I.M.F. Says West Bank Economic Growth Is Imperiled by Israel and Arab States

“There is a very high risk that the growth of the last year will not last,” Oussama Kanaan, head of the fund’s mission to the Palestinian territories, said in an interview ahead of a meeting in Madrid next week of donor countries where he will present the report. “There has been no additional significant easing of restrictions by Israel so far in 2010. And there is a lack of donor support, especially among the Arabs, who need to give in a more systematic and predictable way to build investor confidence.”

Following the violent uprising of late 2000 and fierce Israeli countermeasures, an economic crisis began that lasted until 2007 when mild growth began. For 2009, Mr. Kanaan said, the economic growth rate for the West Bank and Gaza was the highest in years, 6.8 percent, of which 8.5 percent was in the West Bank and 1 percent in Gaza.

He attributed the growth for the West Bank to improved security, institution building and transparency from the government of Prime Minister Salam Fayyad, an Israeli easing of restrictions on movement and access and substantial donations from foreign governments. All three needed to continue in a predictable way in 2010, Mr. Kanaan said, but so far the Palestinian Authority was the only player clearly living up to its promises.

The challenge of economic growth for Gaza is of a different order of magnitude than for the West Bank. Gaza, ruled by Hamas and shunned by the international community, has been suffering under a blockade imposed by Israel and Egypt for several years. There is an underground economy dependent on smuggler tunnels as well as daily truckloads of donated goods permitted by Israel with the intention of staving off a humanitarian crisis.

But there is only a skeletal economy there now — unemployment, according to the fund’s report, stands at 39 percent — and the report is said to call for a complete lifting of the blockade. Israel’s war in Gaza 15 months ago destroyed some 4,000 homes and a number of factories and facilities that have not been rebuilt because the blockade bars most building materials.

Under Prime Minister Benjamin Netanyahu, Israel has made clear that it wants to help create a big gap between the economies of Gaza and the West Bank, depriving Gaza of anything much above sustenance and helping the West Bank prosper. The goal is to drive home to Palestinians that they should favor the Fatah-led Palestinian Authority over Hamas in future elections.

But Mr. Netanyahu’s relations with the Palestinian Authority in Ramallah have grown strained as he has declined to freeze settlement growth in the West Bank and East Jerusalem, and the Palestinians have declined to join Israel in direct peace negotiations.

Further substantial easing in the West Bank, the report says, will come through direct negotiations.

“Obviously, many of the projects are not moving as they should because of the political atmosphere,” said Yigal Palmor, spokesman for the Foreign Ministry. “We have called on the Palestinian Authority time and again to renew direct peace talks. In the context of such direct talks many problems can naturally be solved more quickly and with improved efficiency.”

An Israeli official involved in reviving the Palestinian economy said roadblocks were still being removed, crossing points for goods and people continued to be upgraded and expanded industrial zones planned.

The official, who spoke on condition of anonymity because she was helping to prepare Israel’s report, said that further easing had been slowed by an increase in terrorist attacks in the West Bank in the last month.

Mr. Kanaan said that among outside donors the European Union had been the most generous in its aid to the Palestinian Authority, with $329 million earmarked for 2010. The United States has so far promised $75 million. But the Arab states have not clarified what they will give. The Palestinian Authority is expected to need $1.24 billion for its 2010 budget, and $700 million for public investment.

The Palestinian Authority needs to be able to export its goods for its economy to grow, and the Israeli restrictions make it difficult, the report said, especially because the West Bank has no seaport or airport. West Bank unemployment is at 18 percent.

Hasan Abu-Libdeh, the Palestinian national economy minister, said in a separate interview that exports were a serious problem.

“The cost of shipping goods from here to Tel Aviv is higher than to Brussels,” Mr. Abu-Libdeh said, because of Israeli security measures. He also accused Israel of failing to live up to promises to expedite industrial parks and large-scale projects, something the Israeli official denied.

Mr. Kanaan of the International Monetary Fund said his report would urge Israel to remove impediments to public and private Palestinian investment in the 60 percent of the West Bank currently under strict Israeli control.

He added that the 250,000 Palestinians of East Jerusalem needed far more assistance than the Arab world had provided, despite recent promises at the Arab League summit in Libya.