PA’s Measures to Face Tax Freeze Will not Last Long, says Economy Expert

RAMALLAH, February 12, 2015 (WAFA) – The International Monetary Fund (IMF) Resident Representative for the West Bank and Gaza Ragnar Gudmundsson, Thursday said the Palestinian Authority’s efforts regarding the current economic and financial conditions could only contain the crises for few months.

During a lecture held at the Palestine Economic Policy Research Institute (MAS) in Ramallah, Gudmundsson explained it would be difficult for the PA to contain the ramifications of withholding tax revenues on the long run as a result of the increasing risks of social disturbances that could lead to political instability.

However, he pointed that these major risks could be mitigated if Israel promptly resumes the transfer of tax revenues and international donors disburse their pledged financial assistance in a concentrated manner.

IMF has made several pessimistic predictions about the Palestinian economy growth during 2015, which stem mainly as a result of Israel’s ongoing freeze of Palestinian tax revenues.

Gudmundsson predicted that the Palestinian economy would not experience strong growth as a result of several adverse circumstances; most notably Israel’s withholding of tax revenues, which account for two thirds of the PA’s net revenues.

He predicted both consumption and private investment to experience a sharp decline as a result of the reduction in wage payments and other public expenditure items.

The IMF representative reviewed the latest political events in the Palestinian arena that resulted in the sluggish economic growth. Such events included the latest Israeli onslaught on the Gaza Strip, the ongoing Israeli blockade, the upcoming Israeli elections, the Palestinian statehood bid and PA’s accession to the International Criminal Court (ICC).

As a result of the impending Gaza reconstruction, Gudmundsson expected that the rise of a real Gross Domestic Product (GPD) would be limited in 2015, yet pointing that GDP in the Gaza Strip has improved in comparison to the already low level, while it has declined by 2% in the West Bank.

The Palestinian economic growth would remain limited unless the political climate improves in a manner conducive to ending the Israeli restrictions imposed on the West Bank as well as the Gaza blockade, remarked Gudmundsson.

He called for donor funding to be concentrated at the start of the year in order to fill the gap caused by the Israel’s failure to transfer tax revenues.

Even if the transfer of tax revenues is resumed within the coming few months, Gudmundsson  predicted a substantial funding gap that calls for the PA to remain vigilant on the level of public expenditure and limit public sector’s wages. Nevertheless, he recommended PA to keep transferring allocations for the poor and families with limited-income and providing social assistance in Gaza.

Gudmundsson recommended that in anticipation of the constant freeze of tax revenues over the few coming months, the PA should adopt emergency measures in order to contain the potential financial crises.