Ramallah – Palestine Monetary Authority has published its Annual Report 2018, which reviews the latest global, regional and local economic developments, as well as developments in the government finance, the external sector and the Palestinian balance of payments; in addition to developments in the financial sector, including developments in Palestine Monetary Authority, the banking sector and non-bank financial institutions.
Mr. Azzam Shawwa, the Governor of Palestine Monetary Authority, noted that the release of this report came at a time when the international and regional arena witnessed many economic and political changes, which caused further pressures and challenges to the Palestinian economy, and led to the decline of many of its economic and social indicators.
In this context, the report showed that the Palestinian economy continued to slowdown for the second year in a row, deepening in 2018 (as forecasted earlier by Palestine Monetary Authority), with growth of 0.9% compared to 3.1% in 2017 (bringing the real GDP to around USD 13.8 billion) against the backdrop of the continued downturn of the economy in the Gaza Strip and the decline in the momentum of growth in the West Bank. In the Gaza Strip, growth fell by 6.9% to a further 12.5% decline in 2017. Growth in the West Bank slowed to 3.1% from 8.5% in 2017.
H.E. Mr. Shawwa added that the actual impact of this performance has been reflected in more than one aspect, particularly per capita income, which is down 1.7% from the world level in 2017, to USD 3,021. In light of this performance, per capita income in the West Bank has not been able to grow by more than 0.8% (to about USD 4,188), while income in the Gaza Strip has again shrunk by 9.5%, falling to an all-time low (USD 1,431), accounting for about a third of the West Bank.
Although the economy under this level of performance did not suffer from any inflationary pressures, but rather from a price contraction, where the level of consumer prices declined slightly by about 0.2% (a rise in the West Bank by 0.4%, against a contraction in the Gaza Strip by 1.3%), but suffered in return from an increase in unemployment rates to record levels, where high levels of unemployment continue to be one of the most significant challenges facing the Palestinian economy, especially in the Gaza Strip. Unemployment rates in Palestine rose to 30.8% of the total workforce compared to 28.4% in 2017, up from 44.4% in Gaza Strip in 2017 to 52.1% in 2018, although in the West Bank it fell from 18.7% in 2017 to 17.6% in 2018.
In the area of public finances, His Excellency the Governor pointed out that the Palestinian government suffered a lot of pressure during 2018, due to the marked decline in revenues, whether related to clearance revenues, foreign grants and aid, which led to a decline in public revenues and grants by about 4.1% compared to the previous year (amounting to about NIS 15.3 billion). Despite the government's attempts to mitigate the repercussions of this situation, by rationalizing public spending and succeeding in reducing this spending by about 3.2% (to about NIS 14.1 billion), the result of these developments has resulted in a rise in the total deficit before grants and assistance (on a cash basis) to about NIS 1.7 billion, compared to with a deficit of NIS 1.4 million in 2017, up 22.9% from 2017.
In 2018, the situation accumulated new arrears for the government of NIS 514.8 million, bringing the total arrears accumulated by the government at the end of 2018 to NIS 12.7 billion (equivalent to about USD 3.4 billion, or 23.3 percent of the GDP). Government public debt (denominated in US dollars) fell by 6.8%, to about USD 2.3 billion (about NIS 8.9 billion), or 16.2% of the GDP.
His Excellency the Governor of Palestine Monetary Authority also noted the difficulty of the situation in the external sector and the balance of payments, due to the increase in the current account deficit in the Palestinian balance of payments by about 6.1%, to reach USD 1.7 billion, accounting for about 11.4% of the GDP compared to 10.8% in 2017.
As for Palestine Monetary Authority and the banking sector, His Excellency the Governor stated that despite the difficult political circumstances and conditions we are living in, during 2018 Palestine Monetary Authority was able to ensure further achievements, at the supervisory and legal level regulating the banking sector, and supporting it with supervisory regulations and at the level of financial inclusion and the launch of the National Financial Inclusion Strategy, the combat against money laundering and terrorism financing, as well as the strengthening of Arab, regional and international relations, to deepen the ties between the Palestinian banking system and its regional and international environment.
The outcome of these measures, according to His Excellency the Governor, reflected positively on the vital indicators of the Palestinian banking sector, with the banking sector's assets rising by 1.7%, to reach USD 16.1 billion, while strengthening public confidence in the light of the safety and discipline of this sector in accordance with the highest global banking standards, reflected in the increase in the volume of deposits by 2.0% to reach USD 12.2 billion, as the trend shifted towards inward rather than overseas investment of such deposits, the credit portfolio grew by about 5.1%, to about USD 8.4 billion, and the banking sector equity continued to rise by 1.1%, to register USD 1.9 billion.
As for the future prospects of the Palestinian economy, His Excellency the Governor said that Palestine Monetary Authority’s forecast indicated that the economy would continue to slow down in 2019 to about 0.5% compared to 0.9% in 2018 (according to base scenario), mainly influenced by the assumption that the financial crisis the government is suffering from due to the clearance revenue crisis with the Israeli side will continue and the continued decline in the volume of foreign grants and aid.
It should be noted that the Annual Report of Palestine Monetary Authority is issued periodically by the Department of Research and Monetary Policy, which is an essential reference for research institutions and those interested in the Palestinian economic affairs, because of its in-depth analysis based on the latest and most accurate data available.
For the full report, please click here.