On October 28, the Rafik Hariri Center for the Middle East hosted the Governor and Chairman of the Palestinian Monetary Authority, Jihad al-Wazir, to discuss the state of the Palestinian economy, the impact of the statehood initiative, and the role of the Palestinian Monetary Authority in navigating the unique challenges facing the West Bank and Gaza.
Dr. al-Wazir highlighted the strong 7 percent growth rate in the West Bank and Gaza economies in the first half of 2011, a substantial achievement given the significant obstacles and challenges caused by security policies and restrictions imposed by Israel. The impact of such restrictions, as Dr. al-Wazir explained, is that Palestinian businesses are unable to access certain resources and materials necessary to manufacture particular goods, and they have limited access to Israeli markets. Furthermore, since Palestinians have no currency of their own and therefore operate in Israeli shekels, Jordanian dinars, and US dollars, the PMA must adapt to strict regulations in transferring currency, which has a significant impact on liquidity. However, despite ongoing tensions, the PMA has a strong and positive relationship working with the Israeli Central Bank and other financial institutions in Israel to ensure that the Palestinian banking sector can function.
Dr. al-Wazir noted that the Palestinian economy has enjoyed strong growth in the first half of this year, but emphasized that there are significant questions regarding the sustainability of such growth. Much of the current economic prosperity has been driven by external aid. Such aid, however, decreased in 2010 compared to prior years, and there are already aid shortfalls for 2011. The reduction in aid comes at a time when the Palestinian Authority faces considerable fiscal shortages and a $750 million dollar budget shortfall. In recent weeks, the US Congress has placed a hold on $200 million in essential economic assistance in response to the statehood bid, which Al-Wazir noted makes the Palestinian’s financial situation even more precarious.
Despite such challenges, Dr. al-Wazir argued the PMA has been successful in actively ensuring financial stability in the West Bank and Gaza. To that end, the PMA monitors and regulates the local banking sector, including overseeing the nationalization of banks and any mergers that may take place. Additionally, the PMA institutes rules and regulations for potential external shocks, such as natural disasters, security crises, and other contingencies. That said, he argued such consistent adversity has now been exacerbated by the current political and global economic climate, which has posed additional challenges to the Palestinian economy.
Dr. al-Wazir said the political transitions emerging through the Arab awakening and the September statehood bid at the United Nations have created a great deal of uncertainty in the region. As a result, investors and businesses have moved their assets elsewhere and withdrawn from the Palestinian stock market. The governor noted that this environment of uncertainty—along with existing Israeli restrictions, security policies, and stagnation in the peace process—limits the extent to which the Palestinian economy can grow.
In fact, Dr. al-Wazir stated, the economy has reached the limits of its growth potential in its current circumstances and that a new political environment is necessary for ongoing, sustainable economic growth. In that sense, he said, the statehood bid at the UN puts the issue of “development under occupation” back on the agenda and has the potential to change the current political dynamics in a way that could foster a more prosperous Palestinian economy.
ABOUT JIHAD AL-WAZIR
Jihad al-Wazir is the Governor and Chairman of the Board of the Palestinian Monetary Authority. Previously he was Chairman of the Palestinian National Committee on Anti Money Laundering and Deputy Governor between 2006 and 2008. He also served as Acting Minister of Finance from November 2005 to March 2006.