The Palestinian economy is not growingenough to raise living standards and reduce highunemployment. The economy has witnessed a sharp decelerationin economic growth, from over 8 percent during 2007-11 to 3percent during 2012-15. The sharp decline in growth hasstifled the economy's ability to create jobs for agrowing youth population. Successful reform efforts andstrong economic growth helped bring the relative size of thePalestinian overall fiscal deficit down from 24.6 percent ofGDP in 2008 to 13 percent in 2010. However, despite theseefforts at fiscal consolidation, the deficit to GDP ratiohas remained stuck in the 10 - 13 percent range since 2010-- on the back of a large wage bill and weak revenueperformance. The economy has long suffered from therestrictions1 and political instability that continue toconstrain private sector activity. In addition, the declinein donor funding from 32 percent of GDP in 2008 to 6 percentin 2015 has significantly contributed to the recent economicweakening. The internal divide between the West Bank andGaza, which has created a dual regulatory framework, hasalso negatively impacted economic activity and the tax base.
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