FEDERATION OF EURO-ASIAN STOCK EXCHANGES
SEMI ANNUAL REPORT OCTOBER 2006
PALESTINE SECURITIES EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Political Developments:
The year 2005 has witnessed the most
electoral processes for the Palestinians,
starting with municipal and presidential
elections early this year (municipal elections
were actually begun in the end of 2004) and
continued with the second phase of
municipal elections in May for most major
cities and towns and culminating in those
for the Palestinian Legislative Council in
January 25, 2006.
Economic Conditions 1
Real GDP continued to rebound in 2004
from the effects of the Intifada, with growth
estimated at 6%, driven by increases in
manufacturing, trade, and transportation.
In addition, speculative real state activities
boosted construction in some parts of the
West Bank. Growth continued at a similar
pace in the first half of 2005, supported by
substantial increase in public spending, with
notable increase in activity in trade,
transportations, services, and agriculture,
which together constitute half of the GDP.
In addition, the Israeli disengagement from
Gaza fuelled activity in construction and real
estate. Consequently, GDP growth is
projected to remain at around 6% in 2005.
Nevertheless, economic activity remains well
below its potential, constrained by the
volatile security situation, continued Israeli
restrictions on passage, and further
extensions of the separation wall- all of which
continue to severely limit the movement of
goods and people. The recent agreement on
movement and access is a very welcome
step that should help to ease some of those
constraints.
Robust since 2002, nominal income per
capita remains around 25% lower than in
1999, prior to the Intifada.
Budgetary revenues continued to outperform
budget projections in 2005. Gross revenues
in the first three quarters of 2005 exceeded
budget projections by 12% and are projected
to reach over 25.5% of GDP in 2005, above
the regional average of 23.5% of GDP but
lower and middle-income countries.
Despite rising employment (mainly in
services), the overall rate of unemployment
in the West Bank is over 20%, with Gaza
unemployment at 30%.
Macroeconomic outlook for 2006
Recent economic growth, particularly in
2005, has been sustained in part by a
sizeable fiscal stimulus. As this stimulus is
withdrawn, growth is likely to slow initially,
before recovering to recent rates over the
medium terms, as the beneficial effects of
fiscal consolidation on the PNA’s credibility
help to boost private sector confidence and
revive investment. The projections also
assume that a steady improvement in the
political and security situation will also
provide a positive boost to growth and help
to limit any temporary slowdown.
Inflation remains relatively low, at 5%
in October 2005. Price increases in WBG
largely mirror inflation developments in Israel,
although the cost of living in WBG continues
to be adversely affected by the high costs of
transportation, mainly reflecting restrictions
on the movement of goods. A small spike in
inflation in October 2005 was largely due to
increased food prices.
Despite the volatile economic and political
situation, the financial sector is sound.
Private sector growth has slowed, but the
level of deposits remains high, at 74 of GDP.
Credit to the private sector has expanded
rapidly, by about 30% over the past year,
with the increase benefiting various sectors,
including real estate projects in Gaza
following the Israeli disengagement.
As a result, credit to the private sector has
risen to 28% of the GDP but remains very
low relative to other countries in the region.
Moreover, liquidity in the banking sector
remains high, with a liquidity ratio of about
72%. The situation of commercial banks
continues to strengthen, with increased
profitability and a lower rate of non-
performing loans.
Key Reforms
Late in 2004, the President signed a law
governing financial institutions which has
established a Capital Market Authority (CMA)
to regulate financial markets, insurance
companies, and the use of various financial
instruments. This was followed by the
ratification of the Securities law early 2005.
The CMA was established in August 2005.
Dr. Atef Alawneh was appointed as a CEO.
The new income tax became a law effective
January 1, 2005. It has only three rates
(8, 12, and 16%) for individuals; corporations
will be subject to the 16% rate.
1
Macroeconomic projections are based on the World Bank
and the International Monetary Fund projections.
Key Information Contacts
Ministry of Finance www.mof.gov.ps
Ministry of National Economy www.met.gov.ps
Palestinian Central Bureau of Statistics www.pcbs.org
Palestine Media Center www.palestine-pmc.com
The Palestinian Legislative Council www.pal-plc.org
ECONOMIC RATIOS
GROWTH OF INVESTMENT AND GDP
(%)
Palestine
Lower-middle-income group
GDI
Trade
Domestic
savings
Investment
Indebtedness
PAGE 120
10
0
-10
-20
-30
-40
-50
-60
-70
-80
97
GDP
98
99
00
01
02
03
* World Bank reports