Sustainable economic growth and stronginstitutions are interlinked, and the present reportsummarizes recent economic and fiscal developments in WestBank and Gaza (WB&G) as well as providing a broadoverview of institutional accomplishments to date. Thepresent report begins by discussing the apparent slowdown ineconomic growth in WB&G and the current fiscal crisisfacing the Palestinian Authority (PA)-resulting partly fromlower-than-expected external support this year. A furtherdrop in donor funding would likely reduce growth, whichwould in turn further aggravate the fiscal situation in thecoming year. A protracted fiscal crisis, in turn, risksjeopardizing the gains made in institution-building andthereby losing what has been painstakingly achieved over thepast years. In addition, the report highlights that in orderfor the PA to sustain the reform momentum and itsachievements in institution-building, remaining Israelirestrictions must be lifted and any reductions ininternational aid flows must be carefully calibrated andmanaged. Economic growth in WB&G has slowed down in2011, and together with the shortfall in external financing,this has led to a fiscal crisis for the PA. Economic growthin WB&G remains robust but appears to be slowing due toeconomic and political uncertainty, so that theInternational Monetary Fund (IMF) has revised the projectedreal Gross Domestic Product (GDP) growth rate for 2011 from9 down to 7 percent. Despite some improvement, unemploymentremains stubbornly high and labor force participation low in WB&G.
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