Economic crisis worsens in occupied Palestinian territory amid ongoing Gaza conflict

Geneva, Switzerland, 12 September 2024

UN Trade and Development (UNCTAD) has released a comprehensive report[1] detailing the profound economic destruction that has gripped the Occupied Palestinian Territory in the aftermath of the Israeli military operation in Gaza that followed the 7 October 2023 attacks by Hamas.

The report highlights the staggering scale of economic devastation and unprecedented decline in economic activity, far surpassing the impact of all previous military confrontations in 2008, 2012, 2014 and 2021. Inflationary pressures combined with soaring unemployment and collapsing incomes, have severely impoverished Palestinian households.

War Destruction extends to the West Bank and East Jerusalem

The military operation led to unprecedented loss of life, displacement, and widespread destruction of infrastructure. Meanwhile, the West Bank experienced a surge in violence, demolition of Palestinian assets, confiscations, and settlement expansions. The combined impact of the military operation in Gaza and its repercussions in the West Bank delivered an unparalleled shock that overwhelmed the Palestinian economy across the occupied Territory, including East Jerusalem.

By early 2024, between 80% to 96% of Gaza's agricultural assets -including irrigation systems, livestock farms, orchards, machinery, and storage facilities - had been decimated, crippling the region's food production capacity and worsening already high levels of food insecurity. The destruction also hit the private sector hard, with 82% of businesses, a key driver of Gaza's economy, damaged or destroyed. The damage to the productive base has continued to worsen as the military operation persists.

Gaza's Gross Domestic Product (GDP) plummeted by 81%in the last quarter of 2023, leading to a 22% contraction for the entire year. By mid-2024 Gaza's economy had shrunk to less than one-sixth of its 2022 level.

Figure 1: Gaza's GDP has dropped to one-sixth of its pre-October 2023 value

(in millions of constant 2015 dollars) Q1 2019 - Q1 2024.

Source: UNCTAD calculations, based on Palestinian central Bureau of Statistics quarterly national accounts.

Meanwhile, the West Bank has been undergoing a rapid and alarming economic decline. The report highlights factors such as settlement expansion, land confiscations, demolition of Palestinian structures, and increased settler violence throughout 2023 -2024 to have displaced communities and severely impacted economic activities. These disruptions have affected various sectors across the West Bank, including East Jerusalem, where commerce, tourism and transportation have suffered a considerable downturn. As a result, 80%of businesses in the East Jerusalem Old City have either partially or completely ceased operations.

The initial optimism of a 4% GDP growth in the West Bank during the first three quarters of 2023 was abruptly reversed by an unprecedented 19% contraction in the fourth quarter. This sharp downturn resulted in an overall annual GDP decline of 1.9%. Additionally, per capita GDP decreased by 4.5%, indicating a substantial drop in living standards and household incomes.

Mass unemployment and growing poverty

Labor market conditions in the West Bank have deteriorated significantly, with 96% of businesses reporting decreased activity and 42.1% reducing their workforce. A total of 306,000 jobs have been lost, pushing West Bank's unemployment rates from 12.9% before the conflict to 32%. These job losses have resulted in an estimated daily labor income loss of $25.5 million, severely eroding the economic resilience of Palestinian households and exacerbating social hardships.

Figure 2: Unemployment in the West Bank nearly tripled in six months

(Q1 2019 - Q1 2024, percentage).

Source: UNCTAD calculations, based on Palestinian central Bureau of Statistics quarterly labour survey.

The situation in Gaza is particularly dire, with two-thirds of pre-war jobs-approximately 201,000 positions- lost by January 2024. This has further worsened the already critical economic and humanitarian crisis in the Gaza Strip.

In the West Bank, trade activities have been severely disrupted due to increased restrictions on the movement of people and goods. The number of checkpoints across the occupied West Bank rose from 567 in early October 2023 to 700 by February 2024, significantly hindering economic activity.

Poverty has been widespread and growing in recent years. By 2022, one-third of the Palestinian population (1.84 million people) was food insecure (lacking consistent access to sufficient and nutritious food), or severely food insecure, and 31.1 per cent lived in poverty. Before October 2023, 80% of Gaza's population depended on international assistance. Currently, poverty affects nearly the entire population of Gaza and is rising rapidly in the West Bank.

Deductions and revenue withholding undermine the Palestinian Authority

The Palestinian government's fiscal stability is under immense pressure, jeopardizing its ability to function effectively and provide essential services. Despite efforts at fiscal reform, the government's fiscal capacity has been eroded by slow GDP growth, revenue deductions by Israel, and a sharp decline in international aid. In 2023, international donor support fell to its lowest level at $358 million equivalent to just 2% of GDP, down from $2 billion, or 27% of GDP in 2008.

Since October 2023, revenue deductions and withholdings by Israel have escalated totaling over $1.4 billion between 2019 and April 2024. This amount represents 8.1% of Palestine's GDP in 2023, leading to significant budgetary shortfalls. These fiscal challenges have hampered the government's ability to pay employees, service debts, and maintain critical public services such as healthcare and education. The situation has also led to growing debt, delayed payments to private suppliers, and reduced social transfers to the poor. Public employees have only been paid partial salaries since November 2021.

A path forward

The performance of the Palestinian economy has been heavily influenced by external factors, particularly measures taken by Israel and, to a lesser extent, by fluctuations in aid flows. UNCTAD stresses that prolonged occupation remains the main obstacle to sustainable economic development. Persistent restrictions on investment, labor mobility and trade have systematically undermined economic potential, exacerbating poverty and instability.

The report echoes the UN Secretary-General's call for urgent measures to support and strengthen Palestinian institutions, highlighting the need to enhance peacebuilding efforts. Prolonged occupation is a primary economic obstacle to sustainable development due to ongoing restrictions on investment, labor mobility, and trade.

The report offers a comprehensive analysis of the severe economic challenges facing the Occupied Palestinian Territory. It calls for immediate and substantial intervention by the international community to halt the economic freefall, address the humanitarian crisis, and lay the groundwork for lasting peace and development. This includes considering a comprehensive recovery plan for the Occupied Palestinian Territory, increased international aid and support, release of withheld revenues and lifting the blockade on Gaza.

UNCTAD's role in the Occupied Palestinian Territory

For nearly four decades, UN Trade and Development has supported the Palestinian people through policy-oriented research, capacity-building and technical cooperation projects in partnership with public and private sector institutions and civil society. UNCTAD also promotes international consensus on the needs of the Palestinian people and their economy.

In January 2024, UNCTAD issued "Preliminary assessment of the economic impact of the destruction in Gaza and prospects for economic recovery ".

The "Developments in the Economy of the Occupied Palestinian Territory" report is based on data through the first half of 2024. UNCTAD continues to monitor ongoing developments and will provide a detailed analysis on their economic impact to the UN General Assembly.

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[1] Report intitled "Developments in the Economy of the Occupied Palestinian Territory"

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