GAZA, May 2 (Reuters) - The Palestinian economy is expected to grow about 3% in 2023 after a 4% post-COVID rebound in 2022, as tensions with Israel and the impact of the war in Ukraine pose serious downside risks, the World Bank said on Tuesday.
The World Bank said it will present its outlook in Brussels this week at a policy meeting regarding development assistance for the Palestinians.
The Palestinian economy is dependent on foreign aid and affected by Israel, which, citing security concerns, enforces travel restrictions in the occupied West Bank.
There is also a fissure between impoverished Gaza, ruled by the Islamist group Hamas, and a more robust economy in the West Bank overseen by the Western-backed Palestinian Authority.
Should those dynamics remain unchanged, and foreign aid keeps steady, the World Bank said it expects about 3% growth in 2023 and the coming years.
"Raising living standards, improving the sustainability of fiscal accounts, and reducing unemployment in a meaningful manner will all require significantly higher growth rates," said Stefan Emblad, World Bank country director for West Bank and Gaza.
A jump in local tax collection and clearance revenues led to a 60% drop in the total fiscal deficit, before grants, according to the report. Factoring in donor contributions and Israeli deduction from clearance revenues, the Palestinian financing gap was 1.8% of GDP in 2022, down from 5.7% in 2021.
Emblad also called on the Palestinian Authority (PA) to advance reforms to increase revenues, strengthen debt management, and improve fiscal sustainability.
The report recommended changes to the increased spending for a wage bill, a "generous" public pension system, and the need to allocate more money to weaker sectors in the population.
Palestinian Prime Minister Mohammad Shtayyeh told his Cabinet on Tuesday that they would pursue reforms, but did not offer specifics.
He said Israel's policy to withhold some tax income and a dip in foreign donations added to the budget deficit.
Israel collects some tax money on behalf of the PA and has withheld some of it to compensate victims of Palestinian militant attacks and offset the stipends the PA pays to Palestinians who carried out attacks and their families.
Last week, a report by the Palestinian Bureau of Statistics showed unemployment dropped to 13% in West Bank in 2022 from 16% a year earlier, and slid to 45% from 47% in the Gaza Strip.
