The International Monetary Fund expects the Palestinian economy to grow by 8 percent overall this year, after the West Bank economy grew by 9 percent in the first half and the Gaza Strip by a whopping 16 percent.

Open gallery view A Palestinian youth shopping at a supermarket in Gaza City. Credit: AP

This compares to growth of only 1 percent in Gaza for all of 2009, and of 8.5 percent in the West Bank for all of last year, according to a World Bank report published in April.

The IMF's report attributed Gaza's impressive growth in the first half of this year both to the easing of Israel's blockade - though most of this occurred only during the final month of the half - and to the fact that the comparable period of 2009 was so poor, due in part to the Israel-Hamas war that ended in January 2009.

"It's starting from a very low base after a very tight blockade," said Oussama Kanaan, the IMF representative in the West Bank and Gaza.

The assistance of international organizations, which launched various projects in Gaza during the first half of 2010, also contributed to the Strip's economic growth, the report said.

In the West Bank, the main drivers of growth were the financial reforms introduced by the Palestinian Authority and Israel's significant relaxation of restrictions on freedom of movement.

Nevertheless, the report said, Gaza's unemployment rate remains above 35 percent, and its per capita income is still only 60 percent of what it was in 1994, immediately after the Oslo Accords were signed. Moreover, it warned, the present rate of growth is unsustainable unless Israel removes its restrictions on exports from the Strip and on imports by Gaza's private sector.

In the West Bank, it added, growth will slow unless Israel removes restrictions on exports from the West Bank to Israel and East Jerusalem, and eases movement restrictions on Palestinian traffic in Area C, the approximately 60 percent of the West Bank that is under full Israeli control.

The IMF praised the PA for improving tax collection in the West Bank, thereby increasing its own revenues, while also cutting and sensibly prioritizing expenditures. These factors combined to lower the PA's deficit, which is covered by foreign donations, from $1.8 billion in 2008 to $1.2 billion this year.

However, the fact that several donor countries have thus far failed to transfer their pledged donations has forced the PA to borrow from local banks to cover the resultant $300 million funding gap.

The report, which will be presented to a meeting of donor countries in New York on September 21, urges the PA to implement a long list of additional reforms in order to further improve its economy, such as streamlining the process of opening a business and reforming its public-sector pension system.