A UN reports links all of the Palestinian economy's dire problems to the Israeli occupation and associated constraints. Aid from the EU and others is merely a sop for political failure

There are many good news stories in the world of international development at the moment, with some of the world's poorest countries experiencing the growth that has eluded them for decades. But a report released by the UN Conference on Trade and Development (Unctad) on Tuesday makes it quite clear that Palestine is not one of them.

A quick look at the report's section headings gives an immediate picture of how desperate the situation is: aid-driven, jobless economic growth, with an eroded productive base; erosion of manufacturing capacity; broad economic divergence between Gaza and the West Bank; high levels of poverty and food insecurity; high and persistent unemployment undermines the quality of human capital; separation barrier deepens isolation from global markets; heavy dependence on trade with Israel, and a worsening trade deficit; fiscal vulnerability remains high, despite austerity measures; withholding [Palestinian Authority] customs clearance revenue aggravates fiscal instability; indirect imports from Israel and lost Palestinian revenue.

An idea of the desperation facing the Palestinians is given by a 2010 survey conducted by the World Food Programme, the Food and Agriculture Organisation and the Palestinian Central Bureau of Statistics, which says: "Palestinian people have used various strategies to cope with poverty and food insecurity under prolonged Israeli occupation. These strategies have included – in addition to borrowing – receiving food support from family and friends, restricting food to adults in order to feed children, reducing health and education spending, running down savings, and selling off jewellery, furniture and productive assets. The top three coping strategies used are deferring payment of utility bills, lowering the quality and quantity of food intake, and borrowing."

The litany of problems appears endless. While it is tempting to reel off the plethora of depressing statistics provided in this report, it is perhaps better to reflect on the salient theme – Israel and the occupation. No attempt is made to describe the problems facing the Palestinian economy without reference to the continued occupation and associated constraints.

Unemployment (at 30%, and 43% for under-30s), manufacturing and agricultural decline (despite a recent upturn), large-scale revenue losses, "dire" humanitarian conditions, worsening socioeconomic indicators – all these issues and more are linked explicitly and repeatedly to the political situation.

At a time when the world of aid and international development seeks every opportunity to leave politics to one side in favour of supposed win-win technocratic or technological solutions to development problems, it is helpful to see such clear links being drawn between politics and socioeconomic indicators.

Trade is disrupted by checkpoints, the separation wall, and general restrictions on the movement of people and goods. Attempts to increase revenue are hampered by stagnant trade and compounded by the unpredictability of Israel's relinquishing of customs monies owed to the Palestinians.

The picture painted implies that no amount of sensible economic policy will make much of difference while the political situation remains so inauspicious, and this certainly accords with theory. In conflict and unstable situations, it is inherently hard to achieve poverty reduction.

Foreign aid is a crucial actor in this drama; it is propping up an unsustainable situation. Aid at its best should seek to catalyse sustainable change; Palestine appears to be an example of aid as long-term life support, with no endgame in sight. It is now the 10th largest recipient of official development assistance, above Tanzania, Mozambique and Bangladesh. The EU is particularly generous – Palestine is the second biggest recipient of EU aid after Turkey.

On Monday the European commission announced its latest assistance package, totalling €115m ($166m), and bringing total EU aid to €300m for the year. The press release says that "local business" is at the heart of the package, which "shows clearly the EU's standing commitment to the two-state solution by supporting those institutions which will help to form the Palestinian state, as well as ongoing help to [the UN Relief and Works Agency for Palestine Refugees] UNWRA's work in providing essential assistance in different areas, including education, health and social services to the refugee population."

Of course aid is welcome, especially humanitarian relief. But perhaps donors should glance at this Unctad report. While donors showcase their increasing generosity to Palestine in their annual reports, that generosity appears more than ever to be a function of their inaction in the face of Israel's continuing attempts to undermine any chance the economy has to get back on its feet, let alone prosper. Aid, as so often, is a sop for political failure.

As Palestinian leaders step up their campaign for statehood at the UN, this report will lend weight to the urgency of their cause. While the case is often made in terms of human rights, history, sovereignty and justice, this is the case for statehood based on development prospects – with no viable state, Palestinian men, women and children will stay poor. Instead of ever-increasing amounts of aid, it may be time for the EU and others to address the causes of the problem.