk. "Maintaining correspondent banking relationships (CBRs) between Palestinian and Israeli banks continues to be critical to prevent systemic economic repercussions."

Key Actions:

• Ceasefire: An immediate cessation of hostilities is crucial to alleviate human suffering and allow for the rebuilding of essential services.
• Reverse Clearance Revenue Deductions: Israel must reverse its decision to increase deductions from Clearance Revenues to ensure the PA can fund vital services.
• Increased International Aid: The international community needs to urgently increase funding for basic services and long-term recovery efforts.
• Private Sector Support: To stimulate economic activity, measures to facilitate trade and strengthen private sector activities in the West Bank and Gaza are necessary.
• Implementation of Reforms: The new Palestinian government must prioritize and implement its reform agenda, focusing on governance and fiscal sustainability.

Conclusion:

The conflict has had a devastating impact on the Palestinian economy and its people. Addressing the ongoing humanitarian crisis and initiating long-term recovery requires immediate action from all stakeholders, including a ceasefire, financial support, and a commitment to reform and reconstruction. Failure to act decisively will only deepen the suffering and further destabilize the region.