PMA Issues the Annual Report for 2012

The Research and Monetary Policy Department in the Palestine Monetary Authority issued the Annual Report for 2012, the report consists of four chapters: the global and local developments, public finance developments, external sector developments, and the Palestinian Financial Sector developments which consists of 3 parts: PMA developments, banks' developments, and non-banking sector development that includes Microfinance Institutions, Money Changers, Palestine Stock Exchange (PEX), Insurance Sector, Palestine Mortgage and Housing Corporation, and leasing.

Dr. Jihad Al Wazir-Governor of PMA pointed that this report is issued in a time that has witnessed a number of global and regional political and economic developments which have affected the economic performance of a number of countries around the world. These developments have transpired amid growing fears of a worsening of crises due to the failure in finding radical solutions.  These crises are capable of posing a great threat on the global economic structure as well as that in the local arena.

Al-Wazir also said that although the Palestinian economy has been somewhat cut-off from direct impacts of global and regional developments since 2012, its own problems and challenges, in turn have played the role of economic inhibitor. The main causes behind the slow economic performance are the obstacles and restrictions set by the occupation, in addition to the issue of liquidity and minimal external support on one hand and the rigidity of the political horizon on the other. This increased doubts on whether Palestine's economy is capable of achieving sustainable growth rates.

The report showed that the Palestinian economy has also slowed during 2012 compared to 2011, as real GDP grew by 5.9 percent, compared with 12.2 percent in 2011. It also explained that the prices in Palestine indicated low and relatively close levels of inflation during the last two years. Inflation rate reached 2.8 percent during 2012 compared to 2.9 percent in 2011. As well, unemployment in Palestine is on the rise again in 2012 after a relative improvement witnessed last year. The unemployment rate rose to 23 percent of the total labor force, compared with 20.9 percent in 2011.

PMA forecasts show that the Palestinian economy will continue slowing down during 2013 and 2014, after reaching high growth rates in the past years. Real GDP is projected to grow by 5.3 percent and 5.2 percent in 2013 and 2014 respectively compared with a growth rate of 5.9 percent in 2012. Real GDP per capita is expected to grow by 2.3 percent in 2013 and 2.2 percent in 2014 compared with 2.7 percent in 2012.

The report added that the current account deficit in the Palestinian balance of payments reached to USD 2,814.8 million in 2012, up by 28.4 percent from what it was in 2011, and accounting for 27.4 percent of GDP, compared with a deficit of 22.4 percent of GDP during 2011.

The report pointed that the Palestinian government faced a number of hardships along with political and economic challenges in the previous year (2012). This was due to the substantial shortage of foreign aid as well as poor performance, specifically with regard to revenue. This led to the government's inability to fulfill their financial obligations, especially towards the private sector, suppliers, and employees of the public sector. According to this The current deficit increased by 9.9% in 2012 compared with the previous year and reached about NIS 3 billion. Total public debt (both internal and external) increased at the end of 2012 by 12.2% compared to the previous year, amounting to $2482.5 million. Thus, the public debt-to-GDP ratio increased from about 22.6% in 2011 to approximately 24.2% in 2012.

Dr. Al Wazir pointed out that PMA's efforts and successes in maintaining the stability and developing the performance of banks operating in Palestine that started in previous years continued in 2012, notwithstanding the surrounding political and economic crises, and a high risky local environment. The PMA has also succeeded in ensuring banks management according to international best practices, including full commitment to the principles of banking governance, addressing weak banks, strengthening banks' capital, developing financial infrastructure, and maintaining customers' confidence.

Al Wazir added; Milestones have also been achieved both at the legislative and regulatory levels. The most prominent of these was the Payment Systems Law. In addition, other major projects were completed in 2012, such as the International Banking Account Number-IBAN, the Suspended and Lost Checks System, the settlement of PEX trading through the BURAQ system, national electronic switch for electronic payment instruments, and other projects that have enhanced the stability and performance of banks operating in Palestine.

The PMA`s annual report assured that outcome of the abovementioned actions were reflected positively in the financial indicators of the Palestinian banking system. The most prominent improvements included the rise in assets, growing customer deposits, the improvement in the size and quality of the credit portfolio, and increased banks' ability to cope with expected and unexpected risks.

The financial indicators of banks operating in Palestine showed an increase in total assets by the end of 2012 to about USD 10 billion, as mentioned in the Annual Report, and by 7.6 percent compared with the end of 2011. Credit facilities have also seen a remarkable increase of about USD 648.6 million, thereby achieving a growth of 18.3 percent from 2011, to amount to USD 4.2 billion by the end of 2012. This, in turn, meant increased activation of financial intermediation between surplus and deficit units in the economy by providing more funding opportunities, which will eventually contribute to economic development. Customer deposits reached USD 7.5 billion, increasing by 7.3 percent compared to 2011, Net equity of the banking system increased by 6.1 percent, to reach USD 1.3 billion, as a result of increasing paid-up capital, which in turn increased banks' ability to cope with expected and unexpected risks.