Israel’s decision to relax controls on movement in the Palestinian Territories has allowed the Palestinian economy to continue to boom in 2010, with growth rates of 14 percent in the Gaza Strip and 11 percent in the West Bank, the International Monetary Fund has said.

Dr. Oussama Kanaan, the IMF’s chief of mission and resident representative for the West Bank and Gaza, said the easing of Israeli controls on the movement of Palestinian goods and people, coupled with internal reforms in the Palestinian Authority (PA) and an improvement in the security situation on the ground, have allowed for the Palestinian economy to grow at unprecedented rates.

“Real GDP [Gross Domestic Product] growth in the first quarter of 2010 [compared to the first quarter of 2009] is estimated at 11 percent for the West Bank and 14 percent for Gaza,” he told The Media Line.

“In the West Bank, private sector confidence continued to be bolstered by good management and reforms by the Palestinian Authority supported by donor aid, improvements in security conditions, and more relaxed controls on internal movement of goods and people than in early 2009.”

Dr. Kanaan said the loosening of Israeli restrictions on imports into the Gaza Strip has boosted the coastal territory’s economic recovery.

“The recovery in Gaza was driven by less stringent controls on imports of consumer goods,” he said. “Since July 2010, the government of Israel has adopted a more liberal trade policy toward Gaza that lifts restrictions on imports of consumer goods and inputs for internationally-supervised public investment and reconstruction projects, and expands the import capacity of border crossings.”

“In the West Bank, the government of Israel has continued in the first half of 2010 to remove roadblocks and other barriers to movement within the West Bank, which further reduced transportation costs and facilitated internal merchandise trade,” Dr. Kanaan said.

Israeli government spokesperson Mark Regev said Israel has taken the initiative to try to improve the economic situation in the Palestinian Territories.

“The government of Israel has consciously taken a decision to take a series of steps designed to help grow the Palestinian economy,” he told The Media Line. “This is being done because in our view a more healthy economic situation in the West Bank is conducive to a better atmosphere in the peace process. There is no substitute for a political agreement, but a better economic situation can be conducive to achieving such an agreement.”

But the local IMF chief warned that the economic boom in the Palestinian Territories would be short lived if Israel does not continue to lift the various restrictions that suppress Palestinian trade.

“The sustainability of the strong growth performance for the remainder of 2010 and beyond is uncertain due to persisting restrictions on movement and access that have distorted the pattern of growth,” Dr. Kanaan said.

“Given the uncertainties on the prospect for a further easing of restrictions in the remainder of the year, real GDP growth for the West Bank and Gaza in 2010 is conservatively projected at 7 percent.”

Dr. Kanaan also warned that the most serious problem facing the Palestinian economy is the lack of manufacturing.

“The growth pattern continues to be heavily skewed toward services, while activity in sectors that depend on investment inputs and export markets, notably manufacturing, continues to be subdued,” he said. “Especially worrisome is the continued decline in the share of manufacturing in total output from 20 percent in 1994 to 11 percent by end-March 2010.”

The local IMF chief said that Israel would need to ease the blockade on the Gaza Strip further for the coastal territory’s economic recovery to continue.

“Given Gaza’s limited domestic market, especially in view of its separation from the West Bank, the high economic growth hitherto recorded is unlikely to be sustained for long without a further relaxation of the blockade to enable a recovery of private investment and exports to Israel,” he said. “The [Israeli] policy maintains the restrictions on imports of capital goods and raw materials destined to the private sector, as well as the ban on exports and on the movement of Gazans across external borders.”

Hanan Taha Rayyan, a Gaza-based member of the Palestine Trade Center (PalTrade), argued the IMF was too quick to credit Israel.

“I think it’s too early to judge the effects of this relaxation in the Gaza Strip,” she told The Media Line. “The underground tunnels are still working, there are still no exports allowed out of the Gaza Strip and the amount of raw materials allowed into the Gaza Strip is very limited, so it’s very hard to give any credit to the Israeli government on this issue. This is not a government that is trying to help the private sector in the Gaza Strip.”

Sari Bashi, director of Gisha, the Israeli Legal Center for the Freedom of Movement, argued that Gaza would see no long-term economic recovery until Israel allows exports out of the territory.

“Forty percent of Gazans are unemployed, 80 percent are dependent on International aid, two thirds live in poverty,” she told The Media Line. “Easing restrictions on the imports of goods into Gaza and somewhat expanding the capacity of the crossings into Gaza has been helpful, but there has not been and will not be any significant recovery without allowing exports.”

Last week a United Nations report found that Israeli policies of closure and blockade of the Palestinian Territories is costing the Palestinian economy some $800 million a year and leading to a deepening of poverty.

The report found that despite the economic growth over the last year, poverty rates continued to worsen in the Palestinian Territories, with the per capita GDP still 30 percent below what it was 10 years ago and at least 30 percent of the Palestinian workforce still jobless. Some 80,000 jobs are lost each year due to Israeli closure and blockade policies, the report found.