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PALESTINIAN ECONOMY
REGULATORY FRAMEWORK AND INSTITUTIONAL SET-UP
Government
Pursuant to the Israeli-Palestinian accords, the PA is
composed of three branches:
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The executive, comprising the
elected President and a Council of Ministers
Executive powers are fully vested in the President of the
Palestinian Authority, directly elected by popular vote.
The President is responsible for nominating the Council of
Ministers, 80 per cent of whom should be members of the
Palestinian Legislative Council (PLC) and should be
approved by it. Currently, the Council of Ministers is
composed of 32 Ministers responsible for different
portfolios, including eight Ministers of State.
Ten Ministers are directly concerned with economic
development and trade-related issues: Minister of Economy
and Trade; Minister of Industry; Minister of Agriculture;
Minister of Supply; Minister of Finance; Minister of
Labour; Minister of Transportation; Minister of Tourism;
Minister of Public Works; and Minister of Communications
In addition, a number of other governmental agencies are
concerned with economic and trade issues: Palestinian
Economic Council for Development and Reconstruction;
Palestinian Environmental Authority; Palestinian
Industrial Estates and Free Zones Authority; Palestinian
Monetary Authority; Palestinian Central Bureau for
Statistics; Palestinian Civil Aviation Authority; Gaza Sea
Port Authority; Higher Commission for Investment and
Finance; and Higher Council for Development.
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The elected legislature - the
Palestinian Legislative Council
The PLC is composed of 88 democratically elected
representatives chosen in electoral districts established
in accordance with regional population distribution. The
current PLC was elected on 20 January 1996 for a five-year
term, which has since been renewed for two years. The PLC
is vested with the power to enact legislation and monitor
the performance of the executive. It has 12 standing
committees with the power of legislative review as well as
the power to adopt a vote of confidence in the executive.
All meetings of the PLC and its committees are open to the
public.
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The judiciary, composed of several
levels and types of civil and criminal courts
There are three levels of courts under PA jurisdiction.
All towns and villages have a Magistrates Court that deals
with small claims issues. At the second level there are
the District Courts that resolve larger claims. There are
two Districts Courts in the Gaza Strip and one in each of
the following cities: Jericho, Nablus, Hebron and
Ramallah. In addition, there are two High Courts: one in
Gaza that reviews appeals from the Districts Courts of
Gaza and Jericho, and one in Ramallah that reviews appeals
from the rest of the District Courts.
Even though the institutional environment under the PA is
a far cry from that under the occupation, it remains in a
state of flux, with relations among the three branches
continuing to evolve. As has been noted by several
international and Palestinian reports, PA institutions
suffer from a range of weaknesses, many of which have a
bearing on Palestinian economic performance and require
urgent remedies. Most notable in this respect is the
growing size of the PA institutions, which threats the
sustainability of public services.
Commitment to improving governance
The PA has designed several projects for strengthening
public institutions, including the establishment of the Higher
National Committee for Institutional Development (HNCID) in
August 1999 initiating the process of administrative reform.
The committee is charged with developing public institutions,
following up on all domestic and international reports on
Palestinian institutional reform, and presenting to the
Cabinet operational measures for ensuring successful reform.
These measures are managed by an independent body, the
Administrative Improvement Unit (AIU), which was established
in February 2000. Increasing evidence of the rule of law in
all aspects of Palestinian life is an encouraging sign for
future economic and social development. The PA has created a
strategic framework development scheme - the Rule of Law
Strategic Development Plan - with a view to identifying and
prioritizing needs within each of the subsectors of the rule
of law domain. It has also created a rule of law core group -
the Core Group on the Rule of Law - to focus specifically on
the continuing needs in this sector, to develop and propose
plans of actions to address these needs, and to monitor
progress made. However, political turmoil since 2000 has
diverted attention to emergency needs generated by
deteriorating economic conditions, thus making it difficult to
proceed with planned reforms.
Laws and regulations
The PA has prepared a range of new draft laws governing
political, social, economic and other activities. By mid-2000,
a total of 128 draft laws had been submitted to the Ministry
of Justice for review and transmission to the Council of
Ministers and the Legislative Council. Of these, 40 had been
signed into force, while another 20 are at different stages of
legislative review, including some on important economic and
business matters. Among those that have a direct bearing on
the economy are the Organic Budget Law, Industrial Zones and
Industrial Free Zones Law, Banking Law, Insurance Law,
Securities Law, and Secured Lending and Leasing Law, while the
PLC is discussing a new income tax law. Only when the full
range of pending laws and regulations affecting the economy
have been drafted and passed will it be possible to abandon
the complex and inconsistent legal framework inherited from
successive administrations during the twentieth century.
Economic policy
The PA has committed itself to the establishment of a
free-market economy that is stimulated by a vigorous private
sector. This commitment is spelt out in the PA's overall
development strategies, which limit its role to ensuring a
conducive institutional set-up that would empower the private
sector through incentives and built-in mechanisms for ensuring
active participation in policy-making.
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The Palestinian Development Plan
The Palestinian Development Plan (PDP) for 1999-2003
constitutes an initial framework for allocating resources for
the development of the Palestinian economy. It has served as
the principal instrument for linking Palestinian
reconstruction needs and development programmes with
international donor resources. The PDP is based on number of
principles, which together constitute short- and medium-term
goals, summarized as follows:
- The Palestinian economy is private-sector-driven and
market-based. The role of the public sector is limited to
establishing an enabling economic environment through the
legislative framework and the rule of law, as well as the
management of institutions providing services to the
private sector.
- As a direct result of the small size of the Palestinian
market and the changing regional and international
economic environment, growth in the Palestinian economy
relies on the creation of an open market, and the
capability to access new markets for Palestinian products
and services.
- The Palestinian development strategy gives priority to
the development of human resources as a pivotal factor in
the economy. This is achieved through the creation of
employment opportunities and the reduction of dependence
on external labour markets, as well as through the
creation of sectoral development strategies, including
training in the trade in services and information
technology.
- The utilization of the special assets relating to the
geographical and historical position and tourist
attractions to enhance the tourism industry.
- The enhancement of the role of the Palestinian economy
both regionally and globally in order to integrate it into
the multilateral trading system.
- Improvement in the competitiveness of the Palestinian
economy through the development of higher technology to
achieve international standards.
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Economic policy framework
A key step to the path to improved management of public
finances was taken with the establishment in January 2000 of
the Higher Council for Development, consisting of the
President and the Ministers of Economy and Trade, Finance, and
Planning and International Cooperation. The Council was
entrusted with a clear and unequivocal reform mandate, as
presented to the donor community in mid-2000 under the
Economic Policy Framework (EPF), developed in collaboration
with the International Monetary Fund.
The Council's work programme includes consolidation of all
public revenue in one central account, enhanced public
investment policies, strategies and instruments, a commitment
to privatize commercial holdings and enhanced oversight of
public debt operations. These functions to be implemented by
the respective Ministries will be subject to full
accountability and transparency, while also benefiting from
policy coordination at the highest levels of the Palestinian
Authority, as well as with donors and multilateral
institutions.
The overall objective of the EPF is to ensure that economic
policies over the coming years make a positive and significant
contribution to overcoming the challenges facing the
Palestinian economy. In the first stage of its work, the EPF
was intended to focus sharply on policies to strengthen fiscal
management, enhance transparency and governance in the PA
commercial and financial operations, improve banking
supervision and strengthen the legal and regulatory framework.
By mid-2000, significant progress had been made in revenue
consolidation, as well as disclosure of commercial holdings.
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National Economic Dialogue
The National Economic Dialogue was launched in 1999 with a
view to enhancing a progressive dialogue between the private
sector and the PA. Administered by the Palestinian Economic
Council for Development and Reconstruction (PECDAR) and the
World Bank with the Palestine Trade Centre (PALTRADE) as the
executive body, the project aims at reducing fragmentation in
policy-making, identifying and prioritizing the private
sector's interests, and suggesting recommendations with regard
to key policy issues.
The project was implemented in a phased manner whereby the
first phase entailed the formulation of a list of priorities
for policy makers through workshops including representatives
from the private sector and research institutes. After a
series of workshops conducted in 1999 participants formulated
a comprehensive list of priorities, which included 25 policy
issues divided into four major groups, among which were issues
pertaining to Israeli restrictions, local government practices
and policies, economic uncertainties, and issues pertaining to
the challenges stemming from globalization policies. The
second phase entailed formulating white papers on major policy
issues. These were discussed at a conference held in mid-2000,
which brought together PA officials and representatives of the
private sector, before being submitted to the PA through the
Ministry of Economy and Trade.
Physical infrastructure and public services
One of the most problematic legacies inherited by the PA is
the poor state of the basic physical infrastructures,
resulting from many decades of minimal investment and poor
maintenance. Compared with that in neighbouring countries,
infrastructure in the Palestinian territory is underdeveloped,
thus perpetuating poor and deteriorating public services, and
constitutes a significant brake on growth and development.
Public utilities are mainly government-owned and operated,
although privatization has begun and measures in this
direction are expected to proceed gradually. However, the
private sector's contribution to investment in physical
infrastructure is confined to telecommunications. The PA has
launched a comprehensive programme to rehabilitate physical
infrastructures and social services in the territory under its
jurisdiction. In these areas, the major constraints on greater
achievements have been largely external, i.e. lack of
resources and the inherent uncertainties facing any attempt by
the PA at long-term physical and development planning.
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Road networks
Palestine's road network is 4,900 km long, covering an area
of around 6,000 sq. km, of which 2,500 km are external roads
that connect major cities with each other and with border
crossings. All main roads consist of two lanes with the
exception of around 13 km of four-lane divided roads around
Jerusalem. The width of the main roads ranges between 4 and 7
m, while the width of the regional roads ranges between 3 and
6 m and that of the local roads is 3 m.
The network is in poor shape, with 56 per cent of the roads
requiring rehabilitation, and is characterized by a low level
of services; the number of meters of paved roads per 100
people does not exceed 80 compared with 266 m in Israel. This
is only to be expected since Israeli investments in this
sector during the occupation period were minimal and aimed at
ensuring geographical continuity between Israeli settlements
and Israel.
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Airports
At present, there is only one Palestinian airport - Gaza
International Airport - which is located near Rafah in the
southern part of Gaza. There are plans, however, to establish
a second airport - in the West Bank. The Gaza airport, which
began operations in November 1998, has one runway, which is
3,080 m long and 60 m wide, and is designed according to the
international standards laid down by the International Civil
Aviation Organization. Accordingly, it is capable of receiving
most types of aircraft including the wide-bodied jumbo jets.
So far, it has been used for facilitating the transport of
passengers with Palestinian Airlines, which operates regular
flights to Amman, Cairo and Larnaca.
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Seaports
The PA is in the process of establishing a seaport, five km
from the southern border of the Gaza Strip, to provide
international access for Palestinian traders, particularly to
industrial estates in the immediate vicinity. The deep-water
seaport - Gaza Sea Port - will also serve the West Bank and,
if economically feasible, further into the Arab hinterland.
Future plans include the establishment of strategic links with
the neighbouring ports of Egypt, Ashdod, Beirut and Cyprus.
Construction work being financed by a number of European
countries, and will proceed in three phases to avoid budgetary
pressures. The first phase includes the construction of a dam,
almost perpendicular to the shoreline, with a berth of 600 m
in deep water and an additional petroleum products berth. By
the end of this phase, the port will be able to receive small
container vessels with a maximum size of 15,000 deadweight
tons; however, equipment, including mobile cranes, will be
elementary. The second phase involves the construction of a
multi-purpose container terminal with the ability to handle
larger vessels. During the third phase, the breakwater will be
expanded and a new multi-purpose terminal will be constructed
in the centre of the harbour basin to handle larger vessels
(50,000 to 70,000 deadweight tons) that will enable the port
to function as a major trans-shipment facility.
Construction activities began gradually, as of November
1999, with plans to conclude the first phase in 2001. However,
events since September 2000 resulted in suspension of the
project, and Israeli authorities have not permitted
construction to resume.
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Electricity
Lacking generative capacity of its own, the PA relies on
Israel for obtaining electric power. As a consequence, about
140 villages use small diesel generators. When available,
electricity services from Israel are often interrupted because
the villages are far from the Israeli electric grids.
Palestinian electric networks operate in poor conditions,
owing to a lack of proper facilities and technical expertise.
Consequently, they suffer from insufficient maintenance, which
causes 20 per cent or more of electric power to be lost, and
have inadequate consumer tariffs. Per capita consumption of
electricity is substantially lower than in neighbouring
countries.
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Telecommunications
Per capita ownership of fixed telephones in the Palestinian
territory was, until recently, still lower than in
neighbouring countries. The Palestine Telecommunications
Company (PALTEL), formed in 1995 by a group of Palestinian
expatriate and domestic investors, together with a PA minority
shareholding, has become the driving force in the sector.
PALTEL has increased the number of fixed and mobile telephones
considerably and played a major role in preparing Palestinian
communications infrastructure for integration into global
networks in accordance with international standards.
Meanwhile, a Palestinian international direct dial code (970)
and Internet domain (.ps) were recently endorsed by the
competent international bodies.
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Water networks
The Palestinian territory has a serious water supply problem,
including shortages and deterioration in quality, resulting in
both seawater seepage and depletion of aquifers. The adverse
situation of Palestinian infrastructure is illustrated by the
fact that only 25 per cent of households are connected to
sewerage networks.
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Education and health services
Administration of the educational system is divided among
the PA, the United Nations Relief and Works Agency for
Palestine Refugees in the Near East (UNRWA) and the private
sector. In the academic year 1997-1998 there were a total of
76,467 students, a 7 per cent increase over the previous year.
Public schools run by the PA cater for the majority of the
students (68 per cent of the total number of students). UNRWA
is the second most important provider of education services
(26 per cent) and the private sector provides primarily for
pre-school and for vocational and university education.
The education sector is significant for the PA: it usually
accounts for one fifth of its total budget, and teachers
constitute around 5 per cent of the labour force. In 1996, the
PA divided responsibility for the education sector between the
Ministry of Education (MoE), responsible for pre-tertiary
education, and the Ministry of Higher Education (MoHE),
responsible for post-secondary education. The tasks facing the
ministries are challenging, the most pressing one being to
expand the educational system in order to absorb the yearly
increase in students. Another task is to overhaul the
structure, with the aim of creating a new unified system
strategically designed to meet the requirements of economic
development and growth.
Like education, the health sector in the West Bank and Gaza
Strip has a diversified institutional structure. In 1995,
total expenditures on health services were estimated at $250
million, equivalent to around 7 per cent of gross domestic
product (GDP). Four major sources provide health care. The
Ministry of Health (MoH) provides selected primary health care
for all Palestinians. It also services those insured by
government insurance through nine hospitals in the West Bank
and five hospitals in the Gaza Strip. UNRWA provides direct
primary health services, including prescription and
non-prescription drugs, to refugees. Non-governmental
organizations (NGOs) constitute an important group, operating
non-profit clinics in rural areas. The private sector is
mainly involved in the provision of secondary health services
and is concentrated in urban areas.
Although Palestinians in the West Bank and Gaza Strip spend
7-9 per cent of GDP on health services, a relatively high
share, they continue to receive inadequate health care in
terms of coverage and quality, and the availability of health
services lags behind the availability of such services in
neighbouring countries. Although the MoH started to coordinate
and pool its efforts with those of UNRWA and NGOs, especially
in the domain of primary health, it still faces a number of
challenges. Expanding insurance protection to cover poor
families is a major task, which is likely to call for major
reform of the whole insurance structure, making it compulsory
and providing it with a more solid financial foundation.
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