PA Prime Minister Fayyad
PA Prime Minister FayyadIsrael news photo: Flash 90

The World Bank said on Wednesday that the economic growth in the Palestinian Authority (PA) is unsustainable because of its heavy reliance on foreign aid.

A report issued by the bank said the PA had begun establishing institutions for a future state, but the economy was not strong enough to support it.

“The Palestinian Authority has made steady progress in many years towards establishing the institutions required by a future state but the economy is currently not strong enough to support such a state,” the author of the report, economist John Nasir, was quoted by the BBC as having written.

“Economic sustainability cannot be based on foreign aid so it is critical for the PA to increase trade and spur private sector growth,” he added.

The report also said the security restrictions imposed by the Israeli government continued to stymie investment, but there was little that could be done about them until there was a peace agreement.

“However, there are a number of areas where the PA can focus its attention to not only improve current performance, but to lay the groundwork for a future state,” said the report, adding, “A future Palestinian state should seek to emulate Asian countries that have managed to sustain high levels of economic growth by adopting an outward orientation and integrating into world supply chains.”

The PA’s labor minister said earlier this month that the government is facing its “worst financial crisis” since its 1994 establishment.

Minister Ahmed Majdalani warned that a shortfall in the delivery of aid from Arab donor nations means the PA will be unable to pay employees their July salaries or pay off debts it owes to private businesses.

Saudi Arabia subsequently gave the PA an emergency $100 million donation. The money was given after PA Chairman Mahmoud Abbas had asked King Abdullah for emergency financial assistance for his government.

The World Bank said in its report, according to the BBC, that donor countries had propped up the economy by giving the PA billions of dollars in aid, helping it achieve a 7.7% increase in GDP between 2007 and 2011.

However, the report said, the growth had only occurred in government services, real estate and other non-tradable sectors. The manufacturing and agriculture sectors had shrunk, and aid levels had begun to fall because of the global economic downturn, it noted.