This report begins by documenting thePalestinian Authority's (PA's) ongoing fiscalcrisis that threatens its ability to provide basic servicesto the population. In 2011, the PA required about US$1.5billion dollars in budget support, of which US$200 millionto cover development expenses not funded directly by donors.However, it only received about US$814 million in budgetsupport and US$169 million in development financing, for atotal of US$983 million. Ultimately, the PA can only hope toachieve fiscal sustainability through a combination ofsustained private sector growth and continued internalreforms. Robust private sector growth is necessary for thePA to generate the revenues needed to sustain servicedelivery. Yet the private sector remains stifled as a resultof Israeli restrictions on access to natural resources andmarkets. The West Bank has experienced a slowdown ineconomic growth in 2011, combined with double-digit growthin Gaza. The recovery in Gaza can be attributed to acombination of aid inflows and easing of restrictions onentry of goods from Israel-though it is important to keep inmind that the average Gaza today is worse off than s/he wasback in the late nineties. The recent growth in Gaza is alsodriven largely by a boom in the construction sector, andGaza infrastructure exhibits such gaps and disrepair thatmajor investments are necessary and would generate importantemployment as well as future growth. The slowdown in growthin the West Bank, on the other hand, is the result offalling donor support, uncertainty caused by the PA'sfiscal crisis, and lack of significant new easing ofrestrictions by the Government of Israel (GoI).
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