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A slow crawl: Palestinian 2011 GDP growth to slow

A slow crawl: Palestinian 2011 GDP growth to slow

Real GDP growth of 3.6 percent this year doesn’t live up to the 9 percent in 2010.
Expects to issue $50 mln sukuk in third quarter

September 15, 2011 3:15 by



Palestinian economic growth is likely to slow sharply this year due to unrest in the Middle East and uncertainty around a statehood bid, but remain positive at around 3.5 percent, the Palestine Monetary Authority governor said on Wednesday.

“Our expectation for 2011 has been marked down…It started with the impact of the Arab Spring and the uncertainty associated with the economic upheavals in the region,” Jihad al-Wazir told Reuters ahead of a meeting of Arab central bank governors in Qatar’s capital.

“Our expectation is that our GDP growth this year will probably be between 3.4 to 3.6 percent,” he said. “It was around 9 percent last year, so quite a drop compared to last year.”

Earlier this week, the World Bank cut its real GDP growth forecast for the Palestinian territories to 7 percent from 9 percent this year.

The Palestinians, a stateless people, do not have their own currency and the Israeli shekel is used for most day-to-day cash transactions. The Palestinian Authority governs part of the West Bank and Gaza strip.

STATUS SYMBOL FOR A STATELESS PEOPLE

Palestinian officials have vowed to upgrade their UN status, either by seeking full United Nations membership for a Palestinian state in the Gaza Strip and West Bank or recognition as a “non-member state.”

Palestinian President Mahmoud Abbas has said he wants the world to recognize a Palestinian state at the General Assembly in September and support its admission to the United Nations.

Wazir also said the wait-and-see attitude to what was going to happen in September and Israel’s response were adding to the economic uncertainty and lower growth.

The PMA regulates 18 banks operating in the Palestinian territories, occupied by Israel in a 1967 war.

Total bank capital reached $1.1 billion at the end of 2010, Wazir said, compared with a mere $220 million in 2006.

“On the financial stability side, we have recently done a stress test … All banks passed the stress test in terms of capital adequacy and liquidity,” Wazir said.

Palestinian economic growth in recent years had been spurred mainly by donor aid rather than the private sector.

STUNTED GROWTH

“Private sector growth has stagnated over the last two quarters, driven by the political uncertainty of what is going to happen in September as well as the uncertainty associated with the Arab Spring,” he said.

In June, the PMA said it planned to issue its first Islamic bond, or sukuk, totalling $50 million by the end of that month.

The transformation to sharia compliance and the establishment of a sharia — Islamic law — board within the PMA had however delayed the process, Wazir said.

“We had one legal hurdle that we had to go through so we were delayed. We are still working to issue the sukuk,” he said. “Hopefully within this quarter it will be completed.”

“It will only be offered to the local banks, and will not be traded externally in the first stage.”

Wazir also said the authority was currently preparing itself to become a full-fledged central bank. “As far as what is going to happen in September, we are ready, it’s just the politics that has to move along,” he said. (By Martina Fuchs; Editing by Catherine Evans)



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