Israeli Restrictions Leave Palestinians Dependent on Aid, Says World Bank

The World Bank warned today that continued Israeli economic restrictions were severely limiting the potential of the Palestinian economy and leaving Palestinians more dependent on foreign aid than ever.

In a report to be delivered to international donor governments later this month, the World Bank acknowledged that Israel had lifted some roadblocks in the occupied West Bank but it said the impact was limited. It said continued discussions about removing individual checkpoints and roadblocks had become a "distraction" from the bigger issues.

The International Monetary Fund believed the Palestinian economy had shrunk by 0.5% last year and would grow by only 0.8% in 2008, a long way short of the Palestinian Authority's own forecast. It said there was a clear lack of investment and some industries had been badly hit: the construction industry is now less than a fifth the size it was in 1999. Foreign aid has become ever more important: this year the Palestinians will require around $1.9bn in budget support, equivalent to nearly a third of their gross domestic product.

The criticisms are striking because as part of the year-long peace negotiations between Israel and the Palestinians, Israel and the west had spoken of making significant improvements to the Palestinian economy, particularly in the West Bank, to encourage popular support for moderate positions and continued negotiations. The World Bank report demonstrates how little has been achieved.

"Israel has announced a series of steps to remove a few physical obstacles within the West Bank, which will only have an impact insofar as it is scaled up in number and the scope of the restrictions being addressed," the report said.

"The challenge moving forward with the removal of economic restrictions is to go beyond isolated gestures towards a profound revision in the fundamentals of the Palestinian economy. It is thus essential to convert these initiatives to a new status quo, rather than a series of isolated exceptions that are consuming a substantial amount of time by all players, and that are a distraction from dialog on longer-term issues."

The World Bank said aid and reform without improved access were unlikely to revive the economy. It said that although Israel had legitimate security concerns, in fact most of the restrictions in the West Bank were near Jewish settlements.

"Overwhelming evidence suggests that the current restrictions correlate to settlement locations and expansions," the report said. It said there was evidence that economic restrictions could be removed without risking Israeli citizens.