Gaza has seen conditions steadily deteriorate over the last two decades, leading to collapsing of the economy and basic social services. While additional cash inflows are urgently needed to bring relief to the difficult living conditions, a lasting recovery depends on a concerted strategy to revive the Gaza economy through access to external markets and expansion of commercial activities.
A new World Bank report explores the nature of the rapid decline of the socio-economic conditions in Gaza and identifies what is needed to unlock sustainable growth. The report will be presented to the Ad Hoc Liaison committee (AHLC) on March 20, 2018 in Brussels, a policy-level meeting for development assistance to the Palestinian people.
“While additional aid is needed to provide humanitarian relief in the short term and ease the fiscal stress, it cannot continue to substitute for long term measures,” said Marina Wes, World Bank Country Director for West Bank and Gaza. “Serious commitments by all parties are needed to spur growth and jobs by putting in place the right conditions for a dynamic private sector. Without addressing the constraints, Gaza will continue to suffer with a heavy toll on its population,” she added.
Donor aid is urgently needed in the short-term to address the recent liquidity squeeze and improve dire humanitarian conditions.
Recent economic data revealed a drop in Gaza growth from 8 percent in 2016 to a mere 0.5 percent in 2017 with almost half of the labor force unemployed. The drop is attributed to a decline in inflows that has weakened reconstruction activity and led to a sharp decline in the income of a quarter of Gazans.
Access and quality of basic services such as electricity, water and sewerage is rapidly deteriorating and posing grave health risks. An additional destabilizing factor is the possible cuts to UNRWA funding – one of the main providers of jobs and services in Gaza. In fact, the cuts could risk income loss to 18,000 staff, and even more when counting their dependents.
Additional aid will be needed to avoid financial exacerbations. The potential reconciliation with Gaza, a positive for the territories overall, could increase the expected financing gap for 2018 from USD440 million to USD1 billion. Measures proposed by the Palestinian Authority will not be enough to close the gap and it will resort to domestic sources of financing including debt from local banks and arrears to the private sector and the pension fund. This could eventually choke the economies of both the West Bank and Gaza with negative consequences on suppliers, banks and ultimately growth and tax generation.
In the long term, aid will not be able to provide the impetus for growth, nor can it reverse Gaza’s de-development. The current market in Gaza is not able to offer jobs and incomes leaving a large population in despair, particularly the youth. Gaza’s exports are a fraction of their pre-blockade level and the manufacturing sector has shrunk by as much as 60 percent over the last twenty years. The economy cannot survive without being connected to the outside world.
Any effort at economic recovery and development must address the impacts of the current closure regime. Minor changes to the restrictive system currently in place will not be sufficient. Proposed projects to increase the supply of water and electricity are extremely welcome, but unless there is an opportunity to boost incomes through expanding trade, the sustainability of these investments will be in doubt.
The report highlights necessary preconditions for a sustained economic recovery in Gaza. They include a private sector that can compete in regional and global markets and increase its exports of goods and services. Required actions include relaxing the dual use restrictions, streamlining trade procedures at Gaza’s commercial crossing and rebuilding trade links with the West Bank and Israel. Effective governance systems and institutional strengthening under the Palestinian Authority’s leadership are also key for a sustainable recovery.
Donors can also help by offering innovative financing instruments that can mitigate risks holding back transformative investments by the private sector in Gaza.
Canada has the most comprehensive and elaborate migration system, but some challenges remain
Canada has the largest and most comprehensive and elaborate skilled labour migration system in the OECD, according to a new OECD report.
Recruiting Immigrant Workers: Canada 2019 finds that Canada admits the largest number of skilled labour migrants in the OECD. Additionally, Canada also has the most carefully designed and longest-standing skilled migration system in the OECD. It is widely perceived as a benchmark for other countries, and its success is evidenced by good integration outcomes. Canada also boasts the largest share of highly educated immigrants in the OECD as well as high levels of public acceptance of migration. In addition, it is seen as an appealing country of destination for potential migrants.
According to the OECD, Express Entry – the two-step Expression of Interest system for federal permanent labour migration introduced in 2015 – has greatly improved efficiency and the effectiveness of permanent labour migration management. It allows for ranking migrants for selection from a pool of eligible candidates. A unique feature of the Canadian model, in contrast to other selection procedures, is the degree of refinement in the ranking of candidates eligible for immigration. It considers positive interactions of skills, such as between language proficiency and the ability to transfer prior foreign work experience to the Canadian context.
The OECD report stresses that core to Canada’s success is not only its elaborate selection system, but also the comprehensive infrastructure upon which it is built, which ensures constant testing, monitoring and adaptation of its parameters. This includes a comprehensive data infrastructure, the capacity to analyse such data, and subsequent swift policy reaction to new evidence and emerging challenges. Recent reforms addressed several initial shortcomings in the Express Entry system, such as too many points being attributed for a job offer (which led to a high intake of migrants working in the hospitality sector, for instance), and which were subsequently reduced. The current selection system focuses on human capital factors such as age, language proficiency and education and is largely supply driven – meaning that most labour immigrants are admitted without a job offer – in contrast to the majority of other OECD countries.
To further strengthen the system, Canada should address some remaining inconsistencies. For instance, entry criteria to the pool are not well aligned with final selection criteria and language requirements for several groups of onshore candidates are lower than for those coming from abroad. In addition, a specific programme designed to attract tradespeople allows migration for only a few occupations and not necessarily where there are shortages, which contrasts with its original objectives. Providing for a single entry grid based on the core criteria for ultimate selection would simplify the system and ensure common standards.
The management of permanent labour migration is shared between Canada’s federal and provincial/territorial (PT) governments. The increasingly significant role played by regional governments in selection and integration has resulted in a more balanced geographic distribution of migrants across the country. PT-selected migrants have a lower skills profile than federally selected migrants but boast better initial labour market outcomes and high retention. The OECD also recommends considering a provincial temporary foreign worker pilot programme, to allow PTs to better respond to regional cyclical or seasonal labour needs that are not otherwise met, without the need to resort to permanent migration through provincial nomination.
Most of the provincial nominees – like their federally selected counterparts – settle in metropolitan and agglomeration areas, a development that Canada is currently addressing with an innovative rural community-driven programme. This includes a whole-of-family approach to integration, designed to enhance retention. Indeed, the report notes that Canada has been at the forefront of testing new, holistic approaches to managing labour migration and linking it with settlement services, especially in areas with demographic challenges.
Maintaining Economic Stability in Lao PDR
Economic growth in Lao PDR is projected to rebound to 6.5 percent in 2019, up from 6.3 percent in 2018. Growth is expected to be driven by the construction sector, supported by investments in large infrastructure projects, and a resilient services sector, led by wholesale and retail trade growth. Against the backdrop of challenging domestic and external environments, the Government of Lao PDR has remained committed to fiscal consolidation by tightening public expenditure and improving revenue administration, according to the latest edition of the World Bank’s Lao Economic Monitor, released today.
Fiscal consolidation is expected to result in a decline in the budget deficit to 4.3 percent of GDP in 2019 down from 4.4 percent in 2018, driven by tighter control of the public wage bill and capital spending. This is expected to keep public expenditure stable at around 20 percent of GDP in 2019. The revenue to GDP ratio is projected to improve slightly in 2019 thanks to efforts to strengthen revenue administration and the legal framework. Looking forward, public debt is expected to decline from 57.2 percent of GDP in 2018 to 55.5 percent of GDP in 2021. The outlook until 2021 is subject to increasing downside risks.
“Strengthening revenue collection is important to create fiscal space and reduce the burden of public debt,” said Nicola Pontara, World Bank Country Manager for Lao PDR. “Looking forward, it will be important to improve the business environment to support private sector development, including the growth of small and medium enterprises. These measures can contribute to maintaining a stable macroeconomic environment, promoting job creation and reducing poverty and inequality.”
The report includes a thematic section that summarizes the perceptions of small and medium enterprises (SMEs) on the business environment, based on the data of the World Bank Enterprise Survey. The key constraints reported by SMEs include access to finance, competition with informal firms – such as those that are not registered and do not comply with regulations – and electricity outages. The report maintains that strengthening the performance of SMEs can improve the quality of jobs, raise incomes, and contribute to the greater well-being of the Lao people.
The Lao Economic Monitor is published twice yearly by the World Bank Office in Lao PDR.
Economic woes hold sway over geopolitics
While geopolitical tensions in the Middle East Gulf remain high, with US sanctions recently extended to more Iranian officials and a Chinese oil importer, as well as another tanker seizure, oil prices (Brent) have eased back from the most recent high of $67/bbl. Shipping operations are at normal levels, albeit with higher insurance costs. The messages from various parties that vessels will be protected to the greatest extent possible, and the IEA’s recent statement that it is closely monitoring the oil security position in the Strait of Hormuz will have provided some reassurance.
There have been concerns about the health of the global economy expressed in recent editions of this Report and shown by reduced expectations for oil demand growth. Now, the situation is becoming even more uncertain: the US-China trade dispute remains unresolved and in September new tariffs are due to be imposed. Tension between the two has increased further this week, reflected in heavy falls for stock and commodity markets. Oil prices have been caught up in the retreat, falling to below $57/bbl earlier this week. In this Report, we took into account the International Monetary Fund’s recent downgrading of the economic outlook: they reduced by 0.1 percentage points for both 2019 and 2020 their forecast for global GDP growth to 3.2% and 3.5%, respectively.
Oil demand growth estimates have already been cut back sharply: in 1H19, we saw an increase of only 0.6 mb/d, with China the sole source of significant growth at 0.5 mb/d. Two other major markets, India and the United States, both saw demand rise by only 0.1 mb/d. For the OECD as a whole, demand has fallen for three successive quarters. In this Report, growth estimates for 2019 and 2020 have been revised down by 0.1 mb/d to 1.1 mb/d and 1.3 mb/d, respectively. There have been minor upward revisions to baseline data for 2018 and 2019 but our total number for 2019 demand is unchanged at 100.4 mb/d, incorporating a modest upgrade to our estimate for 1Q19 offset by a decrease for 3Q19. The outlook is fragile with a greater likelihood of a downward revision than an upward one.
In the meantime, the short term market balance has been tightened slightly by the reduction in supply from OPEC countries. Production fell in July by 0.2 mb/d, and it was backed up by additional cuts of 0.1 mb/d by the ten non-OPEC countries included in the OPEC+ agreement. In a clear sign of its determination to support market re-balancing, Saudi Arabia’s production was 0.7 mb/d lower than the level allowed by the output agreement. If the July level of OPEC crude oil production at 29.7 mb/d is maintained through 2019, the implied stock draw in 2H19 is 0.7 mb/d, helped also by a slower rate of non-OPEC production growth. However, this is a temporary phenomenon because our outlook for very strong non-OPEC production growth next year is unaltered at 2.2 mb/d. Under our current assumptions, in 2020, the oil market will be well supplied.
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