In the absence of the Ministry of Finance from its 2022 Conference,
Civil Society Team: Palestinian Legislative Council is prerequisite for financial reform
Ramallah – In the absence of the Ministry of Finance (MoF), the Civil Society Team for Enhancing Public Budget Transparency (“Team”) held its 2022 Conference on Financial Reform and Public Financial Management Policy. Held at the Palestine Red Crescent Society premises in Ramallah, the conference provided a review of the public budget performance in the first half (H1) of 2022 and a comparative presentation of declared reform policies, including public financial management (PFM) strategies, Reform Agenda announced by the Palestinian government at the AHLC meeting of May 2022 in Brussels, and reality on the ground.
Husseini: The government continues to ignore civil society and exclusively control, prevent public engagement in, and refrain from making decisions publicly accessible
In his opening statement, Mr. Abed Al Qader Al Husseini, Board Chairman of the Coalition for Accountability and Integrity (AMAN) – Secretary of the Team, presented on key milestones of the current stage, including ongoing postponement of financial liabilities, partial payment of civil service salaries, accumulating government arrears and debts, and poor PFM reform process. Combined with the lack of transparency, the government continues to ignore civil society representatives, takes exclusive control of decision making, and fails to make information publicly available. Of note, the Team has persistently called for engaging civil society in the public debate over controlling public spending and fiscal deficit.
Team calls for a participatory approach and openness between the government and civil society
Husseini explained that the budget conference of this and previous years was important because it provided access for citizens, who served as financers of the Public Treasury, to the public budget, spending mechanisms, and PFM policies. Participation of government, civil society, and private sector representatives will also promote community engagement and public right to access and take part in expenditure prioritisation.
Husseini also reiterated the Teams’ call on the government to comply with and maintain functioning under the principles of transparency by timely publishing information on the public budget. Appreciating cooperation and participation of the State Audit and Administrative Control Bureau (SAACB), Husseini demanded that the government be more open to civil society, provide access to needed reports and data, and take seriously the Team’s recommendations.
Publication of three of 18 documents is indicative of declining transparency of the 2022 public budget
In the conference first session, Lamis Farraj, Researcher and Team Coordinator, reviewed the mid-year report on the 2022 public budget performance and highlighted a set of the Team’s recommendations in the face of the financial crisis affecting the Palestinian Authority (PA). In 2022, the Palestinian government vowed to adopt policies with the aim of implementing a package of financial reforms, including in relation to the public wage bill, health system (patient referral cost), and net lending. Presented to the AHLC meeting of May 2022 in Brussels, the Reform Agenda includes financial, administrative, economic, social, security and public order reforms. All these have not been made publicly available to taxpayers.
According to Farraj, the President endorsed the Law by Decree on the Public Budget of the Fiscal Year 2022 on the last day allowed by law as an extraordinary measure for budget approval. In breach of relevant regulatory and constitutional norms, the 2022 Citizens Budget was not published. The MoF has not issued a detailed half-year financial report 2022. The budget proposal did not include the final accounts of the previous period. Rather, the MoF only published an English version of the 2018-2019 audited final accounts on the MoF website.
SAACB reservations on the final accounts must be a matter of paramount importance
In her presentation, Farraj indicated that the SAACB viewed the final accounts and expressed many reservations about the financial data delivered by the MoF. These included legal violations, breach of accounting standards, reservations about amounts, and lack of necessary clarifications.
Partial improvement in revenues is attributed to increasing prices of production inputs
Farraj stated that a partial improvement in government revenue collection was attributed to higher prices, particularly of production inputs, as well as to tax base expansion and e-connectivity of tax departments. According to H1 2022 indicators, however, this improvement is not at the requisite level. Based on the Revenue Development Strategy 2022-2024, tax system and law reforms provided under the Public Budget Law have not been approved.
On the spending side, Farraj demonstrated a gap between commitment- and cash-based spending, indicating an increase in public arrears and greater financial burden on the government. During H1 2022, accumulating public arrears surged to ILS 2.15 billion. Of note, a total of ILS 10.9 billion in arrears were built up by the end of June 2022.
The public budget continues to incur losses by taxed fuel purchases net of 3 percent tax
According to conference presentations, the Public Treasury continues to incur losses from the fuel tax (dubbed the “BLU tax”). In 2019, an initial agreement was made between the Palestinian and Israeli MoFs, providing that the PA would purchase fuel at the original price without paying the BLU tax. The agreement was not implemented, however. The BLU tax continues to be collected from Palestinian clearance revenues, net of 3 percent. Of note, if fuel had been purchased without tax from Israeli companies and tax levied and collected locally, this would have saved and increased tax revenues. No serious and effective policy is in place to put an end to fiscal leakage, resulting from continued imports from the Israeli side. Customs accruing from clearance are almost five times domestic customs duties.
SAACB: Due to the Israeli 3 percent deduction, fuel purchase from Israel causes a loss of some ILS 100 million to the Public Treasury
Mr. Mu’awiya As’ad, Director General of the SAACB Economic Surveillance Department, commented on the SAACB reservations. While Israel seizes control of clearance revenues, neither the Israeli nor the Palestinian side provides internal auditing of health, water and electricity, and court-related deductions. The Palestinian Ministry of Health (MoH) is not able to neither audit and review the validity of amounts and bills deducted on a monthly basis nor verify financial requests issued by Israeli hospitals. As’ad noted that the SAACB has a reservation about the 3 percent deduction on fuel, totalling ILS 100 million. Fuel purchase (BLU tax and VAT inclusive) from Israel tightens Israel’s grip of clearance revenues.
Public wage bill reform will filter out ghost salaries
In the conference second session, Mr. Mu’ayyad Afaneh, Team member, made a presentation on Public Financial Management Policies, Reform Strategies, and National Plans 2017-2022. Examining achieved and planned targets, Afaneh analysed national plans, PFM strategies, and financial reform plans between 2017 and 2022.
According to Afaneh, the public wage bill was not modified in H1 2022. Implementation of the reform plan and interventions has not been initiated to address and trim the wage bill. Out of the 2022 estimates, spending on salaries and wages was close to 50 percent. Notably, over the past three years, adjustments to the officially estimated budget have not been made. Although they required an amendment to the budget law, many transfers were in place. These particularly involved the wage bill, ghost salaries, and salaries of staff employed outside the institutional framework.
Along this vein, the Team made recommendations to control and refine the public wage bill, find solutions to staff not included on administrative structures, bridge the gap between the salaries of higher and lower categories, and approve an up-to-date Civil Service Law, including the principles of justice.
56 percent of deductions cover the electricity bill
The government established a national company to exclusively import electricity, but the company’s infrastructure has not been finalised yet. 56 percent of clearance revenue deductions are paid to electricity providers. While the electricity debt owed by local government units (LGUs) persists, net lending continues to drain more than ILS 1 billion a year.
MoH development expenditure runs counter to the health system, patient referral and health insurance reforms
Development expenditure of the MoH amounted to ILS 9 million, or 2 percent of the public budget, contradicting the announced goals of reforming the health system, patient referrals, and health insurance, as well as enhancing government service provision. On the other hand, ILS 17 million (or 26 percent) was spent on the rehabilitation of security agencies and support to the President’s political and security programme. Additionally, ILS 2 million was disbursed to establish and furnish the building housing the Palestinian Anti-Corruption Commission, raising questions about development expenditure priorities and need for the construction of public buildings in the context of fiscal challenges, particularly rising deficit and accumulating arrears.
The Team recommended that patient referrals need to be addressed through an informed approach with a view to maintaining citizens’ right to health services as well as by a comprehensive health insurance system.
The budget line item of the Ministry of Social Development (MoSD) was estimated at ILS 827 million, or 5 percent of the total public budget. In H1 2022, only one payment of poor household benefits was transferred. Some 116,000 households benefit from the MoSD Cash Assistance Programme. Also, only 80 percent of the monthly allowance of martyrs’ families was transferred.
Against this background, the Team recommended that poverty assistance be paid and full payments be made by the MoF so that the MoSD could deliver aid to recipients, ensuring social justice.
Public debt amounts to ILS 12.1 billion (ILS 7.6 billion in local debt and ILS 4.5 billion in external debt)
Contradicting the MoF announced approach to reducing public debt, MoF statements indicate that, by the end of June 2022, public debt rose to ILS 12.1 billion, including ILS 7.6 billion in local debt and ILS 4.5 billion in external debt. The MoF did not make a mention of the lending institutions nor the government debt owed to the Palestinian Pension Authority.
Dr. Nassr Abdul Karim: Reform is a national demand that cannot be achieved independently of constitutional and political support
In his presentation, Dr. Nassr Abdul Karim, an economic expert, proposed some interventions to address the PA financial crisis. Citizens are key contributors to more than 85 percent of public spending. This further promotes citizens’ right to hold to account the government for the making of and engagement in public policies. Reform must be an outcome, not a cause. It is a national strategic, rather than seasonal, demand. Regardless of donor conditions, reform is a cumulative, systematic process. To have a detailed timetable, reform requires serious dialogue and needs to be linked to measurement indicators. Abudl Karim also asserted that the requisite reform cannot be achieved independently of constitutional and political support, namely the Palestinian Legislative Council (PLC). Reflecting the same recommendation made by the Team, general elections should be held in order to rehabilitate the legislative power. Legislative and presidential elections will be scheduled in the short run, allowing room for broad public participation. Elections will restore the PLC role in exercising oversight of government functions and PFM accountability.
Team: Put an end to crises carried forward to next generations and work seriously towards PFM reform
The Team came up with a set of recommendations that would ensure PFM reform. While development expenditure is prioritised, expenses need to be adapted within the context of the available means and resources. Expenditure will be under control by reviewing and trimming the public wage bill as well as by addressing and controlling net lending. The health system will be developed by adopting comprehensive and compulsory health insurance and improving government service delivery. Serious efforts need to be exerted to control and put an end to net lending by obliging LGUs to pay due electricity bills. These constitute the largest net lending item.
In relation to PFM, the MoF needs to comply with the SAACB recommendations of the final accounts audit report. This is particularly the case in the light of good governance needed to overcome the current financial crisis. Public financial reforms need to be implemented both scientifically and systematically so as to ensure tangible outcomes, especially in regard of net lending. Substantial steps and procedures should be in place, such as solutions to the debts owed by LGUs and distribution companies and a consensus formula to provide power supply to refugee camps.
AMAN Monitor: The first e-portal that provides public budget details
At the conclusion of the conference, AMAN (Secretary of the Team) launched a pilot version of the AMAN Monitor (https://www.aman-monitor.org/en). The first in terms of its content, the AMAN Monitor provides friendly access to disaggregated information on issues of integrity and fight against corruption.
The AMAN Monitor displays the latest developments of the anti-corruption system, official oversight reports, presidential decrees, government reports, and investigations of corruption cases. With the aim of strengthening transparency and access to information, the monitor is illustrated with charts that explain cold numbers and missing information in the public budget. It provides a detailed account of public expenditure, spending mechanisms, external funding, and sector expenses, including health, education, security, and LGUs.
