The Ministry of Finance confirms the start of the implementation of part of the government's reform decisions
The Public Budget Transparency Support Team held a discussion session on areas of reducing spending and increasing revenues to face the current financial crisis at AMAN's headquarters in Ramallah. The purpose of the discussion was to identify various areas and aspects of the crisis and put forward recommendations that would reduce and control public spending, and to explore opportunities that would increase revenues and alleviate the deficit and the ongoing financial crisis.
The session began with the Executive Director of the AMAN Coalition Issam Haj Hussein, emphasizing the importance and timing of the research paper, which comes at a time of deepening financial crisis and in view of the war of extermination being perpetrated on our people in the Gaza Strip as well as settler attacks in the West Bank and Jerusalem. He also underscored the fact that a large part of the financial crisis is caused by the Israeli occupation's piracy of our money and its control over our resources, meaning that part of the crisis is a reflection of political challenges as well. This paper is a contribution of civil society and the civil society team to help reduce the financial shortfall, especially under a new government that has the desire and will to improve the management of public funds. At the same time, Mr. Haj Hussein praised the candidness and cooperation of the Ministry of Finance in providing the information required to prepare the paper.
Features of the financial crisis and its causes
The research paper was reviewed by the author of the paper, the economist Dr. Nasr Abdel Karim, which explains the features of the financial crisis and the most important reasons it has intensified, where it has exceeded the limit of acceptable financial liquidity ratio. Since October 7, 2023, and the beginning of the war on Gaza, it has lost between 40 and 50% of its incoming cash flow without any significant change in spending practices, and accrued a public debt of 60% of the GDP, of which 35% is legitimate official contracts and the rest is commercial.
What exacerbated the financial crisis is the occupation's restriction of movement of people and trade, preventing Palestinian laborers from working inside historic Palestine (Israel), the occupation’s piracy of about half the clearance funds, the decrease in external support to less than 10% of what it was ten years ago, add to that the weakness of governance in the management of public financial policy.
Proposed remedies to cut spending
The research paper, prepared by Dr. Nasr Abdel Karim, is primarily marked by the proposals he makes for measures that could potentially reduce spending and increase revenues, while stipulating that financial sustainability is difficult to achieve without stimulating economic growth, which is possible only by lifting the occupation’s restrictions on Palestinian economic activity.
It is possible to classify expenditures in the general budget into three categories: first: contractual expenses that cannot be discontinued immediately because of binding agreements that do not allow halting or canceling them; second: expenses that are not related to contracts whose suspension or postponement does not entail legal or administrative obligations; and third: non-contractual but morally binding expenditures of the PA rooted in its national and social responsibilities to the needy or groups affected by the occupation.
The research paper presents several proposals to reduce the volume of spending by 2,016 million NIS annually, half of which the government could easily implement. Those are:
Proposed solutions to increase revenue
The research paper also presents remedies that would increase the Authority's revenues by about NIS 1,355 million annually, of which about NIS 200 million can be raised without much difficulty, by:
- Deferring tax and customs exemptions and exceptions given to investment projects for the year 2024, or perhaps suspending them permanently, and tightening the criteria and conditions for granting them, then evaluating and reconsidering their reinstatement.
- Solidifying coordination between the Ministry of Finance and the Ministry of the National Economy with regard to basic commodities (i.e. food), which are subject to “commodity quota,” and working to institutionalize and adjust its own management to serve the interest of citizens.
- Oblige major taxpayers to promptly pay taxes due on their expected profits for each current year, which will bring in immediate liquidity to the public budget.
- Establish a voluntary fund to finance a coherent "recovery" program.
- Urging companies to intensify the improvement of the management of the social responsibility file, and to direct them to relief and health efforts.
Ministry of Finance: A large part of the reforms approved by the government have been achieved.
In his comments during the discussion, Mr. Tarek Mustafa, Director General of the General Budget at the Ministry of Finance, highlighted the recent decisions of the Council of Ministers to establish reform committees to study areas of spending in ministries and government institutions and submit proposals for reducing and justifying expenditures. He pointed out that these decisions were rapidly enforced, particularly on government vehicles, travel missions and rented government buildings. Mr. Mustafa also emphasized that the figures in the research paper are realistic, and stressed the seriousness of the Cabinet's decision to open up to and cooperate with civil society and its recommendations.
Mr. Mustafa also touched upon the suggestions for revenue reform mentioned in the research paper. He said that a large part of those has been achieved, and that revenues have grown by more than 110% over the past ten years, before this last war on our people in the Gaza Strip.
Mr. Mustafa added that the Ministry of Finance has submitted proposals to the reform committee to address net lending and the health system in general, including health insurance and medical transfers, and to invest effort into radically reforming the health system including decreasing dependence on medical transfers to the private sector.
As for the cost of salaries, Mr. Mustafa explained the difficulties in this area. He stated that part of the problem is the agreements made by previous governments with some unions, which has led to inequity of salaries between the employees of one ministry/institution and another. He also said that the Ministry of Finance is currently reviewing the Civil Service Law to unify the salary scale among ministries, and stressed that institutions have to be restructured after determining the surplus and each institution’s need for employees, which requires time to achieve.
The State Audit and Administrative Control Bureau (SAACB) is ready to monitor the implementation of the reform decisions of the Council of Ministers
For his part, Muawiya Asaad, the General Director of the General Directorate of Economic Control in the State Audit and Administrative Control Bureau, confirmed that the Bureau is ready to monitor the implementation of the decisions of the Council of Ministers, and prepare reports in this regard.
G.D. Asaad also stated that the SAACB is currently working on preparing a report on health insurance, which will soon be issued and submitted to the relevant authorities and will be published on its website.
At the same time, he emphasized the importance of the previous government's decision to prepare final accounts of all positions of responsibility, to enhance accountability and transparency, noting that work is under way to prepare seven final accounts for the most important ministries.
The attendees agreed on the need to carry out urgent reform processes and implementation of the decisions issued by the government in a transparent manner, also to increase revenues and justify expenditures in order to overcome the deepening financial crisis.
