Publication: Public Expenditure Review of the Palestinian Authority: Policy Priorities Amid a Spiraling Fiscal Crisis
Loading...
Published
2025-06-12
ISSN
Date
2025-06-12
Author(s)
Editor(s)
Abstract
Just like every other socio-economic dimension, also the fiscal situation in West Bank and Gaza is shaped by its fragility, conflict and violence (FCV) context. It is difficult to overstate the impact that the Israeli occupation imposes on the economy of the West Bank and Gaza. Along with the recurrent violence,the most important obstacles to Palestinian growth and private-sector development continue to be the Israeli restrictions on movement, economic activity, and access to resources in the West Bank, and the near-total blockade of Gaza since 2007. As such, these factors fundamentally undermine the macroeconomic foundations needed to achieve fiscal sustainability. These constraints are amplified by Israel’s control of the Palestinian borders and of vast swathes of its territory (Area C) which greatly limit the Palestinian ability to collect taxes and conduct an independent and sound fiscal policy. These limitations, in addition to the internal political divide between the West Bank and Gaza, cause the Palestinian Authority (PA) to face a situation of permanent fiscal emergency. Fiscal revenues are structurally unable to cover the large public expenditures needed to maintain the economy and the society afloat. Hence the PA has to rely on foreign aid in order to bridge the financing gap.
Link to Data Set
Citation
“World Bank. 2025. Public Expenditure Review of the Palestinian Authority: Policy Priorities Amid a Spiraling Fiscal Crisis. © World Bank. http://hdl.handle.net/10986/43330 License: CC BY-NC 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Public Expenditure Review of the Palestinian Authority(World Bank, Washington, DC, 2016-09)The difficulty of pursuing a conventional market-oriented development strategy in the Palestinian territories led in the early part of the 2000s to a second-best reliance on public sector employment and wage bill expansion to boost aggregate demand. The main objective of this Programmatic Public Expenditure Review (PER) is to inform policy and institution-building efforts of the Palestinian Authority (PA) and its donor partners about improving the sustainability of public expenditures and the efficacy and efficiency in the provision of essential public services.In particular, this PER aims to provide an assessment of public revenue and expenditure policies offering specific policy and institutional measures to reduce the size of the Palestinian territories fiscal deficit and make it more sustainable.The fiscal situation of the Palestinian Authority is not sustainable.The difficult fiscal situation facing the Palestinian Authority today results from a unique confluence of challenges.As this report will argue, there is considerable further scope for reforms that would raise additional tax revenues, and reduce expenditures without compromising the quality of public services or negatively impacting public welfare.However, the PER notes that there are limits to what can be achieved by PA fiscal policy alone.The PER is organized as follows: Chapter one provides an overview of recent macroeconomic and fiscal developments; it also contains a brief assessment of priority fiscal policy issues facing the PA, and serves as an introduction to the in-depth analysis of the issues that follow in subsequent chapters. Chapter two analyzes the factors driving the size of the PA’s wage bill, and shows how these can be tackled. Chapter three reviews expenditures in the public health sector. Chapter four analyzes the Palestinian public pension system, and looks into how its sustainability can be assured. Chapter five assesses the quality of intergovernmental fiscal transfers, including net lending transfers. Chapter six reviews the way in which public investment projects are planned and implemented, and identifies steps to improve investment quality. Further details on health and pensions are provided in the annexes.Publication Stagnation or Revival : Israeli Disengagement and Palestinian Economic Prospects(Washington, DC, 2004-12)The World Bank's June 23 report, "Disengagement, the Palestinian Economy and the Settlements," warns of the potential disintegration of the Palestinian economy under the sustained pressures of conflict and Israeli closure policies--a situation which is potentially ruinous for both Palestinians and Israelis. Currently there is hope that the Israeli and Palestinian governments are once again ready to discuss their shared future. At this juncture, it is vital that policy-makers focus on stabilizing and reviving the economy as part of any new political process. While money, and in particular donor money, has an important role to play, the underlying causes of economic decline need to be addressed. For a recovery to take place, the Government of Israel needs to roll back the system of restrictions on the movement of people and goods imposed since the beginning of the intifada - it is these various closure measures that are the proximate cause of four years of Palestinian economic distress. The Government of Israel has given encouraging signs of a willingness to reform the management of border gateways, to enable a much faster and more reliable throughput of cargo and people. For its part, the Palestinian Authority faces two sets of challenges if it is to play its part in bringing about revival. First is the need to demonstrate strong commitment to security reform, politically risky though this may be. The PA also needs to reinvigorate its program of governance reforms in order to create an internal environment more attractive to private investors. Chapter Six lays out an agenda of actions that the Bank believes would lay the basis for economic regeneration. It is further proposed that the donor community track progress by the parties in tackling these key preconditions for economic revival. If significant progress is made against a set of agreed indicators, a major new donor effort would then be justified - and a donor pledging conference should be called.Publication Disengagement, the Palestinian Economy and the Settlements(Washington, DC, 2004-06-23)This report stresses that the deep economic crisis in the West Bank and Gaza threatens to impoverish and alienate a generation of young Palestinians. Moreover, today's economic crisis has been caused by restrictions on the movement of Palestinian people and goods, or 'closures', which the Government of Israel (GOI) regards as essential to protecting Israeli citizens from attacks by militants. Without a major reform of the closure regime, however, the Palestinian economy will not revive and Israel's security gains may not be sustainable. The report adds that Israel's Disengagement Plan of June 6 will have very little impact on the Palestinian economy and Palestinian livelihoods, since it only proposes a limited easing of closure. An easing of closures alone, though, will not attract investors back to the Palestinian economy. The review opines that with a freeing-up of the constraints on economic activity and committed Palestinian reform, an additional major donor effort would make a difference - it would enable the Palestinian economy to turn the corner. However, the alternative to this is stark. At the wrong end of the spectrum of possible outcomes is a Palestinian economy with unemployment levels of over 35 percent by 2006, and with poverty afflicting upwards of 55 and 70 percent in Gaza. The study points out that as for the settlement assets that Israel will leave behind, those in Gaza have considerable economic value, and in time can make a significant contribution - provided that Gaza's borders are opened for trade. Prospects for economic recovery will be enhanced if the US and the EU give adequate preference to Palestinian products to help boost exports.Publication Middle East and North Africa Economic Developments and Prospects 2005(Washington, DC, 2005-04-01)The edtion of the Middle East and North Africa (MENA) economic developments and prospects reportsanalyzes the region's short-term growth prospects given global forecasts and current structural features of the economies, as well as the region's prospects for longer-term growth based upon progress in implementing comprehensive structural reforms. MENA region has experienced exceptional growth over the last two years. Over 2003 and 2004, economic growth in MENA averaged more than 5.6 percent a year, the strongest growth in a decade, and up strongly from the 3.6 percent average yearly growth over the 1990s. On a per capita basis, the MENA region's 3.5 percent average growth over the last two years was the region's strongest growth performance since the mid-1970s. Accompanying this strong growth performance, unemployment has declined with the rise in oil prices over 2000- 2004. Unemployment is estimated to have fallen from about 14.9 percent of the labor force in 2000 to 13.4 percent currently, the result of a 37 percent increase in the rate of employment creation over the 1990s. In many respects, the MENA region is in the midst of an economic boom. However, there are caveats to the region's growth acceleration. For one, it has not been especially broad based. Comparing growth over the 1990s with growth over the last two years, 97 percent of the regional growth upturn was driven by just four countries - Saudi Arabia, the Islamic Republic of Iran, Algeria and the United Arab Emirates. In fact, nearly half of the region actually experienced growth downturns relative to the 1990s. Moreover, MENA's recent positive economic developments have been driven largely by external events - in particular, dramatically rising oil prices. And importantly, on a per capita basis, the MENA region's growth over the last two years continues to lag that of other regions, a reflection of both the firming of GDP growth rates across developing regions and the MENA region's high population growth.Publication The Little Data Book 2005(Washington, DC: World Bank, 2005-04)The Little Green Data Book 2005 is a pocket edition of the World Development Indicators (WDI) 2005. It is intended as a quick reference tool for users of the WDI 2005 book and CD-ROM and WDi Online, our electronic subscription database. Together, they cover more than 600 indicators and span of 40 years. The 207 country pages in the Little Data Book presents the latest available data of World Bank member countries and other economies with populations of more than 30,000. The 14 summary pages cover regional and income group aggregates. The data in this book are for 1990, 2001, and 2003, or the most recent year for which data are available, unless otherwise noted in the glossary. 1) Growth rates are proportional changes from the previous year, unless otherwise noted; 2) Regional aggregates include data for low- and middle-income economies only; 3) Figures in italics indicate data for years, or periods other than those specified. Like the World Development Indicators 2005, this edition of The Little Data Book uses terminology in line with the 1993 System of National Accounts (SNA). In particular, gross national product (GNP) is replaced by gross national income (GNI). Since 2003, the selection of indicators in these pages has been updated to include some of those being used to monitor progress toward the Millennium Development Goals.
Users also downloaded
Showing related downloaded files
Publication CPIA Africa, June 2024(Washington, DC: World Bank, 2024-07-15)The CPIA Africa report highlights policy trends, best practices, and key changes in Sub-Saharan Africa, following the World Bank's annual Country Policy and Institutional Assessment (CPIA). The analysis is designed to assess the elements of policies and institutional arrangements within a country's control for promoting sustainable growth and poverty reduction. Discussion is limited to countries eligible for financing from the International Development Association (IDA), the part of the World Bank that supports the world’s poorest countries. With government investment and spending in Sub-Saharan Africa currently constrained, there is an urgent need for the private sector to accelerate. This year's CPIA Africa report focuses on reforms across policy areas that bolster private sector growth and highlights the policy trends that have been instrumental in supporting business development in 2023. The CPIA 2024 report for Africa underscores several key developments. First, the region has made significant strides in economic management and policies for social inclusion and equity, surpassing the global IDA average. However, the slower improvement in the governance cluster remains a concern. Second, the region has implemented reforms to enhance resilience to international economic shocks, particularly in central bank independence and transparency. Nonetheless, exchange rate pressures have posed challenges for countries actively managing exchange rate fluctuations. Third, the growing debt service obligations in the region limit the amount of resources available for public-sector investment. Public spending is especially constrained in countries with heightened concerns about external debt distress with some countries resorting to increased arrears and monetary financing. Finally, the report highlights two major trends offering hope for private sector growth: digital technology and increased intraregional trade. These trends have the potential to be transformational and provide significant opportunities for increased competition, FDI inflows, and economic diversification.Publication Gulf Economic Update, June 2025(Washington, DC: World Bank, 2025-06-20)This special focus chapter analyzes the effectiveness of fiscal policy in fostering economic growth in the Gulf Cooperation Council (GCC) region. In doing so, the principal focus of the chapter is on fiscal multipliers, which measure the effect of changes in government spending or revenue on the country’s output (GDP). In simple terms, they quantify how much economic activity is generated by each dollar of fiscal policy action. The need to evaluate the effectiveness of fiscal policy is especially relevant for GCC countries given their intensified economic diversification efforts in recent years. Globally, fiscal policy has been playing a growing role, with public expenditure as a share of GDP growing in more than 70 percent of all countries since the Global Financial Crisis. In the GCC, the share of fiscal expenditure in non-hydrocarbon GDP ranges between 36 percent and 84 percent. As public spending is often undertaken through large-scale public investments, this calls for a better understanding of the returns on GDP from those investments, the effectiveness of capital allocation, and whether fiscal policies are well designed to maximize employment and job creation, among other objectives. On the revenue side, most of the income is related to sales of hydrocarbon products, as hydrocarbon sales revenue makes up between 40 and 90 percent of overall government revenues in 2023. The main policy takeaway is that fiscal policy is broadly effective at stabilizing cyclical fluctuations of (non-hydrocarbon) output, especially during times of economic dearth. While fiscal multipliers in the GCC appear to be positive across the board, they are generally weak and less than one, in line with the estimates in the literature for a multitude of other countries. Policymakers should therefore not expect multiplying effects in response to stabilizing fiscal policy measures, which occur for fiscal multipliers that are larger than one. This does not, however, imply a total absence of fiscal policy impact on output. As the estimated multipliers are significantly larger during recessions, the findings make a robust case for adopting countercyclical fiscal policy. Such countercyclical policy should aim at an expansion of demand through fiscal stimulus only during demand-driven downturns.Publication Commodity Markets Outlook, April 2025(Washington, DC: World Bank, 2025-04-29)Commodity prices are set to fall sharply this year, by about 12 percent overall, as weakening global economic growth weighs on demand. In 2026, commodity prices are projected to reach a six-year low. Oil prices are expected to exert substantial downward pressure on the aggregate commodity index in 2025, as a marked slowdown in global oil consumption coincides with expanding supply. The anticipated commodity price softening is broad-based, however, with more than half of the commodities in the forecast set to decrease this year, many by more than 10 percent. The latest shocks to hit commodity markets extend a so far tumultuous decade, marked by the highest level of commodity price volatility in at least half a century. Between 2020 and 2024, commodity price swings were frequent and sharp, with knock-on consequences for economic activity and inflation. In the next two years, commodity prices are expected to put downward pressure on global inflation. Risks to the commodity price projections are tilted to the downside. A sharper-than-expected slowdown in global growth—driven by worsening trade relations or a prolonged tightening of financial conditions—could further depress commodity demand, especially for industrial products. In addition, if OPEC+ fully unwinds its voluntary supply cuts, oil production will far exceed projected consumption. There are also important upside risks to commodity prices—for instance, if geopolitical tensions worsen, threatening oil and gas supplies, or if extreme weather events lead to agricultural and energy price spikes.Publication Europe and Central Asia Economic Update, Spring 2025: Accelerating Growth through Entrepreneurship, Technology Adoption, and Innovation(Washington, DC: World Bank, 2025-04-23)Business dynamism and economic growth in Europe and Central Asia have weakened since the late 2000s, with productivity growth driven largely by resource reallocation between firms and sectors rather than innovation. To move up the value chain, countries need to facilitate technology adoption, stronger domestic competition, and firm-level innovation to build a more dynamic private sector. Governments should move beyond broad support for small- and medium-sized enterprises and focus on enabling the most productive firms to expand and compete globally. Strengthening competition policies, reducing the presence of state-owned enterprises, and ensuring fair market access are crucial. Limited availability of long-term financing and risk capital hinders firm growth and innovation. Economic disruptions are a shock in the short term, but they provide an opportunity for implementing enterprise and structural reforms, all of which are essential for creating better-paying jobs and helping countries in the region to achieve high-income status.Publication Innovation Activity in South Africa(World Bank, Washington, DC, 2018-06-29)Improvements in productivity is necessary to effectively increase economic growth in the long term.The literature emphasises a positive correlation between firm-level innovation and productivity gains, although evidence for developing countries has been less conclusive. It is unsurprising then, that policymakers and researchers widely acknowledge that innovation is one of the major drivers of productivity growth, and is therefore of critical importance to the competitiveness and growth of firms and the macro-economy. We look at the dynamics of R&D expenditure in South Africa over the period 2009 to 2014 at the firm level using the South African Revenue Service and National Treasury Firm-Level Panel, which is an unbalanced panel dataset of administrative tax data from 2008 to 2016. Expenditure on R&D is used extensively as a proxy for innovation in the literature as it improves the capability for developing new products and processes and improving existing ones. We use a production function approach to estimate the return to R&D in South African manufacturing firms, a theoretical framework which is the predominant approach in the literature. This paper, however, is one of only a few estimating the return to R&D using firm-level data in a developing country.