The World Bank cites several factors contributing to the shrinking Palestinian economy, including a reduction in donor aid, continued political instability, and Israeli restrictions.
Restrictions imposed by the Israeli government on the movement of Palestinian people and goods through the territories has also stopped economic growth, the report stressed. Gaza’s economy has struggled to recover since the 2014 conflict with Israel.
"The blockade on Gaza imposed by countries neighboring the Strip needs to be lifted in a way that protects legitimate security concerns and those countries," the report’s executive summary said, referring to Egypt and Israel.
A failure of donors to follow through on contributions to rebuild the war-torn area has also contributed significantly to the economic slump, particularly as the report found that 80% of the people living in the area are currently aid dependent.
Further, post-conflict tensions and political instability in the territories have significantly damaged prospective private investments.
"In short, the status quo is not sustainable and the downside risks of further conflict and social unrest are high," the report warned.
"The persistence of the current volatile reality increases anxiety and uncertainty, overshadowing the ability of Palestinians to perceive a brighter future," World Bank Country Director for the West Bank and Gaza, Steen Lau Jorgensen, said. "Economic development and measures could serve to build confidence towards a diplomatic horizon that is desperately needed on both sides."
The report also highlighted measures that could be taken to improve the wellbeing of Palestinians and their economy. These include widening Palestinian access to economic opportunities and activities in the West Bank’s Area C, where Israel retains full security and administrative control, which would "boost the Palestinian economy by about a third and lower the PA’s deficit by half."
The report also recommends an end to Israel’s withholding of clearance revenue, which has cost the Palestinian Authority 70% of its revenue.
"Even without a final peace deal, there is substantial upside potential in the Palestinian economy if existing agreements are implemented and restrictions lifted," the report noted.