$1.2 Billion Emergency Assistance for the West Bank and Gaza

Exclusively released from Washington, D.C.

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With an agreement on the implementation of the Declaration of Principles between the Palestinians and the Israelis at hand, it is important that the international community focus on the economic and social needs of the Palestinians in the West Bank and Gaza. To support the effort, the World Bank is releasing a 49-page report entitled: “Emergency Assistance Program for the Occupied Territories.” The report outlines a three-year $1.2 billion program to assist the Palestinians in the transition to autonomous rule.

“If the peace process has any hope of success, the Palestinians need to see improvements in their living conditions very quickly,” says Caio Koch-Weser, World Bank Vice President for the Middle East and North Africa Region. “The Program and the funds behind it are for the immediate needs of the Palestinians and will help create a new physical and social infrastructure, provided political stability can be maintained.

“The international community is betting that this Program can jump-start the Palestinian economy over the next three years. We are optimistic because the Palestinians are enterprising and well- trained.”

The goal of the Program is to rebuild the dilapidated infrastructure of the Occupied Territories in order to stimulate economic growth by attracting private investment from expatriate Palestinians, international investors, and Arab states. About $200 in aid per person per year would flow into the Occupied Territories over the next three years.

The 49-page summary report — Emergency Assistance Program for the Occupied Territories — is an outgrowth of the World Bank’s September 1993 six-volume economic report, Developing the Occupied Territories: An Investment in Peace, which identified the major problems and needs of the West Bank and Gaza. This report distills the many findings and recommendations of a two-volume document entitled: Emergency Assistance to the Occupied Territories issued in March, 1994.

The World Bank staff believe that the Program is viable. However, the Bank does not call it a blueprint. “The Program has to be treated very flexibly because of all the uncertainties,” says Mr. Koch-Weser.

The Program has been jointly prepared by the Bank’s staff and a dedicated team of Palestinian counterparts. Representatives of donor countries, Israel, and regional and international organizations also participated in its preparation.

The Program is designed for the Palestinians to take economic management into their own hands. “The donors are providing the resources and tools to make the Program work,” says Mr. Koch-Weser. “However, the donors want accountability. They want to know that their funds are being well-spent.”

The $1.2 billion is the initial installment of the $2.1 billion originally pledged over five years to the Palestinians by 40 international donors at the October 1, 1993 conference held at the U.S. State Department in Washington (the pledges subsequently increased to $2.4 billion). The largest pledges have come from the European Union – $600 million over 5 years; United States – $500 million over 5 years; Japan – $200 million over 5 years; Norway – $150 million over 5 years; Saudi Arabia – $100 million over the first year; Italy — $80 million over 5 years; and Israel — $75 million over 5 years.

The World Bank is contributing $50 million to the Emergency Assistance Program. It also helped the Palestinians put together the Program, which analyzes every important sector in the West Bank and Gaza from human resources — schools, health and training — to transportation, power, and housing.

In the first year, the Program calls for committing $393 million, the second year –$379 million, and the last year $428 million. In the first three years, Gaza will get $492 million and the West Bank will receive $708 million. The remaining $1.2 billion in pledges is to be committed in the fourth and fifth years of the Program.

Over a five-year period, annual aid to the Occupied Territories will reach about 15 percent of its Gross Domestic Product (GDP), which is about the most any country can absorb, notes Mr. Koch-Weser. “Even though the aid flows are relatively significant, we think the economy can absorb it, without becoming over-dependent on aid in the long run,” he adds.

Donor funds will be disbursed through many different channels. Initially, the funds will go through the newly-formed Palestinian Economic Council for Development and Reconstruction (PECDAR), municipalities, non-governmental organizations (NGOs), and United Nations agencies such as the United Nations Relief and Works Agency and the United Nations Development Programme which already operate in the Occupied Territories. The NGOs will receive an estimated $117 million from the pledged assistance, over the 3-year Program.

Of the $1.2 billion, $600 million will go to finance public investments in transportation, water, solid waste, power, agriculture, telecommunications, housing, education and health. The West Bank will get $366 million and Gaza will receive $234 million .

Start-up expense — funds required from donors for the central administration and additional support for NGOs already operating in the Occupied Territories — total $225 million for three years.

The Program’s proposed support to private sector investments in telecommunications, housing, agriculture, and industry will amount to $300 million.

About $76 million will go to technical assistance which encompasses institution-building activities, policy and feasibility studies, and project preparation and implementation.

The Palestinians in the Occupied Territories had a per capita GDP of about $1,275 per year in 1992, compared to $1,150 for Jordan and $630 for Egypt. However, services such as power, water, and telephone are on par with the least-developed countries in the world, according to World Bank analysts. “The Program will impact on the Palestinian quality of life and create the right environment for private sector investment,” says Mr. Koch-Weser.

Some progress will come quickly. During 1994, Palestinians should see the beginning of sewer construction and new solid waste handling, predict Bank experts.

Mr. Koch-Weser cautions not to expect poverty to be eliminated in the first few years. He also warns that the $1.2 billion in aid can create administrative bottlenecks, especially because many projects will be financed by a multitude of donors. Additionally, many investments in the power, transportation, water and wastewater are dependent upon engineering studies. Producing those studies will be time-consuming.

The Program was initiated in October 1993. Referring to the process of putting the report together, Prem Garg, coordinator for the World Bank Task Force on the Occupied Territories said “there has been tremendous cooperation and professionalism on all sides.” Bank officials are impressed with the skills, training and education of the Palestinians. “Many of our Palestinian counterparts have been working all over the world,” says Mr. Garg. “They have the technical ability to govern and implement the Program.”

The Program was careful not to create a large government bureaucracy. “The Palestinians start with one great advantage: there are no public enterprises in the Occupied Territories,” says Mr. Garg. “They can learn the lessons from around the world about creating a balance between the public and private sectors. The private sector should be the engine of growth.”

According to the Program, there are some major problems that need to be overcome:

  • The new Palestinian Administration needs to establish an effective financial system in the Territories.
  • The different legal systems–from the Ottomans, the British, the Jordanians, the Egyptians and the Israelis — that are now applied in the Occupied Territories, are creating chaos in zoning and land ownership, among other things.
  • Though the establishing and staffing of PECDAR is an important first step in capacity building, the Palestinians must quickly build other self-governing institutions in order to absorb the aid efficiently.
  • Donors must adhere to the spirit of the Emergency Assistance Program, and effective aid coordination is vital to the success of the Program.

THE PROGRAM EXAMINES MANY ECONOMIC SECTORS IN DETAIL:

TRANSPORTATION – According to the Program, the coverage of the road network serving the Palestinian communities is adequate, but because of poor maintenance over the years, it is disintegrating. If the road network is not to be lost completely, it needs immediate attention.

Congestion is particularly severe in Gaza and in the Ramallah/Al-Bireh/Jerusalem/Hebron corridor. Some villages lack access to all weather roads. Roads within towns and villages are also in poor condition, particularly in Gaza where inadequate drainage results in frequent local flooding and flood damage. All these conditions contribute to increased urban travel times and cost. The Program calls for an investment of $73 million in this sector: $27 million for Gaza and $46 million for the West Bank.

WATER SUPPLY AND WASTEWATER TREATMENT- The average Palestinian uses about 50 liters of water per day, compared to 115 liters per capita for Tunisia, 137 liters for Jordan and 230 liters for Egypt.

Currently, in excess of 100 million cubic meters per year–mostly used for irrigation– are being withdrawn from the Gaza aquifer. Engineers estimate that only 50 to 60 million cubic meters per year can be withdrawn on a sustainable basis. Because of high withdrawals, the water is becoming more saline. The Palestinians of Gaza have intermittent water supply and low pipe pressure which, in turn, allow infiltration and contamination of the network.

Few West Bank villages and towns have adequate access to water supply.

In the Occupied Territories, most water supply networks are in urgent need of upgrading. Water networks are generally old, unaccounted-for-water frequently exceeds 50 percent, many water supplies are inadequately chlorinated and water departments are generally understaffed and underfunded.

Most sewage in the Occupied Territories is discharged untreated, resulting in environmental contamination. Few villages have wastewater collection systems and reuse of wastewater for irrigation has not been developed so far in the Occupied Territories.

The three-year Program for water supply and wastewater treatment estimates the cost at $111 million, with Gaza receiving $44 million and the West Bank $67 million.

SOLID WASTE – Gaza generates an estimated 950 tons per day and the West Bank 1,200 tons per day. Because of inadequate numbers of containers and vehicles, refuse collection reaches only 50 to 70 percent of the homes and businesses in most villages and towns. In addition, most trash trucks are old and in disrepair.

Hospital and slaughterhouse wastes are collected together with general refuse and are discharged in open dumps. Nearly all construction debris and pumped material from septic pools and tanks are discharged illegally.

The Program calls for $57 million for sanitary landfill facilities, 46 rear-loading compacting trucks, 13 bulldozers, 1,196 large trash containers and 3,140 smaller dumpsters.

POWER – In Gaza, Palestinians are limited in both quality and volume of electric service. About 20 to 40 percent of low-voltage lines are in poor condition due to lack of maintenance, overloading and aging, and must now be rebuilt. Transformers are also overloaded. Electrical losses from these conditions reach 20 percent, about 3 times the norm for comparable well-run systems.

In the West Bank, 7 percent of the population has no access to electrical service. Another 71 communities with a population of 221,000 receive 6 – 12 hours of electricity per day.

Municipal power operations have not been run on a commercial basis. Nearly all are short of revenue. They do a poor job billing and collecting for services, and net revenues are insufficient to even meet the costs of purchasing electricity.

The Program calls for total spending of $108 million in this sector over the three-year period. The West Bank will receive $76 million and Gaza will receive $32 million. The funds will go to construct operating centers, buy electrical equipment, rehabilitate lines, buy vehicles, billing systems and computers.

TELECOMMUNICATIONS – The Palestinians have about 2.9 telephones per 100 inhabitants, low compared to their income and neighbors — 3.2 telephones per 100 for Egypt, 4.1 for Syria and 34 for Israel.

The Program says there is a large suppressed demand for phones. Backlog for new connections in the West Bank is 30 percent of the lines in use. In the Gaza Strip, the waiting list for new phones is more than 40,000. Some have been waiting for as long as 23 years.

Besides the lack of lines, few Palestinians are experienced in telecommunications. Currently the sector is totally dependent on the Israeli telecommunication infrastructure.

The Program calls for installation of 57,500 new subscribers between 1994-1996. It is estimated that $100 million will come from the private sector and $13 million from the public funding under the Emergency Program.

HOUSING – Housing is one of the critical needs in the Occupied Territories. Its population growth rate of 3.3 percent per year is high by international standards. Household formation, reported at 5.4 percent over the past 5 years, is also occurring rapidly. In addition, there are an estimated 3.5 million Palestinians living abroad, and it is uncertain how many will return. Even if only a small percentage returns, it would place a considerable strain on available housing.

About 50 percent of the population in Gaza and 10 percent in the West Bank live in refugee camps located in the main cities, with terrible living conditions. Overcrowding outside the camps is also high for the income level of the Occupied Territories — an average of more than 2.3 persons per room.

The housing structures are generally in poor condition and services are inadequate, leading to generally poor environmental conditions.

The price of new housing is high by comparable international standards, with median new house prices averaging about $75,000, or about 7 times the median annual income. Financing is also a major constraint. The only short-term credit available is for new luxury apartments.

The lack of land is another major constraint. The State owns 30 percent of all land in Gaza and this land is not now available to Palestinians for development. Only about 50 percent of the land in the cities has clear land titles. Palestinians also hold land as a source of wealth and a hedge against inflation, keeping a significant share of developable land off the market and driving up prices.

The focus of the Emergency Program will be to create an institutional and regulatory framework that will support private development of housing, rather than constructing public housing.

The strategy emphasizes steps toward expanding the supply of developable, serviced land in urban areas and promoting the provision of credit to the private sector.

Assistance for housing of $10 million a year for three years would be directed toward upgrading the worst refugee camp housing.

Another component involves support of about $80 million to private developers to expand the Program for low and moderate income families on a sustainable basis.

EDUCATION – Education is the key to the future success of the Palestinian economy, primarily in its ability to compete in the fast-paced world economy. In order to build on the competitive advantages provided by its relatively low wages and its proximity to major international markets, the Palestinian economy will have to develop a very high quality, exceptionally flexible labor force, prepared to respond rapidly to new needs.

The core problem confronting the Palestinian educational and training is quality. The system has been designed to transmit knowledge rather than to develop capacities for critical thinking and skills in solving complex problems.

The educational system must change to provide a thorough grasp of basic principles of science and mathematics and excellent skills in verbal and written communications.

Almost all children attend primary school in the Occupied Territories, while 40 percent attend secondary schools. Most pre-schools and universities are operated by private voluntary organizations.

There are 8 universities – two in Gaza and six in the West Bank – with a total enrollment of 20,484 students. In addition, 20 community and technical colleges – 4 in Gaza and 16 in the West Bank – have 7,364 students.

The Emergency Assistance Program identifies three urgent investment categories:

  • Support for recurrent expenses for pre-schools and universities.
  • Improving the teaching and learning environment by adding library, computing and laboratory facilities, and construction that will benefit 17,000 classrooms, of which 3,500 are located in Gaza.
  • Upgrading the physical program to reduce overcrowding and the conversion of triple shift schools to double shift operation. About 60 percent of the Program for 80 schools would be located in the West Bank.

The total cost of public investments in education is estimated at $80 million.

HEALTH – The health sector infrastructures are less in need of repair, the Program states. Life expectancy at birth is about 66 years. The infant mortality rate is between 45-50 deaths per thousand live births, which compares favorably to other lower middle-income societies. The communicable diseases of childhood, acute dehydration, acute respiratory infections and malnutrition are no longer common problems, though there are pockets of high incidence.

Currently health care costs are about 10 percent of GDP. World Bank experts do not think that that level can be sustained. The Program says “future policies must focus on increasing the internal efficiency of the health sector and controlling the overall costs of health care, rather than expanding the system, particularly at the hospital level.” For example, small, inefficient hospitals have been allowed to proliferate. Two-thirds of all hospitals have fewer than 100 beds.

The Program calls for about $18 million in health spending over three years.

THE AGRICULTURE SECTOR – Agriculture accounts for more than 25 percent of GDP in both the West Bank and Gaza. Overall agricultural production has been rising, but the level cannot be sustained over time. In addition, exports have been falling since the 1970s.

Agriculture is experiencing this growth despite restrictions on internal distribution, constraints on access to natural resources, declining levels of private and public investment and little introduction of new technologies. The paradox is explained by lack of opportunity in the overall labor market and by growing unrecorded exports to Israel.

In terms of the Program, defining and strengthening public functions being transferred to Palestinian control will be high on the agenda. The strategy will also focus on dialogue with the Israelis on the agricultural trade, sector policy and regulatory issues.

Even during the life of the Emergency Assistance Program, investment in productive activities should in principle be left to private investors. Past practices of supporting and subsidizing farmers through semi-public schemes funded by public donors should no longer be encouraged.

The Emergency Assistance Program supports three categories of activities:

  • Infrastructure investment, including construction of rural roads, refurbishment of public wells, and investment in environmental activities, such as erosion control.
  • Institutional strengthening, including agricultural education, training and extension, support and training programs for rural women, improvement of food safety and management of pesticide use; and
  • Support for private sector activities.

Under the Program, about $46 million will go to agriculture from public and private sources.

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