The Government of Israel views the bilateral track with the Palestinians as the only way to reach a sustainable solution, based on two states for two peoples.
In the first three quarters of 2011, Palestinian economic growth slowed, as real GDP in the West Bank rose by 5.8%, while growth in the Gaza Strip continued to climb, with a 25.8% increase in real GDP. Unfortunately, the PA faces a financial crisis, caused primarily by the shortfall in foreign aid, growing arrears to suppliers and reaching the lending limit that the domestic banking system can sustain. Another primary factor was the lack of significant development in the private sector coupled with an inability to increase income from internal resources, while the public sector remains the largest employer in the West Bank. The current fiscal situation raises doubts about whether the PA will be able to reduce its dependency on foreign aid in the coming years.
In a time of regional political uncertainty and instability, the global economic slowdown now hinders the capability of international donors to assist the PA, and the PA enjoys very limited Arab financial support. Thus, after three consecutive years of impressive economic growth in the West Bank, PA financial stability is now challenged.
In 2011, Israel continued to implement its policy of support for economic growth in the West Bank, inter alia by removing additional check points, upgrading commercial crossings, approving projects in Area C, increasing the number of permits for Palestinian employment in Israel, and pushing forward an agreement to build four electricity substations in the West Bank to increase the amount of electricity available for further economic development.
Israel maintained bilateral dialogues with the PA aimed at supporting the upgrade of Palestinian infrastructure, including: financial and customs services, water and sewage infrastructure, the agriculture sector, and the electricity network. Israel worked closely with the international community in order to support projects, facilitate trade and contribute to improved Palestinian governance and economic capacity.
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