Palestine Monetary Authority Publishes Annual Report 2016

PMA has published its Annual Report 2016, which constituted of four chapters addressing development in macroeconomy, development in government finance, external sector development (including balance of payments and foreign trade), and development in the Palestinian financial sector (PMA, the banks that operate in Palestine, and non-bank financial institutions), respectively.   

H.E. Mr. Azzam Shawwa, the Governor of Palestine Monetary Authority, said the Annual Report 2016was published while several economic and political developments were taken place internationally, regionally, and locally. They led to acceleration in Palestinian economic growth in 2016 and noticeable decrease in the deficit of the government finance and drop in the deficit of the current account of the balance of payments. A number of fast and successive economic and political developments occurred in the world including the referendum in the United Kingdom leading to Brexit and electing Donald Trump as President of the United States of America and OPEC’s decision to reduce oil production, which led to recovery in oil prices after long severe slump. Regionally, political conflicts and turmoil continued in the Middle East and North Africa region leading to low growth rates and high inflation and unemployment rates. 

Palestinian economy rapidly grew in 2016 with a growth rate of 4.1% in comparison with 3.4% in 2015. This was attributed to an accelerated growth rate in Gaza Strip mainly, and a slower rate in the West Bank. The economy in Gaza Strip experienced a 7.7% growth, its highest in five years, compared to 6.1% last year, mainly due to an increase in investments. In the West Bank, the growth rate almost reached 3.0% compared to 2.6% last year, despite the ongoing unrest caused by the exacerbating public anger against Israeli occupation, especially in the beginning of the year.On the one hand, consumer prices in Palestine declined for the first time by 0.2% in comparison with a 1.4% price deflation rate in 2015 attributed to a decline in global oil and food prices.On the other hand, high unemployment rates continued to represent one of the main challenges to the Palestinian economy, especially in Gaza Strip. Despite an accelerated growth rate in 2016, unemployment rates in Palestine increased, albeit slightly, reaching 26.9% of the total labor force compared to 25.9% in 2015. The unemployment rate rose from 17.3% in 2015 to 18.2% in 2016 in the West Bank and from 41.1% in 2015 to 41.7% in 2016 in Gaza Strip. Moreover, in 2016 the average daily nominal wage of the Palestinian worker rose by 5.2% compared to 2015, reaching NIS 109.3. Improving nominal wages was accompanied by a fall in prices in 2016, which led to an increase in real wages in Palestine by 5.4%. This increase in real wages was clearly different in each of the three areas: improving by 4.3% in the West Bank, they only slightly improved by 0.2% in Gaza Strip, and by 9.7% for Palestinian workers in Israel and the settlements.

The year 2016 experienced a relative improvement in public revenue collection and a decline in grants and foreign aid. But overall revenues and grants increased by 15.2% compared to 2015, reaching about NIS 16,816.5 million. Furthermore, actual public spending rose by 5.5% and reached NIS 14,760.1 million. As a result, these developments led to a significant decrease in the current deficit to about NIS 412.3 million, in comparison with a deficit of NIS 2,075.7 million in 2015.

Despite the decrease in the current deficit, government arrears rose by 7.6% in comparison with previous year. The government’s public debt (denominated in US dollars) fell by 2.1% at the end of 2016 in comparison with 2015, reaching $2,483.8 million, or 18.5% of the GDP. The current account of the balance of payments recorded a deficit of $1,348.0 million in 2016, a 34.8% improvement compared to 2015, representing about 10.1% of the GDP compared to 16.3% in 2015.

The Report indicates rapid growth in the total assets of the banking system in 2016 to 12.7% (to $14,196.4 million), compared to 6.6% in 2015. The direct facilities credit portfolio increased by almost 18.0%, to $6,871.9 million. This is a sign that the role of financial intermediation between surplus and deficit units strengthened further and more financing opportunities were provided, which contributed to increased economic development. Clients’ deposits reached $10,604.7 million, an increase of 9.8%, and the banking system’s equities rose by 14.9%, to $1,682.4 million.

H.E. Mr. Azzam Shawwa said, notwithstanding the difficult political conditions Palestine underwent, PMA secured several achievements including development in supervisory systems and issuing regulatory instructions relevant to the institutions of the banking system. PMA also continued to strengthen its Arab, regional, and international relations in order to boost its position in light of the achievements it had made in information and credit systems and financial inclusion, economic and financial research, and specialized reports in economy, banking, and finance. 

The outcome of these measures had their positive impact on the financial indicators of the Palestinian banking system; hence, liquidity levels improved where such improvement coincided with an increase in assets, clients’ deposits, and increase in credit facilities portfolio and improved quality of such portfolio, drop in default rate, and improved capacity of the banking system to confront expected and unexpected risks

PMA expects the Palestinian economy performance to continue to slightly slow down in 2017 to 3.4% compared to 4.1% in 2016. This performance is expected to materialize while the political and economic situations of 2016 in Palestine continue to be the same, including continuation of restrictions at border crossings, continuation of restrictions on freedom of movement of people and goods, continuation in the increase of Palestinian workers in Israel at the same previous rate, continuation of Gaza reconstruction at the same pace. Additionally, it is expected that this performance occurs while the Palestinian government continues the austerity policy, the rates of the revenue growth and government expenditure stay the same, donor countries’ aid to the Palestinian government’s treasury continues to drop.

Finally, the Research and Monetary Policy Department of PMA regularly publishes annual reports of PMA. These reports are key references for research institutions and those concerned with the economy as well as postgraduate students in Palestine since they are packed with deep analysis based on most up-to-date and accurate local and international economic and financial available data.