West Bank and Gaza Towards Economic Sustainability of a Future Palestinian State: Promoting Private Sector-Led Public Disclosure Authorized Growth
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Report No. 68037-GZ Report No. 68037-GZ West Bank and Gaza Towards Economic Sustainability of a Future Palestinian State: Promoting Private Sector-Led Public Disclosure Authorized Growth April 2012 Poverty Reduction and Economic Management Department (MNSPR) Middle East and North Africa Region West Bank and Gaza West Public Disclosure Authorized Towards Economic Sustainability of a Future Palestinian State Palestinian Economic Sustainability of a Future Towards Public Disclosure Authorized Document of the World Bank Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective: April 13, 2012) Currency Unit = New Israeli Shekel 1 NIS = US$ 0.267 US$1 = 3.75 NIS FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AML Anti-monetary laundering NDP National Development Plan Automated System for Customs ASYCUDA Data NDTP Non-discriminatory trade policy CDs Certificates of Deposit NEDCO Northern Electricity Distribution Company CEM Country Economic Memorandum NIS New Israeli Shekel CMA Capital Markets Authority NLPF National Land Policy Framework CTA Central Treasury Account NTBs Non-Tariff Trade Barriers CU Customs Union OECD Organization of Economic Cooperation and Development ECD Early Child Development PA Palestinian Authority FTA Free Trade Agreement PACE Palestinian Authority Customs and Excise GACB General Administration for Borders PCBS Palestinian Bureau of Statistics and Crossings GDP Growth Domestic Product PHMC Palestinian Housing and Mortgage Company GFCF Gross Fixed Capital Formation PIF Palestinian Investment Fund GNDI Gross National Disposal Income PLA Palestinian Land Authority GoI Government of Israel PMA Palestinian Monetary Authority HEPCO Hebron Electric Power Company PMHC Palestinian Mortgage and Housing Corporation ICA Investment Climate Assessment PP Paris Protocol ICS Investment Climate Survey PRDP Palestinian Reform Development Program IDB Islamic Development Bank PSE Palestine Stock Exchange IFC International Finance Corporation PSI Palestinian Standards Institute IMF International Monetary Fund RoO Rules of Origin ISI Israeli Standards Institute TIMSS Trends in International Mathematics and Science Study JD Jordanian Dinar TVET Technical and vocational education and training LPTF Land Policy Task Force USD United States Dollar MFI Microfinance Institutions WB&G West Bank and Gaza MFN Most Favored Nation WHO World Health Organization MOF Ministry of Finance WTO World Trade Organization Vice President: Inger Andersen Country Director: Mariam J. Sherman Sector Director: Manuela V. Ferro Sector Manager: Bernard G. Funck Task Team Leader: John L. Nasir WEST BANK AND GAZA Towards Economic Sustainability of a Future Palestinian State: Promoting Private Sector-Led Growth Table of Contents Executive Summary .................................................................................................................................... i Overview.......................................................................................................................................................1 Structure of the Economy ..........................................................................................................................1 Recent Growth Trends ...............................................................................................................................2 Fiscal Policy ..............................................................................................................................................3 Next Steps ..............................................................................................................................................5 Trade and Trade Policy .............................................................................................................................6 Next Steps ............................................................................................................................................11 Private Sector Development ....................................................................................................................12 Next Steps ............................................................................................................................................16 Labor and Employability .........................................................................................................................16 Labor Market .......................................................................................................................................16 Poverty .................................................................................................................................................18 Skills ....................................................................................................................................................18 Next Steps ............................................................................................................................................22 Chapter 1: Macro Economic Background .............................................................................................24 Introduction .............................................................................................................................................24 Historical Context ....................................................................................................................................24 Recent Growth Trends .............................................................................................................................26 Structure of WB&G Economy ................................................................................................................29 Growth Decomposition ...........................................................................................................................31 Fiscal Policy ............................................................................................................................................34 Next Steps................................................................................................................................................38 Chapter 2: Trade and Trade Policy ........................................................................................................40 Introduction .............................................................................................................................................40 Background .............................................................................................................................................40 Trade Patterns ..........................................................................................................................................42 Trade Regime ..........................................................................................................................................45 Customs Union ........................................................................................................................................46 Non-Discriminatory Trade Policy ...........................................................................................................47 Free Trade Agreement .............................................................................................................................51 The Way Forward ....................................................................................................................................53 Trade Infrastructure .................................................................................................................................53 Legislation ...........................................................................................................................................54 Services ................................................................................................................................................54 Institutional and Physical Arrangements ............................................................................................55 Next Steps................................................................................................................................................56 Chapter 3: Private Sector Development .................................................................................................57 Introduction .............................................................................................................................................57 Description of the Palestinian Private Sector ..........................................................................................58 Competitiveness of Palestinian Businesses .............................................................................................59 Investment, Innovation and Training ......................................................................................................61 Business Environment .............................................................................................................................62 Expanding Access to Resources ..............................................................................................................62 Land .........................................................................................................................................................63 Housing ...................................................................................................................................................64