The discussion of the economic implications of the negotiations between Israel and the Palestinians has recently made it to the headlines. Media attention has been focused on, among other related issues, the possibility that a boycott will be imposed on Israel in case it is perceived as responsible for the failure of the diplomatic negotiations on a peace agreement.
It is still too early to tell whether this boycott scenario would indeed materialize in case of the failure of the negotiations. Yet, another question concerns the extent of the impact of such a boycott on Israel, should it actually be declared. Anyway, if, after all, Israel is faced with an embargo, it could take quite some time before it would be able to tackle the situation and come up with an adequate response.
As it turns out, the experience of recent years shows that neither wars nor any geopolitical events have had any real significant economic impact on the Israeli economy, or any long-term financial implications, for that matter. Be that as it may, in case the negotiations fail, the repercussions this time are liable to be more serious than ever before. Too many threats are heralded from different directions, above all by the major European countries. Even the United States has warned against the [potential] economic and security consequences of the failure of the negotiations.
Yet, it is not only the Israeli side that stands to lose. As a matter of fact, the implications of failed negotiations for the Palestinian Authority are bound to be far more wide-ranging than for Israel, and, unlike the case for Israel, the impact on the authority would be unavoidable.
The Palestinian economy is faltering. According to the International Monetary Fund (IMF) assessments, in 2013 the Palestinian economy grew by a mere 1.5%, while unemployment soared to 25% — a notably high unemployment rate, on a par with that of Spain
The Palestinian government has been accumulating debts and defaulting on payments for quite a long time, and the Palestinian budget deficit in 2013 amounted to nearly 14%. At the same time, growing pressures have been exerted on the Palestinian government by the public. Thus, for instance, Palestinian Authority employees demand wage raises that — if granted — would further deplete the dwindling public coffers.
An even more critical issue [for the Palestinian Authority], which is contingent on the success of the [negotiations on an] agreement with Israel, has to do with the Palestinians’ dependence on foreign aid. The various international parties, first and foremost, the United States and the European Union, have been streaming close to $1 billion a year to Palestinian Authority coffers. In the Gaza Strip, foreign aid plays an even more crucial role. The survival of four out of every five residents in Gaza is dependent on international aid.
In fact, the [Palestinian] dependence on foreign aid is so high that, when in 2012 the Palestinian Authority received only 80% of the promised aid, the immediate effect on the Palestinian economy was an economic recession — the first in a decade.
However, to a large extent, future aid to the Palestinian Authority by aid organizations and foreign states is expected to be conditional on the outcome of the negotiations on an agreement with Israel. In the event the negotiations fail and no agreement is reached, and, in particular, if the Palestinians are perceived as the party responsible for torpedoing the agreement, the foreign aid they receive may be curtailed. In that case, the Palestinian Authority could be faced with the risk of economic collapse. On the other hand, if the parties succeed in bridging the gaps and reach an agreement, the Palestinians may well benefit from a massive increase of resources and donation funds for new investments.
However, [even if eventually reached,] the agreement is not expected to have the same [beneficial] effect on the economy as the Oslo Accord had at the time. The Oslo Accord resulted in increased foreign investments and growth in exports, led to the opening of local branches of large international companies, and all in all accelerated [economic] growth. Alas, in the past two decades, the parties concerned have all been through too many bitter experiences and consequently, have become skeptical about the prospects for the future — too disillusioned, indeed, to expect similar economic growth to follow right away.
Nevertheless, [once reached,] the agreement is expected to have a far-reaching impact on the Palestinian Authority. According to the IMF estimates, the agreement would boost economic growth in the Palestinian Authority — up to an average growth rate of 6.5% [annually] in the years 2014-2019. According to World Bank estimates, once control over Area C — which constitutes 61% of the West Bank — is handed over to the Palestinian Authority and [economic] development of the area is stepped up, the Palestinian gross domestic product (GDP) will grow by about 35%. The development of the Palestinian economy and the accelerated economic growth expected in the wake of the agreement would reduce its dependence on foreign aid sources, lower the unemployment rate and reduce poverty [in the territories].
The banners adorning the streets in Israel recently assuring [Israelis] that the agreement will solve [our] numerous economic problems, are no less relevant to the Palestinians. In fact, as far as the Palestinians are concerned, the success of the diplomatic move may well be critical — far more decisive than it is for Israel.