Position Paper on the Government Policy towards Budget Management in 2023
Civil Society Team for Enhancing Public Budget Transparency
Lack of transparency has become the Palestinian government’s policy in public financial management
The Palestinian government has faced major challenges during 2022 and the first quarter of 2023, including a stifling financial crisis that impeded the government’s ability to meet its obligations, leading to subsequent financial crises in various sectors, including the private and the public sectors, such as the obligations towards the trade unions and associations, most notably the public sector employees. The Palestinian government has not paid full salaries since18 months, nevertheless it has been ignoring the provisions of the Palestinian Basic Law and the Law of the Organization of the General Budget and Public Finances No. 7 of 1998 in terms of compliance with the dates of preparing and submitting the Budget. The government violates the law, adopts a reserved and unfriendly approach, fails to consult and takes unilateral financial decisions, identifying priorities for expenditures without publishing or clarifying them. It denies the taxpayers and their representatives the right to set the priorities of public expenditures. The Decision by Law on the General Budget for the Fiscal Year 2023 was published, claiming that it had been approved by the President, although there were no indications in the Council of Ministers’(COM) decisions during the past months that prove that this is correct.
The Government did not comply with the legal provisions of the General Budget stipulated in the Law No. 7 of 1998, on preparing the budget and publishing it to the citizens. The budget preparation process for 2023 suffered from some legal issues, namely, the claim that it was prepared during the extraordinary period for approving the General Budget for Fiscal Year 2023, published in the Official Gazette after more than one month from claiming that the President approved it. In brief, the excuse was incorrect, that the government was working on adopting an annex to the Budget. COM Decision No. (200) issued on 3/4/2023 pointed out the annexes to the General Budget 2023, and an emergency budget, without referring to a declaration of the State of Emergency in accordance with Chapter Seven of the Palestinian Basic Law (State of Emergency provisions), which the President may declare under exceptional circumstances and restricted conditions, and this did not happen.
The Government allows to manage budget implementation without compliance with the provisions of the Budget Law
The Decision by Law on the Budget for 2023 granted wide authorities and discretionary powers to the Minister of Finance, in contravention with Article 61 of the Basic Law, and the Law of the Organization of the General Budget and Public Finances No. 7 of 1998, which asserted that PLC, the legislature, which has the power of issuing laws, has the power to take decisions on shifting between budget items and expenditure appropriations. Article 6 of the Decision by Law on the Budget for 2023 indicated that “all the figures and data on 2023 mentioned in this Decision by Law are indicative and may be amended and updated in light of the future developments during the fiscal year. Monthly expenditure plans are prepared based on the principle of cash rationalization and in accordance with the priorities to be presented to COM”. This article provides wide authorities to the Minister of Finance to amend and update the Budget figures, in contravention with Article 36 of the Law of the Organization of the General Budget, which provides that if the items of the General Budget Law require any amendments or addition of any items that lead to adding new appropriations, they should be prepared as an annex to the Budget, and should be submitted from COM to PLC for approval and issuing a relevant law”.
The Government also continued to completely ignore civil society organizations and taxpayers. It has approved the Budget without conducting any community consultations, or participation in identifying priorities from the perspective of the civil society. It continues to conceal information, as it published in the Official Gazette only one page of general information and numerical data that comprised the aggregate expected revenues and expenditures. The published document did not indicate the necessary figures to identify how expenditures were distributed over the sectors, the appropriations of all centers of responsibility, or the amounts allocated for financial reserves, which the Budget Law for 2023 allowed spending from (if the expenditure is for an emergency), with a COM decision, upon the recommendation of the Minister of Finance.
The Government pledges to implement reform policies in public financial management and procrastinates in applying them in preparing and spending the General Budget
The Palestinian Government did not comply with implementing the specific reform policies identified in the Public Financial Management Strategy and the Reform Agenda. The financial statements of the budget performance for 2022 did not reflect any progress achieved neither in the financial nor the administrative, economic, social or the security and public order reforms. No efforts have been exerted to reform and rationalize the administrative structures of the Authority, most notably the administrative structures of the security and the civil sectors, the pension, local government, the health system or the Civil Service Law. Public expenditures continue to be high and exceed the estimated public expenditures in the Budget, especially in the wages and salaries bill, net lending and medical referrals.
In this Budget, the government’s letter submitted to the donors reiterates the same pledge to adopt reform policies, saying that it had implemented some. The Palestinian government identified a package of substantial reforms for 2023 including:
The government’s policy to reduce the wages and salaries bill and quasi salaries
The government has failed to implement the 2022 reform plan, as the wages and salaries bill has increased since 2018 up to 2022 by around 2 billion ILS. Moreover, the commitment-based wages and salaries bill exceeded the appropriations in 2022 budget by 7%. Hence, no serious measures and steps are taken on the ground to reform the wages and salaries bill and implement the 2022 government reform plan, and other national and sectoral plans. Furthermore, no new civil service law has been adopted to address deformations in the existing law, because of the many amendments and the agreements signed with the different trade unions, although there is an almost complete draft law.
Although the financial reforms include reducing the wages and salaries bill, reviewing the organizational structure and reforming the Civil Service Law, however the General Budget estimate does not reflect those proposals. The wages and salaries were estimated at 9.5 billion ILS for 2023, around 50% of the overall expenditures and net lending (excluding developmental expenditures), a 15% increase from the estimate for 2022.
The policy of reducing debt and arrears and reducing and rationalizing expenditures
The accrued net arrears amounted to 11.2 billion ILS, while the public debt amounted to 12.5 billion ILS as of the end of 2022, including 7.8 billion ILS local debt and 4.6 billion ILS external debt. Although it is difficult to estimate the accrued financial obligations of the government, because of many hidden obligations such as term bonds and the employees’ arrears resulting from transferring only 80% of the salaries. However, the overall financial obligations are estimated at 30 billion ILS, including 12.5 billion as public debt, 8 billion ILS for the Pension Fund and 11 billion ILS as arrears.
The arrears were estimated at 1.7 billion ILS for 2023, without having a clear plan to pay back the financial arrears and obligations. The government continues to adopt a policy of carrying forward the crises, postponing payments and accumulating financial obligations. This shall undermine the services provided to citizens, and place the burden of the situation on the public employees and the taxpayers, particularly the poor, who have been not received two payments of their allocations for the fourth consecutive year.
Continued high medical referrals bill: an on-going example of the lack of commitment to serious health system reform
The 2022 Budget included linking the medical referrals appropriations with the Budget and reforming the health insurance system. In practice, this has not been achieved. The cost of medical referrals and supplies increased. The medical referrals bill amounted to US$144 million in 2015, US$260 million in 2019, and around US$ 345 million in 2022. On the other hand, the returns of health fees and insurance amounted to around US$108 million, around 17% of the Ministry of Health’s expenditures amounting to US$ 640 million. The 2022 Budget also included seeking to develop the government’s services, developing certain specialized units such as catheterization, cardiac surgery, surgical oncology, hematology and infant incubators. However, the financial data does not indicate that such development projects have been implemented, but rather that those services continued to be purchased from private hospitals. This raises a question about the seriousness of the efforts to reduce the medical referrals, or the will to reconsider the existing health insurance system, because influential persons invest in private hospitals.
Net lending (The government continues to assert that it intends to reduce it but fails to do so)
The Palestinian Government continues to have a special target related to net lending, which is the total amounts deducted from the clearance revenues with Israel to settle outstanding debts to Israeli companies that supply electricity, water and wastewater services to the Palestinian municipalities and Palestinian distribution companies, in addition to other items. Although a specialized unit was established to follow up all issues related to net lending and ensure that the work of the local councils and public service provision is sustained, however the net lending item amounted to 1.2 billion ILS in 2022, i.e., 128% of the estimate.
In 2023, The Palestinian government estimated net lending at 1.26 billion ILS, the highest estimate in all general budgets, with 32% increase from the 2022 budget estimate.
Based on the above-mentioned comments on the government’s policy in public financial management, the Civil Society Team for Enhancing Public Budget Transparency demands the following:
-First: Respect the rule of law, stop violating the provisions of the law, and hold general elections to confront the challenges the PA faces. Without a PLC to approve the Budget and hold the government accountable for compliance, the government shall continue to dispose of the Budget without the participation of taxpayers and without any control or accountability.
Second: The Civil Team asserts the need for the government and the Ministry of Finance (MOI) to commit to publishing the full Budget Law, including the details of the appropriations to the centers of responsibility and publish the periodic reports stipulated in the Palestinian law, particularly the Law of the Organization of the General Budget and Public Finances No. 7 of 1998 on time. The Team also asserts the need for transparency in budget implementation, particularly on development expenditures and their sources of financing, and expenditures on the social protection sector, including the protection of the poor and commit to making the full transfers.
Third: The Government and MOI must be open to the representatives of the citizens and the civil society organizations, involve them in identifying the general priorities of the budget, in particular the expenditures priorities, and the financial collection policy. They should clarify the expenditures priorities, and the need to strike a balance between expenditures and available resources, taking into consideration the optimal rationalization in expenditures and applying social justice, especially in the mechanisms of disbursing the salaries of the public sector employees, in addition to the need for transparency in development expenditures and sources of financing.
Fourth: The need to present the reform plan launched in 2022 with all its details and the level of implementation throughout the year, its outcome in terms of rationalizing expenditures and enhancing administrative and financial reform in 2023, especially amid the negative financial indicators of the expected outcome of the plan implementation.
The Civic Team believes that the continued dissolution of the Legislative Council, omission of holding general elections, the continued breach of the provisions of the Law of the Organization of the General Budget and Public Finances No. 7 of 1998 and the lack of a public representative body that controls and holds the government accountable for implementing its provisions, shall lead to the continued failure in public financial management and its reform plans. Moreover, using the financial crisis, financial challenges and the occupation’s piracy of the clearance money as pretexts does not justify breaching the provisions of the law on preparing and publishing the General Budget. The government’s policy of carrying the crises forward, especially the agreements with the different trade unions and associations, creates timebombs that shall blow out in the form of prolonged strikes and disputes, disrupting public work at the expense of the citizen’s right to obtain basic public services, most notably education and health services, and this comes at a grave social cost.
 COM meeting No. 200 held on 3/4/2023.