麻豆APP

25 September 2025

Executive Summary:

Beyond the significant human toll, at least a decade and a half of modest economic progress in the Palestinian territories has been reversed. By the end of 2024, real GDP had fallen back to 2009 levels, reversing 15 years of gains. Nominal GDP per capita stood at roughly $2,600— below the 2011 level of $2,900. The modest growth recorded between 2010 and 2019 was undone over the last five years by the combined impacts of the pandemic and repeated rounds of conflict, especially the current one centered in Gaza. Episodes of economic growth remain driven by consumption rather than the productive sectors, and are heavily influenced by recurring cycles of tension and violence, and volatile aid flows.

As of early 2025, economic activity in Gaza was effectively at a standstill. After an 83 percent year on year contraction in 2024, Gaza’s GDP fell an additional 12 percent in Q1-2025. Wholesale and retail trade saw some modest gains during the ceasefire (January-March 2025), yet ongoing hostilities and the near-total blockade have sharply reduced production, bringing Gaza’s GDP share of the Palestinian GDP down from 17 percent pre?conflict to below 3 percent at present.

By contrast, the West Bank economy rebounded by 10 percent year-on-year in real GDP during the first months of 2025, albeit largely due to low base effects following the historic contraction in 2024. Private consumption stood out as the principal engine of growth, supported in this instance by gains in wages earned by Palestinians employed in Israel, whose number has somewhat increased in recent months. Despite this uptick, economic activity in Q1-2025 remains 1 percent below Q4-2024 levels and 17 percent below its pre-conflict level, in real terms.

Far-reaching labor market disruptions reverberated across the Palestinian territories. Employment among Palestinians working in Israel fell by 86 percent within a single quarter after October 2023, dropping from 177,000 to 24,000. By Q2-2025, this figure rose to about 40,000 workers, with undocumented employment accounting for a large portion of the rebound. Overall, unemployment surged to 69 percent in Gaza and 29 percent in the West Bank, with men of lower educational attainment in rural areas most severely affected.

Persistent fiscal strains have drastically eroded the Palestinian Authority’s (PA) revenue base, placing extreme constraints on the financing of basic services. Since the onset of the conflict, Israeli deductions from clearance revenues increased, reducing the PA’s primary revenue source and resulting in salary payments equivalent to only roughly 70 percent of full wages. Since the suspension of clearance revenue transfers in May, salary payments were further reduced and the PA has increasingly relied on domestic borrowing, exceeding the Palestine Monetary Authority prudential ceilings, and placing pressure on the financing of health, education, and social protection services. If sustained, these dynamics have the potential to precipitate fiscal collapse, with attendant risks to institutional continuity and broader socioeconomic stability.

Despite the stability of some financial sector indicators, the Palestinian banking system is facing an increasingly critical situation and uncertainty with regards to short-term stability. As of June 2025, liquidity and capital buffers remain technically adequate, but mounting pressures are rapidly eroding some of the systems critical functions, with potentially destabilizing consequences. The financial system is facing accelerated deterioration on multiple fronts, with the most immediate threats coming from the depletion of digital NIS in correspondent bank accounts. The accumulation of excess shekel cash reflects a liquidity trap, as banks are unable to utilize deposits effectively due to restrictions on cash repatriation and correspondent banking arrangements with Israel. This disconnect between the accumulation of excess cash and the depletion of correspondent accounts distorts financial intermediation and undermines the sector’s ability to support trade and access to basic goods and utilities. Despite surface-level resilience, these pressures pose immediate threats to financial stability. Diplomatic and technical efforts to secure alternative liquidity arrangements have so far yielded no sustainable solution. As such, the risk of systemic collapse is no longer theoretical: Palestinian banks may soon be unable to support basic trade and commodity flows— including fuel, water, and medicine—pushing economic activity further into informal channels. The urgency of developing a sustainable cross-border payments framework cannot be overstated, as current stopgap measures continue to offer only temporary relief with successively shorter time frames.

The West Bank’s private sector has shown adaptive capacity but continues to face structural constraints in generating sufficient employment for a rapidly expanding workforce. By December 2024, over 97 percent of businesses in the West Bank remained operational, often managing staffing through underemployment rather than layoffs. Sales nonetheless declined for roughly two-thirds of firms, and the share of businesses seeking credit fell from 21 percent in 2022 to below 10 percent in 2024. Despite a sharp decline in overall applications, loan approval rates remained high, which is indicative of positive selection biases. In Gaza, commercial crossing closures and supply constraints in Q2-2025 further curtailed what was already minimal private sector activity, with staple goods prices rising markedly and trade nearly collapsing.

The conflict has resulted in the near-total destruction of Gaza’s energy sector, physical infrastructure and social services. Approximately 80 percent of electricity generation and distribution capacity has been destroyed, leaving many households reliant on improvised car battery Direct Current (DC) networks and high cost diesel generators. Over 90 percent of telecommunications infrastructure is nonfunctional, with limited service maintained through costly mobile Cells on Wheels (COWs) and generators, with recent fuel shortages raising concerns.

Gaza’s food consumption and nutrition indicators are at their worst levels since the onset of the conflict, and as of end-August, the UN reported that more than half a million people in Gaza face famine. Agricultural production has been severely reduced, with 95 percent of cropland and 80 percent of greenhouses damaged or inaccessible, due to conflict and movement restrictions. Combined with severe constraints on food and goods entry, these conditions have critically undermined food availability. According to the UN, Gaza is already experiencing famine conditions in parts of the territory, with over 640,000 people already experiencing catastrophic hunger (IPC Phase 5) and over 1.1 million individuals—more than half of the population—experiencing emergency hunger and large food consumption gaps (IPC phase 4). In this context, the risk of food insecurity expanding remains high.

Healthcare and education systems in Gaza are paralyzed, while service capacity in the West Bank has also come under increased strain with devastating immediate impacts as well as long term consequences at both individual and societal levels. Half of Gaza’s hospitals and 60 percent of its primary clinics are nonfunctional, leading to outbreaks of polio and other communicable diseases amid water infrastructure destruction. All educational facilities have been damaged or destroyed, and over 80 percent of Gaza’s 658,000 school-aged children did not have consistent access to Temporary Learning Spaces in recent months. Malnutrition among children under five has surged, with potential lifelong consequences for their health and cognitive development that threaten their future ability to learn.4,5 In the West Bank, education services faced close to 900 incidents of closures and delays in the first six months of 2025, deepening learning losses. The start of the new school year was postponed due to fiscal constraints, and healthcare arrears in the West Bank reached over US $770 million by the close of 2024, contributing to fiscal stress and raising the risk of future service disruptions. In addition to the severe impact this has for the affected population, these developments are irreversible and will negatively impact future potential economic growth.

Social protection programs have been curtailed, and poverty is on the rise. Since the onset of the conflict, the National Cash Transfer Program had reached only West Bank beneficiaries, providing monthly support to 31,000 households until April 2025, when it was fully suspended. Food and cash assistance remain essential but severely constrained: in June 2025, the World Food Programme supplied food to approximately 5,500 households in Gaza and assisted 210,000 people in the West Bank through vouchers and cash transfers. In this context, poverty across the Palestinian territories rose rapidly, to nearly 40 percent by early 2025, up from 29 percent in 2023, with virtually all Gaza households living in poverty.

The Palestinian Authority operates within an exceptionally narrow policy space, underscoring the significant role of the international community, the Government of Israel, and regional partners in shaping economic outcomes. The Palestinian Authority’s capacity to independently and meaningfully influence economic outcomes at present is severely constrained. The absence of control over core policy instruments, such as monetary and fiscal levers, access to land, and authority over trade and customs, means that the conventional tools available to governments to stimulate growth, conduct fiscal adjustments, pursue diversification, or enhance openness are largely inaccessible. In this context, mitigating the economic freefall, stabilizing the financial sector and providing basic services in the short term will require coordinated and decisive action by the international community, particularly regional partners. The Government of Israel can potentially play the most significant, immediate role in helping alleviate the fiscal crisis. To mitigate the economic freefall and alleviate human suffering, decisive action is needed:

• As highlighted in previous economic updates, ending hostilities is critical not only to reduce the devastating human toll but also to create the minimum conditions for socioeconomic recovery.
• Fiscal stabilization: To prevent disorderly fiscal adjustment, it will be vital to resolve the clearance revenues dispute as soon as possible, along with increasing budget support, and advancing fiscal consolidation by the PA, particularly on the sustainability of the wage bill. These measures are essential to equip the Palestinian Authority with resources to meet essential obligations—salaries, pensions, and social services.
• Private sector dynamism and job creation: Policies to facilitate trade, restore mobility, and stimulate private sector activity are critical to reactivating job creation and reversing labor market deterioration. To sustain job creation, a strong focus on SMEs is essential, supported by blended finance, improved enterprise services, startup assistance, and expanded regulatory space for women entrepreneurs. Capacitybuilding in digital skills, including e-commerce, digital marketing, and productivity technologies, can enable firms to expand market reach, enhance competitiveness, and build resilience. The well-established Palestinian microfinance institution network (MFI) can play a pivotal role in revitalizing micro-enterprises, particularly those owned by women.
• Financial sector resilience: Strengthening prudential regulation, securing a structured cross-border payment framework and permanent CBRs arrangements, and expanding digital financial services can help support financial stability and inclusion.
• International aid mobilization: Increased donor support remains essential to meet growing and still unmet financial needs, sustain vital public services, facilitate recovery, and support critical policy reforms. Transforming the Palestinian economy after the hostilities end will require a conducive environment—one that engages a broad array of stakeholders and investors, including bilateral and multilateral development partners and the private sector.
• Structural policy reforms: It is crucial for Palestinian decision-makers to stay committed to reforms that prioritize efficiency, transparency, good governance, and fiscal sustainability. Continued efforts are especially needed to accelerate public spending efficiency