Hamas’s assault on Israel on Saturday October 7 has plunged international financial institutions into doubt over how to react, especially whether to keep providing the aid on which the Palestinian territories rely.
The combined death toll for Israelis and Palestinians had topped 1,800 by Tuesday evening.
Non-governmental organisations are calling out the worsening humanitarian crisis unfolding in the Gaza Strip, where Israel has retaliated against Hamas with airstrikes and a complete blockade, severing access to essential services.
“All violence against civilians must end,” said a spokesperson for Islamic Relief in Gaza. “We are calling for an urgent ceasefire as any further escalation is only going to bring more suffering for civilians. It is vital that food, medical supplies, fuel and humanitarian aid is allowed into Gaza and that humanitarian workers can safely reach the growing numbers of people in need.”
As the development finance community gathered in Marrakech for the World Bank and International Monetary Fund annual meetings, there was little discussion of the issues in public meetings, but behind the scenes, leaders of all the institutions were trying to evaluate the situation and decide how to react.
The World Bank said in a tweet that it “condemns terrorism in all forms, including the abhorrent targeting of civilians and kidnapping. Our hearts are heavy over the loss of innocent lives and senseless bloodshed in Israel and Gaza, and we must all unite to seek lasting peace, stability, and security.”
A World Bank spokesperson told GlobalMarkets there had been no decision to suspend operatons, but “World Bank operations are severely hampered by the situation on the ground in Gaza.”
IMF Africa department director Abebe Aemro Selassie said in Marrakech that the IMF “had not done any work on this [Israel-Hamas conflict] and it is too early to tell.”
A European Investment Bank spokesperson told Global Markets: “The EIB is reviewing its operations in Palestine, in close coordination with our shareholders, the EU member states, and our European partners. We note that the European Commission is reviewing some of its assistance and we are following the situation closely and considering how this may impact future project approvals.”
The EIB’s board of directors is expected to discuss the implications at its meeting on October 18. To date, the Bank has invested nearly €2.3bn in Israel and €700m in Palestine.
“The outbreak of violence means people in the region will suffer from further destabilisation and economic hardship,” the EIB said. “It has already impacted oil prices and will exacerbate food, energy and inflation shocks that will hit the most vulnerable communities in the Middle East and around the world. It threatens investment, as stability and trust between regional partners is crucial to foster long term private and public investment that benefits both Israeli and Palestinian communities.”
Donor confusion
International donors to the Palestinian Territories are having to reconsider their positions. The overwhelming support for Israel from the international community since Hamas’s attack has already sparked debates about foreign development aid to the contested territories.
Olivér Várhelyi, the European Union’s commissioner for neighbourhood and enlargement, announced via his X (Twitter) account on Monday that aid payments to Palestine would be suspended. A few hours later the Commission corrected this, saying it was launching an urgent review of EU assistance for Palestine.
“The Commission will equally review if, in light of the changed circumstances on the ground, its support programmes to the Palestinian population and to the Palestinian Authority need to be adjusted,” the press release added.
The confusion could have been due to the politically divisive nature of this issue. “Várhelyi went out on his own and we know that he is very close to the Israeli position and very critical of the Palestinian Authority,” said a source close to the EU told GlobalMarkets. “As soon as he sent his tweet, member states and institutions corrected this information.”
The EU is the biggest donor to Palestine. Its financial support is used to pay salaries and pensions as well as improve health services and access to water and provide humanitarian aid in times of conflict.
Speaking to Global Markets, Anna Rosenberg, head of geopolitics at Amundi Research Institute, said it would be difficult for the EU to stop aid, since some European countries were ambivalent on their stances toward Israel and the Palestinians.
“As Israel is expected to react with a heavy hand affecting many civilians living in Gaza, it could soon lose the moral high ground, making it even more difficult for European leaders to cut off aid to Palestinians,” she said.
In the long run, Hamas’s attack on Israel could derail longstanding development programmes in the region spearheaded by the World Bank and the IMF.
Martin Mühleisen, non-resident senior fellow at the Atlantic Council said: “It’s really problematic because of the macro consequences and what it means for international cooperation and willingness to support medium term objectives like climate and development, when you have short term pressures on security.”
Kristina Hooper, chief global market strategist at Invesco, said: “Part of the Israel-Saudi peace deal was a precondition of Israeli concessions to Palestinians. This seems unlikely to happen in the current environment, which suggests the peace deal may be derailed.”