Amid Palestinian statehood push, a grim World Bank report on the West Bank, Gaza

With the flurry of diplomatic maneuvering over the Palestinian Authority's plan to seek recognition at the UN next week, it's worth remembering the financial obstacles that will face those living in the Palestinian territories, whatever does or does not happen at the UN.

A new World Bank report out this week puts the Palestinian economy – and the PA's near-total dependence on aid – front and center. Palestinian economic problems won't be addressed at all by what happens at the UN, where Palestinians say they will press for full membership as a sovereign state.

That's unlikely to happen since the US has vowed to wield its veto on the Security Council, which controls the membership process. But even if Palestinians succeeded, or got a lesser upgrade to their current status, any prospects for major improvements will remain firmly in Israel's hands.

The World Bank says that recent economic growth in Gaza and the West Bank has been almost entirely thanks to foreign aid, that a slowing of foreign aid delivery has presented the PA with a possible fiscal crisis, and that Israeli policies continue to stand in the way of sustainable economic improvement in the territories.

The report says that the Palestinian private sector "remains stifled by Israeli restrictions on access to natural resources and markets. Under these conditions, lower-than-expected aid flows in the first half of 2011 had an immediate impact on the Palestinian economy. Real GDP growth, steadily increasing in 2009-10 and previously projected to reach 9 percent in 2011, is now expected to be 7 percent. The shortfall in external financial support in the first half of 2011 has also contributed to the current fiscal crisis facing the Palestinian Authority."

The World Bank review comes at the end of a two-year program of institution building that Palestinian leaders hoped would set the stage for an independent state. It gives Palestinian bureaucrats high marks: "In areas where government effectiveness matters most – security and justice; revenue and expenditure management; economic development; and service delivery – Palestinian public institutions compare favorably to other countries in the region and beyond." But it says there's little within the PA's own power that they can do to produce sustainable economic growth.

Why? "Ultimately, in order for the Palestinian Authority to sustain the reform momentum and its achievements in institution-building, remaining Israeli restrictions must be lifted," the World Bank says. "The resulting revival of the private sector can be expected to grow the tax base and gradually reduce dependence on external assistance. Until then, however, West Bank and Gaza will remain vulnerable to reductions in aid flow, and these will need to be managed carefully."

The economies in the West Bank and Gaza have of course grown at relatively high rates in recent years, and unemployment has declined. (The World Bank says overall Palestinian unemployment is now 19 percent, though that's out of the only 40 percent of the population still seeking work.)

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