oPt: Paper to the Ad-Hoc Liaison Committee 2 June 2020 – Office of the United Nations Special Coordinator for the Middle East Peace Process

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Introduction

In addition to the public health implications of the COVID-19 pandemic, the crisis has brought to the forefront the implications of the prolonged deterioration in Israeli-Palestinian relations. None of the issues is new—indeed they are all longstanding—but the COVID-19 pandemic has shed a harsh light on the inadequacies of the status quo, including the framework governing the economic relationship between the two sides.

The last quarter-century of engagement by the members of the AHLC was never intended to support the Palestinian Authority (PA) in perpetuity and in the absence of political negotiations. Rather, the engagement of the AHLC was meant to create the economic and governance conditions necessary for Palestinian statehood in parallel to a peace process that was heading toward a final status agreement. In recent years, however, these collective efforts have not helped to facilitate any advancements in the peace process. Instead they have been channeled to halting the continued erosion of Palestinian institutions, to reduce violent conflict and humanitarian devastation in Gaza, and to prevent the Israel- Palestinian relationship from unravelling fully. While the worst has perhaps been avoided due to vigorous international support, including from the members of the AHLC, the COVID-19 emergency makes clear the unsustainability of the current political and economic trajectories. If present trends continue, the donor environment will deteriorate further, the achievements of the Palestinian Government over the last quarter century will fade, the peace and security situation will worsen, and a hardened and more extremist politics on both sides will inevitably result.

In Israel, proposals to annex parts of the West Bank were prominent in the recently completed election campaign and in the agreement to form a coalition government. On 17 May, a Government was formed which stipulates that the Prime Minister can bring a proposal for annexing part the West Bank, in agreement with the United States, to a cabinet or Knesset discussion starting from 1 July. In response, on 19 May, Palestinian President Abbas announced that the Palestinian leadership considered itself “absolved of all the agreements and understandings” with the United States and Israeli governments, considering Israeli plans for annexation. President Abbas also called on Israel to assume its obligations as the occupying power. Threats of unilateral action by both parties risk destabilizing the situation and upending progress attained after years of negotiations and efforts to build Palestinian institutions.

It remains to be seen, however, how and whether these stated intentions will be implemented. We can state unequivocally that any move by Israel to annex parts of the occupied West Bank or any Palestinian withdrawal from bilateral agreements would dramatically shift local dynamics and most likely trigger conflict and instability in the occupied West Bank and Gaza Strip. Israeli annexation of parts of the West Bank would also undermine the prospects for a two-state solution and contravene international law. On a more practical but still serious level, the continued delivery of humanitarian and development assistance to the Palestinians by the UN and other organizations could be greatly complicated. UN Secretary-General Antonio Guterres has consistently spoken out against any unilateral action. In the period leading up to the COVID-19 pandemic, the situation on the ground was increasingly characterized by unilateralism, recrimination, and violence. Policies associated with Israel’s military occupation continued, including demolitions of Palestinian structures, illegal settlement construction, and restrictions on the movement of Palestinians throughout the OPT. Over the same period, Palestinians did not advance toward reconciliation and Hamas remains the de facto power in the Strip. Long-overdue Palestinian elections, announced in September 2019, have yet to take place. Gaza’s population continues to suffer from an inadequate water and energy supply, a health system on the verge of collapse and a staggering unemployment rate of 45 percent at the end of 2019. The effects of Israel’s closure regime complicate any meaningful economic recovery. Hamas rule and the continued internal Palestinian division also contribute vastly to the sense of isolation felt by most Palestinians in Gaza. At the same time militant activity from Gaza forces Israeli communities to live in fear of the next rocket attack. No amount of humanitarian or economic support on its own will resolve either the situation in Gaza or the broader conflict.

Under normal circumstances, our report to the AHLC would provide details on the various political, human rights, protection, and humanitarian developments since our last report in September 2019. Given the global COVID-19 emergency and the urgency of addressing its local impacts to the Committee, this report limits its coverage on these topics and instead directs the Committee to other recurring publications and briefings by the UN. The most up-to-date information on political, human rights, and protection issues can be found in the monthly briefings to the UN Security Council (found here). The most recent humanitarian updates, including situation reports on the COVID-19 emergency, are made available by the Office for the Coordination of Humanitarian Affairs (OCHA) (found here). Recent reporting reveals the continued deterioration of the situation across several dimensions throughout the period. Despite the call of Secretary-General Guterres for a global ceasefire, the pandemic has not interrupted the conflict between the parties or halted the regular violation of international humanitarian and human rights laws.

Drawing some early lessons, this report provides an assessment of uneven progress toward sustainable development and institution building in the OPT. It identifies some of the sources of risks to peace, development, and institution building, and urges the parties and the international community to work collectively to mitigate and resolve these issues. COVID-19: Emergency and Response

The first confirmed case of COVID-19 in Israel was on 21 February 2020. The first case of COVID-19 in the West Bank was confirmed on 5 March 2020, followed by the first confirmed cases in the Gaza Strip on 21 March 2020. By all accounts, the Israeli and Palestinian Governments responded decisively to limit the spread of the disease. As in other countries, the governments closed schools and businesses, asked most workers and families to restrict their movement, and mobilized the public health infrastructure. These interventions were evidently successful: as of 17 May 2020, the World Health Organization (WHO) reports 16,589 confirmed cases and 266 deaths in Israel and 554 confirmed cases and 4 deaths in the OPT, including East Jerusalem. On a per capita basis, these figures are lower than in many comparison countries in the region and globally.

Nonetheless, the pandemic and necessary actions to address it have created a negative shock to the Israeli and Palestinian economies and will have profound implications for public welfare, employment, social cohesion, financial and fiscal stability, and institutional survival. In Israel, unemployment in the labor force is estimated around 25 percent, while revised growth forecasts for 2020 suggest the largest recession in Israeli history. The Palestinians likely face an even worse economic crisis. Depending on how deeply and how long public health restrictions are in place, the Palestinian economy will likely decline 7.6 percent in 2020 and perhaps up to 11 percent in the case of a slower recovery or further restrictions due to another outbreak. This would represent an annual contraction among the largest since record keeping began in 1994, similar in scale to the contraction at the beginning of the Second Intifada. Economic contraction and public health restrictions are also having devastating effects on the fiscal stability of the Palestinian Government. The Government’s monthly revenues have declined to their lowest levels in at least two decades. The Palestinian Ministry of Finance estimates that, due to the lack of domestic economic activity and external trade, revenues collected in Areas A and B will fall by about 75 to 85 percent, while clearance revenues will fall by between 50 and 70 percent. At the same time, additional outlays are needed for the public health response to the pandemic, as well as to help the poor and vulnerable segments of the population.

Under Israel’s continued military occupation, the agreements governing the Israeli-Palestinian economic relationship do not permit the Government of Palestine to grasp the conventional monetary and fiscal tools that countries ordinarily use in times of economic distress—they cannot influence interest rates, print money, devalue its currency, or access international capital markets to finance deficit spending. The latter constraint means that the Palestinian Government cannot implement far-reaching, emergency stimulus measures—such as public works projects—without substantial donor support.

Without recourse to international borrowing or significant additional budget support from donors, the Palestinian Government will be forced to adopt severe austerity measures. Several expert assessments put the financing gap (the deficit after grant assistance) somewhere between US$1 billion and US$1.5 billion for 2020, with variation based on the extent of additional spending on social assistance and small and medium-sized enterprises support by the PA. For its part, the Office of the Prime Minister has requested between US$1.8 billion to US$2.4 billion in direct support from international donors to cover the fiscal deficit for 2020. The data underlying these forecasts are changing daily and of course the future is deeply uncertain: a second wave of the pandemic, or renewed conflict, or regional instability would greatly amplify these economic and fiscal shocks.

The relatively successful prevention efforts in the OPT have thus far ensured that the limited capacity of the health system has not been overwhelmed. However, there remain considerable concerns regarding the ability of the Palestinian health sector to cope with a surge in cases, especially in Gaza. There are continuing shortages of critical supplies including in testing materials, personal protective equipment, ventilators, and other equipment required for intensive care units, due to funding gaps and a shortage in global supply.

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