The following report “Impacts of the Conflict in the Middle East on the Palestinian Economy” by the World Bank Group released in February 2024 delves into the repercussions of the on-going conflict in the Middle East on the Palestinian economy. With a meticulous examination of the intricate economic landscape amidst the turmoil, this study sheds light on the multifaceted challenges faced by the Palestinian territories, particularly Gaza and the West Bank. By delving into the far-reaching impacts of the conflict, encompassing loss of life, destruction of infrastructure, and economic downturns, this report aims to provide an understanding of the profound implications for the Palestinian people and their socio-economic well-being.
The conflict in the Middle East has deepened the humanitarian crisis in Gaza, with children under 18 accounting for 40% of fatalities. This conflict has worsened the pre-existing humanitarian situation in Gaza and significantly amplified the economic and developmental challenges in both Gaza and the West Bank. Approximately 1.7 million Palestinians in Gaza, constituting around 75% of the total population, have been displaced, and the entire population of 2.3 million is grappling with shortages of essentials such as food, water, electricity, fuel, and medicine.
In more details, tens of thousands of housing units have been destroyed, leaving over 1.2 million individuals homeless. Furthermore, the education sector has been severely affected, with a large proportion of schools damaged or destroyed. Indeed, the infrastructure in Gaza has been heavily damaged, with over 62% of roads and almost 84% of health facilities suffering damage or destruction. Unfortunately, the health sector has been severely affected, with only a third of Gaza’s hospitals partially operational and the rest closed due to damage or lack of electricity. As a matter of fact, almost 62 % of the Strip’s electricity feeder lines are damaged or destroyed. Since the early stages of the conflict, Israel turned off the supply of electricity to Gaza and the sole remaining power station ceased operating as it ran out of fuel since October 11, 2023. Therefore, the access to clean water remains a critical issue for the Gaza population. As such, since the conflict’s onset, the Palestinian economy has experienced one of the most significant shocks in recent history, with GDP plummeting by over 80% in the fourth quarter of 2023, from approximately US$670 million to around US$90 million. Almost all economic activities in Gaza have come to a standstill, with no sign of improvement.
Furthermore, the private sector has incurred production losses of around US$1.5 billion in the first two months of the conflict, equivalent to approximately US$25 million per day. This economic decline surpasses the impact of previous conflicts, trailing only behind the second intifada over the past two decades. The widespread destruction of homes, infrastructure, and productive capacity, compounded by a massive economic downturn, implies that nearly every Gaza resident will experience poverty in the short term. As such, the situation is dire, with acute food insecurity affecting every individual, and approximately one in four facing catastrophic hunger.
In the West Bank, while there hasn’t been widespread destruction, the economy has been severely affected by movement restrictions imposed by the Government of Israel. Thus, workers are oftentimes unable to reach their workplaces and have lost their only source of income. These factors, along with declines in trade and private sector activity, have contributed to a significant contraction in the West Bank’s GDP, with a reported 22% decline in the fourth quarter of 2023 and a 2.5% contraction for the entire year 2023.
Both the West Bank and Gaza’s private sectors have suffered substantial losses, with many establishments damaged or destroyed. The conflict has exacerbated poverty and unemployment levels, while the fiscal crisis facing the Palestinian Authority has worsened, leading to delays in public salary payments and increased reliance on bank financing. Nonetheless, the banking sector has continued to act cautiously, with modest levels of lending. The data for the fourth quarter of 2023 indicated an incremental uptick in customer deposits in the Gaza Strip, signaling, among other considerations, continued trust in the resilience of the banking system. However, a range of factors, including concerns related to Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) as well as operational risks, have prompted the majority of the 13 banks functioning in the West Bank to limit their exposure to Gaza.
Immediate actions are needed to address the crisis, including first and foremost the cessation of fire, in addition to restoring fiscal income to the Palestinian Authority, facilitating trade and private sector activity, increasing international financial support, and implementing policy reforms for fiscal sustainability. Nonetheless, the outlook hinges largely on the conflict’s intensity and the level of restrictions. Should the intensity of the conflict remain high beyond the first months of 2024, or should the limits on the movement and access in the West Bank not be removed, the economic downturn could become even more pronounced.
Table: Impact (Damaged and Destroyed) Percentage by Sector from October 12 till January 21, 2024
WASH (Water, Sanitation, and Hygiene)