The Civil Society Team warns of the consequences of the financial collapse of the Authority and demands publishing the 2023 Draft Budget and opening dialogue over priority expenditures
The financial crisis that the Palestinian Authority (PA) faces resulting from the revenues/ expenditures gap is aggravating. Although the government explicitly admitted the crisis, and issued many statements about the need to bridge this gap and rationalize expenditures, the problem persists. The solutions adopted by the Council of Ministers (COM) and the Ministry of Finance (MOF) merely carry the crisis forward and make it worse by borrowing and postponing the overdue payments of the government’s suppliers and employees, thus increasing the arrears, with no serious efforts to rationalize expenditures and increase revenues.
With the persistent financial crisis, the Palestinian government pledged early last year to adopt policies that aim at financial reform and reducing expenditures in three main fields: the payroll, the health system (treatment abroad) and net lending. It also pledged to adopt a reform agenda that included financial, administrative, economic and social reforms, in addition to public security and order reforms. However, by the end of 2022, there were no indications of implementing the above-mentioned policies, with the continued financial crisis, as the government continued to pay 85% of the payroll, and the net lending and the public expenditures steadily increased.
The financial crisis and 2023 budget
Despite the legal obligation to adopt the General Budget Law for 2023, and despite the financial crisis for which the citizens pay the price, and the importance of engaging the representatives of the civil society in discussing the draft budget, the 2023 Draft General Budget Law continues to be a secret and all the relevant data about the budget undisclosed.
The financial crisis requires adopting a participatory approach, involving the representatives of the civil society and experts to discuss the draft budget and identify national priorities. It also requires that the 2023 draft budget include the necessary plans and programs to face the financial challenges, taking into consideration the objective conditions, the decline in external support and the continued piracy of occupation. It should include plans for actual implementation in the main fields identified last year, and serious efforts to reduce the payroll, address net lending and develop the healthcare system to reduce the medical referrals.
According to the COM session, which approved restructuring the Public Treasury loans to increase liquidity, and the sections on rationalizing expenditures, the 2022 financial report of MOF identified several challenges related to the financial crisis. This asserts the need to publish 2023 Draft Budget and open it for community dialogue, to identify priority expenditures amid the aggravating financial crisis and based on the challenges identified in MOF report. Those include the following:
Revenues
In 2022, the accrual-based net revenues reached around 15.4 Billion ILS, indicating an improvement in tax collection, as well as the increase in prices and the subsequent increase in the value added tax (VAT) revenues. The Reform Agenda aims at reforming the tax system, VAT, customs, and property tax, including the laws, policies and procedures using information and communications technology. Last year, VAT and customs laws were drafted. However, they were not adopted but rather stalled despite many reviews of experts and some civil society organizations.
Expenditures
The overall expenditures and accrual-based net lending amounted to 17 Billion ILS, while cash-based expenditures amounted to 14 Billion ILS. This means that the government’s financial obligations amount to 3 Billion ILS, and include the overdue wages of public employees and payments for the private sector suppliers.
The accrual-based payroll did not reveal any reduction, or early retirements, as had been announced at the beginning of 2022. The Civil Service Law was never amended as planned.
Net lending amounted to 1.2 Billion ILS, i.e. 128% of the projected net lending, although the Reform Agenda had identified several goals to reduce net lending, including setting up a net lending unit to monitor net lending with the stakeholders and eliminate the net lending problem. However, the financial statements did not reveal any reduction in net lending, in accordance with the government’s declared policies. The 2022 financial report reveals that net lending has increased; hence, the problem continues to exist. The electricity bills constitute the largest component of net lending.
Public debt
Towards the end of 2022, the public debt amounted to 12.5 Billion ILS, an increase of 549 Million ILS in comparison with early 2022. The public debt includes local debt (bank loans, loans from the Petroleum Commission and other public institutions) and external debt only according to MOF report. The public debt does not include the arrears to the Pension Fund and to other funds, to the public employees and private sector suppliers, which shows that MOF reports do not reveal all the government’s debts.
Despite the declared governmental strategies that set as their goal to rationalize public debt and manage it efficiently, however the financial statements do not reflect that. Moreover, the size of public debt indicates a problem in rationalizing and reducing public debt. Furthermore, COM decision to restructure public treasury loans to provide liquidity reflects a tendency to increase public debt, and to continue carrying the crises forward, rather than exert serious efforts to reform public financial management and rationalize expenditures.
Clearance revenue deductions
In early 2023, the Israeli Minister of Finance decided to deduct 139 Million ILS from the clearance funds, although in 2022 the total deductions amounted to 2.3 Billion ILS. The deductions included electricity, water, wastewater, hospitals and others, and amounted to 1.7 billion ILS, while 603 Million ILS were deducted as seized revenues. The piracy of occupation does not include only the aforementioned deductions but also around US$500 million, which the Public Treasury loses in the form of financial leakage resulting from the unfair terms of the economic agreement (Paris Protocol) or the Israeli breaches of the agreement.
The Civil Society Team for Public Budget Transparency (CSTPBT) believes that:
The aggravating financial crisis is reflecting on the quality of the public services, which may lead to the collapse of PNA’s financial status. The continued financial crisis indicates the lack of the political will to rectify the current conditions and reform public financial management. Hence, CSTPBT calls for the following actions:
