A $950 million deficit is expected in the Palestinian Authority’s (PA) 2006 budget, following the refusal of donor countries to donate additional budget support.
The refusal is mostly motivated by anger over the PA’s violations of its commitments to the international community not to increase salaries in the public sector. The resignation of PA Minister of Finance Dr. Salam Fayyad also contributed to the international community’s lack of confidence.
PA Minister of National Economy Mazen Sinokrot said that donor countries believe that the PA should devote more efforts to promoting reform, security, and law and order. He said that instituting reforms was objectively difficult at a time of what he termed “continued occupation”.
Foreign aid to the PA in recent years did not suffice to cover its budget deficits. Aid totaled $240 million in the first half of 2005, and it is believed that aid will not exceed $480 million for all of 2005, compared with expectations of $900 million.
The PA continues to draw up its budgets on the basis of unrealistic estimates of donations, and its 2006 budget deficit will consequently total $950 million.
If the PA implements its various plans, such as founding a welfare fund and increasing unemployment compensation, its budget deficit will reach $1.2 billion. There is concern that the PA will have trouble paying salaries to employees in the coming months.
The PA’s total local revenue, including VAT and customs duties collected for it by Israel, is expected to total $1.23 billion. Foreign aid will bring this total to $1.7 billion.
Most of the PA’s deficit is due to continual growth in salaries, while revenue has stagnated. This has aroused great anger among the countries contributing to the PA.
The budget submitted to the Palestinian Legislative Council includes additional reform proposals, such as a pension law for civilian and military PA employees, encouragement for early retirement by public sector workers, and reduction of new appointments to 1,500 per year.
The PA also needs to institute order in local government, and to halt the $100 million deducted by Israel for failure to pay the PA’s electricity and water bills.
The Palestinian Ministry of Finance is demanding cuts in referrals of patients for medical treatment in Israel and outside the territories. It will be very difficult to implement this reform, however, in view of the difficult situation and the elections to the Palestinian Legislative Council.
Published by Globes [online] - www.globes.co.il - on January 2, 2006