When the Palestinians signed a landmark peace agreement with Israel a few years ago, their dream was not only to regain lost land. They also wanted to save their battered economy and make up for decades of suffering and deprivation.

Today, both objectives look further from being realised and their long-standing dream of a better life has become a horrible nightmare.

Israel is still there and the economy is getting much worse. Citizens have become poorer as most of them have lost their jobs and inflation continues to fly high.

In the absence of major sources of income and amidst Israeli siege and slackening foreign aid, the Palestinian Authority is coming under enormous pressure as it reels under heavy debt, aggravating budget deficit and its inability to find jobs for the desperate people.

Between 1997-2002, the Palestinian economy suffered from a real massacre, with the gross domestic product tumbling by more than half, the per capita income collapsing nearly four times, and inflation and joblessness quadrupling.

Investment hit its lowest level, the budget deficit soared by more than three times, the foreign debt peaked at nearly $two billion and exports plummeted by almost seven times.

With the population growing as fast as 4.5 per cent and Israel stepping up its attacks and collective punishment, the plight of the Palestinian people continued to worsen.

But they appear determined not to let such a catastrophic situation drive them to despair as they continued to struggle for liberation, freedom and life.

An official Arab report published this week blamed Israel for what it described as the social and economic catastrophe in the occupied West Bank and Gaza Strip. It accused the Israelis of deliberately trying to sabotage the Palestinian economy to push the people to despair to force them to give more concessions in a flawed peace deal.

"The Palestinian economy has largely deteriorated because of the Israeli measures, which include continuous siege of the Palestinian areas, curfews, military attacks, destruction or closure of factories, damaging crop, trees and plants, barring Palestinian workers from entering Israel, and deliberately blocking Palestinian exports," said the report, issued by the Abu Dhabi-based Arab Monetary Fund, the Arab League Secretariat in Cairo and the Kuwaiti-based Arab Fund for Economic and Social Development."

"Such measures have hit all economic sectors and crippled most institutions?the farming and industrial sector suffered most as Israel continued to destroy fields and trees, and damage or close producing factories?more than 60 per cent of the Palestinian factories, workshops and other manufacturing units have been totally destroyed."

This has led to a sharp decline in revenue and prompted the Palestinian National Authority (PNA) to resort to foreign borrowing to cover the swelling budget deficit, pushing its debt to a record $two billion at the end of 2002.

Revenues did not exceed $200 million in 2002 while exports dived by more than 88 per cent to only $105 million.

"The Palestinians now need nearly $5.4 billion just to rebuild government institutions, the infrastructure and the essential economic sectors," the report said.

Figures included in the report underscored the dilemma of both the Palestinian government and people. The situation is in sharp contrast with that when the peace accord was launched and with what the Palestinians had aspired for.

In 1997, the gross domestic product in the West Bank and Gaza Strip was as high as $4.18 billion and the per capita income was around $1,734.

In 2002, the GDP was as low as $1,410 and per capita income plunged to one of its lowest levels of around $390, a daily average of only around $1.

The gross national product was also a victim. From $4,914 per capita in 1997, it collapsed to just $1,890 in 2002. Investment tumbled from $1,435 to only $110 as private capital plunged from $1,205 to $110 and public investment hit zero.

From as high as 34.3 per cent of the GDP in 1997, the per centage of total investment dived to only eight per cent in 2002, one of the lowest in the world.

Unemployment and inflation have also sharply deteriorated and are seen as the main reasons for the widening Palestinian poverty and growing discontent and agony.

"Worsening poverty is driving the Palestinians to despair," an Arab diplomat said. "This partly explains their escalating military attacks and suicide bombings."

In 1997, unemployment in the West Bank and Gaza was put at around 20 per cent but it soared to 81 per cent in 2002 because of the collapse of the Palestinian economy and Israel's decision to bar most Palestinians from going to work inside Israel.

The problem was exacerbated by soaring inflation, which swelled from around 7.6 per cent in 1999 to 27 per cent in 2002, according to the report.

As for the budget, it showed spending declined slightly from around $1.1 billion in 1999 to $970 million in 2002 but revenue plummeted from $953.6 million to $200 million. This sharply widened the deficit from around $159.5 million to $770 million.

"Regarding foreign aid, it increased by around 46 per cent to $540 million in 2002 because of a sharp rise in Arab aid, which stood at $400 million. But aid from other sources dropped to $170 million from $370 million," the report said.

"Most of the aid was used to cover the budget deficit while the rest of the shortfall was financed through foreign borrowing, which boosted the total debt to more than $2 billion."

©Gulf News