The Palestine Monetary Authority Issues the 2021 Annual Report

The Palestine Monetary Authority (PMA) issued its 2021 annual economic report containing four main chapters covering the global and local economic developments, public financial development, and the foreign sector including expenditures and foreign commerce, and the developments in the Palestinian financial sector.

The Governor of the Palestine Monetary Authority, Dr. Feras Milhem, noted that the release of this report occurred while the local economy began to recover since life is gradually back to normal following the lift of COVID-19 precautionary measures. This has resulted in the improvement of economic performance, regardless of the near total stop of foreign aid provided to the government, the increased repetitive cut on tax revenues by the Israelis, the impacts of global developments and the imbalances in supply chains, and the rise of basic commodities and food prices.

The Governor added that the Palestinian economy has grown by 7.1% in 2021 where the GDP has increased to approximately $15B USD. It was mainly affected by the West Bank’s economic performance which grew by 7.8% as well as a less economic growth in Gaza by 3.4%. All of which have led to an increase in the GDP per capita by 4.2% and raised to approx. $3,000 USD a year.

The Governor has also noted that the prices in Palestine were affected by the changes in commodities prices globally as well as the increased levels of local demand in both consumption and investment, and the inflation rate increased to 1.2% (1.4% in the WB and 0.3% in Gaza). However, the guidance of Mr. President and his Government to reduce the price rise of certain basic commodities played an important role in curbing inflation in Palestine.

On the other hand, and despite the economic growth, the labour market was unable to absorb new arrivals, causing more unemployed people, and pushing unemployment rates to 26.4%, following a rise in Gaza to 46.9%, despite its decline in the West Bank to about 15.5%.

In this sense, Dr. Melhim, has pointed out that the economic improvement had been reflected in key public finance items, particularly in domestic and clearance revenues. However, the notable decline in the volume of foreign aid grants has limited the government's ability to fully meet its commitments and led to a deficit in the total balance after grants and external assistance (commitment basis) by 5.2% of GDP. Furthermore, the government’s arrears in 2021 increased to reach 3.1B NIS, and the government’s debt increased to 12B NIS or 21.3% of the GDP in 2021.

In the foreign sector, the deficit in the current account of the Palestinian balance of payments fell by 21.9% in 2021 compared to the previous year, to reach $1.5B USD or 8.2% of GDP. This is mainly due to the substantial improvement in income, current transfers, and the increase of exports.

On the other hand, the Governor reported that the PMA's efforts continued in 2021 to promote digital transformation and the use of modern technologies, and to encourage the use of electronic payment tools. Therefore, the PMA has succeeded in recording numerous achievements in this regard, most importantly the launch of the electronic clearance system, the enhancement of the electronic payment environment by licensing a group of electronic payment companies, the development and modernization of credit transactions systems, and the launch of phase I of e-government services in cooperation with the competent government agencies.

Dr. Milhem stated that the actions the PMA has undertaken to enhance the stability of the banking sector had a positive impact on the financial indicators. The total assets/liabilities of the banking sector have risen by 9.0%, reaching approximately $21B USD. Moreover, the 9.3% increase in deposits (both Banks and customers) reaching approx. $18B USD helped in injecting more liquidity into the local economy, which subsequently raised the credit portfolio by 6.6% or $10.7B USD, comprising 65.1% of the total deposits. The economic recovery of this year contributed to the improvement of profitability levels in the banking sector, which reached about $178.4M USD. The banking sector's equity rose by 7.1% ($2.1B USD).

Seeking to anticipate the prospects of Palestinian economy during 2022, the PMA forecasts a constant economic recovery, but at a slower pace than it was during 2021. Moreover, there is a possible growth by 3% in 2022 compared to 7.1% during 2021. Such growth is driven by a continuous recovery in the GDP demand and supply components. Yet, such recovery will remain subject to some unexpected risks that may affect the predicted growth levels.