Repairing damage to Palestine's economy will take decades as Gaza war continues, UN says

By mid-2024, economic activity in Gaza fell to less than 20 per cent of its 2022 level, Unctad report finds

Poverty affects nearly the entire population of Gaza, Unctad said. Reuters

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It will take decades to repair the damage to Palestine's economy as the Israel-Gaza war continues to cause unprecedented devastation in the region, far surpassing the impact of all previous military confrontations in 2008, 2012, 2014 and 2021, the UN's trade body said in a report on Thursday.

Gaza's gross domestic product plummeted by 81 per cent in the last quarter of 2023, leading to a 22 per cent contraction for the entire year, UN Trade and Development (Unctad) said. Unemployment reached 79 per cent in the fourth quarter of last year, compared with 46 per cent in the third quarter.

As Israel's military operation, which began in October last year, continued through May, economic activity in Gaza fell to less than 20 per cent of the level in 2022, Unctad's Developments in the Economy of the Occupied Palestinian Territory report said.

The overall Palestinian economy grew by 2.8 per cent annually in the first three quarters of 2023, but shrank by 30 per cent in the last three months, leading to a 5.5 per cent contraction in annual GDP and an 8 per cent decline in GDP per capita, making it “one of the deepest slumps in recent history”.

“Repairing the damage will take decades, and the socioeconomic repercussions of the large-scale destruction will be felt for a long time,” the report said.

The decline in economic activity is “on course to surpass the impact of the aftermath of the second intifada that began in 2000 and continued for some years”, it added.

The Palestinian economy is projected to contract anywhere between 6.5 and 9.4 per cent during 2024, the World Bank said in a May report.

An estimated 200,000 jobs have been lost in the Gaza Strip, while 144,000 people are no longer employed in the occupied West Bank as a result of the escalating violence and its repercussions on supply chains, production capacity and breadwinners’ inability to access their workplace, the multilateral lender said at the time.

The overall unemployment rate in Palestine in the first quarter of 2024 stood at 57 per cent, according to estimates by the International Labour Organisation.

The Palestinian government has also only been paying partial salaries, and by February 2024, it owed employees arrears equivalent to 4.3 months of wages, with $48.4 million owed to those in Gaza and $102.7 million owed to employees in the West Bank, Unctad said.

Also, 40 per cent of private sector workers in the West Bank experienced a wage reduction of about 20 per cent.

While the job losses translate into a labour income loss of an estimated $21.7 million per day, adding the reduction in salaries of public and private sector employees raises the sum to $25.5 million per day.

“Production processes have been disrupted or decimated, income sources have disappeared, poverty has intensified and expanded, neighbourhoods have been eradicated and communities and towns have been ruined,” Unctad said.

Currently, poverty affects nearly the entire population of Gaza and is rising rapidly in the West Bank. By early 2024, 82 per cent of private sector establishments in Gaza had been damaged or fully destroyed, 96 per cent of private sector establishments in the West Bank reported a decline in sales and 42.1 per cent reported a decrease in the total number of employees reporting to work, according to Unctad.

Three out of four of the 2.3 million people in Gaza had been internally displaced, lacking proper shelter, facing starvation and experiencing shortages of water, fuel, electricity and a lack of access to education, health care and sanitation.

The war has “transformed the region from one experiencing underdevelopment to one facing devastation”, Unctad said.

Agriculture hit hard

The report identified a big gap between actual values and pre-conflict projections of key economic indicators for 2023 due to the impact of the war.

Exports grew by 2.9 per cent versus the projected 5 per cent, while imports contracted by 2.6 per cent versus projected growth of 5 per cent.

The services sector shrunk by 5.6 per cent compared with expected growth of 3.7 per cent and the industrial sector contracted by 7.5 per cent versus projected expansion of 3.2 per cent.

One of the worst-affected sectors was agriculture, which shrunk by 11.3 per cent versus projected contraction of 1 per cent, the report said. In recent years, the sector has accounted for about 6 per cent of Palestinian GDP and the agrifood value chain has accounted for 15 per cent of its economy.

By early 2024, between 80 per cent and 96 per cent of Gaza's agricultural assets, including irrigation systems, livestock farms, orchards, machinery and storage facilities had been decimated, hitting food production and worsening already high levels of food insecurity.

“The impact of the military operation on the agricultural sector is of particular concern, given the historical role of the sector in providing income, jobs and food security and in serving as a shock absorber that provides employment for displaced workers during frequent crises,” the report said.

Palestine's aid-dependent economy has also been hit hard by a drop in donor support. In 2023, international donor support fell to its lowest level at $358 million – equivalent to just 2 per cent of GDP, down from $2 billion – or 27 per cent of GDP, in 2008, the report said.

Unctad stressed that prolonged occupation remains the main obstacle to sustainable economic development in Palestine. “Persistent restrictions on investment, labour mobility and trade have systematically undermined economic potential, exacerbating poverty and instability,” the report said.

The UN agency called for an “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 revenue and lifting the blockade on Gaza, it said.