Speech/statement | Date: 19/03/2013
"Our common goal is to promote a two-state solution", said Minister of Foreign Affairs, Espen Barth Eide when he opened the AHLC meeting in Brussels.
It is a pleasure for me to welcome you to this annual spring meeting of the Ad-Hoc Liaison Committee (AHLC) in Brussels, which comes at a time of tension and uncertainty in the Middle East.
I would like to thank High Representative Ashton for hosting this meeting here at the EU. I would also like to extend a special welcome to Prime Minister Fayyad and the head of the Israeli delegation.
As we approach the 20th anniversary of the AHLC, we need to take a critical look at what we have achieved and what remains to be done. Let us remember the very reason for our common enterprise. That is to prepare the ground for an independent, democratic Palestine, living in peace and security with Israel in a way that allows both states to prosper and realise their national ambitions.
Our model is based on tripartite cooperation between donors, the Palestinian Authority and the Government of Israel:
- As donors we provide the necessary financing and assistance,
- the Palestinian Authority implements major reforms to ensure good governance and a business-friendly climate,
- and the Government of Israel responds by easing restrictions to provide the basis for Palestinian economic sustainability.
From 2008 to 2010, this model produced remarkable results. We saw high levels of growth. We saw improved security in the West Bank. We saw, not least, greater hope for the future among the Palestinian people. This positive level reached its peak two years ago. Here in Brussels, in this very building, we concluded that the Palestinian Authority was ready for statehood, and that Palestinian institutions compared favourably with those of many established states. This conclusion still stands.
But the model now faces fundamental challenges. Our efforts to ensure sustained economic growth for the Palestinians remain incomplete. We are not making much headway. The peace process is still in deadlock and the level of donor contributions has fallen due to financial and political constraints in many donor countries. Restrictions on Palestinian economic activities have not been lifted to allow the Palestinian Authority to build a sustainable economy.
The Palestinian people are claiming their dignity and right to run their own affairs. They asked for an upgrade to their status at the United Nations and were given the status of Observer Member State by a majority vote at the UN General Assembly on 29 November last year. Most countries around this table voted in favour of this resolution.
Today our shared achievements are under serious pressure, as we can see, and will see, from the reports from the World Bank, the IMF and the UN.
Without a clear political horizon and without a significant easing of restrictions to improve the framework for economic growth, the Palestinian economy is in dire condition. The fiscal crisis threatens to destroy our common project. Previous efforts will then have been in vain.
Last year’s Palestinian budget had a deficit of USD 1.4 billion. Donor contributions covered only USD 826 million of this deficit. Israeli transfers of taxes and revenue were slow and irregular, making it impossible for the Palestinian Authority to plan and execute their policies in a coherent fashion. The PA has had to resort to short-term borrowing from commercial banks, and is piling up debts that run into several hundred million dollars.
These are the realities in the first quarter of 2013. The Palestinian budget deficit is projected to be USD 1.2 billion, with donor contributions covering maybe 1 billion. Economic growth slowing in the West Bank, with no prospects for rapid growth under continued occupation.
In this regard it is worth noting that the key drivers of export-led growth, according to the World Bank report, have largely stagnated since 1994. Its relative share of GDP has been significantly reduced. This has an eroding effect on state institutions. The long-term economic outlook for the Palestinians is looking increasingly difficult, as highlighted in the World Bank report.
Without stable and predictable access for Palestinians to develop Area C, the Palestinian economy will remain in a straightjacket.
In Gaza, conditions remain difficult under the continued blockade, with growth prospects only slightly higher than in the West Bank. The recent conflict in Gaza has not strengthened the hand of those who want a negotiated settlement. However, the current ceasefire has largely been upheld and could be a signal of hope for the future.
As Chair of the AHLC, I expressed my alarm at our September meeting in New York. There I pointed out that we had reached a make-or-break point and that we could no longer continue with business as usual. I called on Israel to take bolder steps to ease restrictions and facilitate transfers. I called on the Palestinian Authority to continue to reform its institutions and strengthen its fiscal discipline. I also called on the donors to maintain their commitment to the vision of a two-state solution and to keep up the level of contributions to help prepare for economic independence for the Palestinian people.
I would like to commend Prime Minister Fayyad for his efforts to bring expenditure levels closer to domestic income levels. However, considerable challenges remain to bring public sector staffing and expenditure levels in line with economic realities.
As long as the Israeli occupation persists, the Palestinian Authority cannot be expected to achieve economic viability through austerity measures alone.
While I do understand Israel’s security concerns, it is important that the Government of Israel redoubles its efforts to relax the constraints of the occupation until such time as a two-state solution becomes possible. Israeli security cannot be seen in isolation from efforts to facilitate Palestinian economic development.
I also call on all donors to share the burden equitably and make the extra effort needed to reverse the current fiscal crisis before it becomes completely unmanageable. I say this fully aware that many donors have their own budgetary constraints.
Ladies and gentlemen,
Given the critical nature of the situation, I believe, as a matter of urgency, that we need to discuss the following measures with a view to early implementation:
- Clearance revenues must be depoliticised and transferred in a regular, transparent and predictable manner.
- Israel must commit itself to a significant easing of restrictions on movement and access in the West Bank, including access to Area C and the implementation of major donor projects in Area C.
- Access to Gaza must be normalised and the restrictions on imports and exports eased.
- The trade regime for Palestinian products must be greatly improved, to facilitate exports from the West Bank and Gaza to Israel and other markets. This must be complemented by the easing of restrictions on the import of raw materials, tools and technology for the further development of a robust Palestinian industrial base.
- The Palestinian Authority must commit itself to continuing its reform process,
- The Palestinian Authority must strive to reduce its deficit, inter alia by putting a stop to hiring additional public employees and by freezing public employee salaries.
- Donors must continue to make adequate funding available for budget support and frontload payments – if they have the ability to do so - to cover the PA’s immediate needs.
These are limited, but meaningful steps that could halt a further downward slide in the Palestinian economy and build a basis for a more sustainable Palestinian economy. Yet these will remain stop-gap measures until the wider issue is addressed – engaging in meaningful negotiations to achieve a two-state solution. I urge the parties to return to the negotiating table as soon as possible. Time is running short.
Let me sum up. The crisis in the Palestinian economy has deepened since we last met. The reasons are many. The peace process remains stalled. Progress on implementing past commitments has been slow. The structural impediments preventing sustainable private-sector-led growth remain.
Donor contributions have fallen, partly due to the economic crisis in many countries, and partly due to frustrations with the peace process.
We know what the problems are. We know what the consequences of inaction are. We need to agree on measures that can improve the current situation and chart a way out of the current stalemate. I have mentioned some of them. I urge you to consider these and/or other measures that could bring us forward.
Our common goal is to promote a two-state solution. This is a task of great magnitude. The issues at stake are not just technical; they are intrinsically political. I therefore believe we should consider holding our next meeting in New York at political level to do a serious stock-taking as to the continued relevance of our current strategies.
Thank you for your attention.