The Palestinian economy is in a severe depression, with only international aid stemming a possible total breakdown, according to a report released today by the Office of the United Nations Special Coordinator for the Middle East Peace Process.

The report (pdf) shows an overall poverty rate of around 60 per cent, with consumption and income levels dramatically decreased. Unemployment levels hover at 50 per cent - a figure which can climb even higher during curfews. Israel’s closure policies created economic losses of exceeding $1.1 billion - more than double annual aid disbursements.

“Internal and external trade is contracting, investment has plummeted to negligible levels and Palestinian businesses are collapsing,” the report warns. “The Palestinian budget remains in critical condition, its primary source of revenue now coming from donors.” Israel continues to withhold more than $600 million worth of tax revenue it collects on behalf of the Palestinian Authority.

The report paints a grim picture of longer-term prospects, noting that the economy can no longer “bounce back,” even if closures were lifted and conditions returned to pre-Intifada levels. “Total economic breakdown is prevented only with continued injections of budgetary support from international donors, the release of a small percentage of PA revenues withheld by Israel, and humanitarian aid,” the report observes, noting that of the three, the first two are unpredictable and may not continue.

The humanitarian crisis is deepening, with living conditions plummeting as household coping strategies erode. “The hard measurements of misery are stark: malnutrition, anaemia, and hundreds of thousands dependant upon food assistance.” The report also draws attention to the psychological consequences “on a population that lacks work, hope and future prospects.”

From a security perspective, the report notes that in a neighbourhood with 10 million people living a very confined space, the security system for two-thirds cannot possibly be durable if it is at the expense of deepening social and economic security for the other one-third. “Despair and lack of vested interest in peace and stability only plays into the hands of those who advocate violence.”

The report warns that failure to reverse a deepening man-made humanitarian crisis can only lead to further distrust, misery and, possibly, violence. It calls on Israel to ease closures and curfews, continue releasing withheld Palestinian revenue, and facilitate the work of aid agencies. Arab and European donors are urged to continue providing funds on a predictable basis and to “continue to respond to the humanitarian crisis, but within a coherent policy framework.”