Behind the numbers of the Palestinian Authority's 2013 budget

By: Omar Shaban

The preparation of the budget and its ratification are usually accompanied by much local and international anticipation, because of the chronic financial crisis from which the Palestinian Authority suffers and which has affected its popularity in Palestinian society negatively. Likewise they reflect the balances of power within Palestinian society, of large companies, unions, and civil-society organisations, and they also indicate the level of coldness or warmth in the Palestinian Authority's relation with Israel. This time the ratification came in different circumstances.

Circumstances, some of them old and some of them new

The ratification of the budget of the year 2013 comes in light of political and financial circumstances, some of them old and others new. The Palestinian Authority groans under the pressure of a chronic financial crisis of years, even if its severity increased last year, which caused the eruption of violent demonstrations in the West Bank governorates demanding the lowering of the tax rates and the fighting of the high cost of living, while some demanded the dismissal of the Fayyad government. Likewise the ratification of the budget comes in light of sharp disagreements between President Mahmoud Abbas and his prime minister Salam Fayyad on the background of the resignation of the finance minister Dr Nabil Kassis, which he presented on the ninth of March. The resignation which Salam Fayyad accepted quickly without consulting the president of the Authority Mahmoud Abbas, who was present at the time in the Kingdom of Saudi Arabia. Whereas President Abbas rejected it, asking him to return to his post — which caused a new tension in the relation between the two heads of the Palestinian Authority. The resignation of the finance minister in the Palestinian Authority still swings between its acceptance by the prime minister and its rejection by the president of the Authority. The curious thing here is that the budget, which the Ministry of Finance prepares, was ratified without settling the resignation of the finance minister himself.

In light of this atmosphere, events carried happy news for Mr Salam Fayyad: the Ad Hoc Liaison Committee for the donor states to the Palestinian Authority (AHLC) approved, in its meeting held on 19 March in Brussels, the donor states' commitment to pumping in an amount of 1200 million dollars during the year 2013. Likewise Ms Catherine Ashton, the coordinator of foreign policy in the European Union, pledged that the latter would continue paying 300 million euros, with 20-25 million euros added to it as direct support for the budget. Therefore Mr Salam Fayyad returned from Brussels to Ramallah content with what he had achieved, after having left it angry because of the tension with President Abbas. And because happy news comes all at once at times, the American President Obama announced during his presence in Ramallah that the American administration would release frozen American aid at a value of 500 million dollars, which the American Congress had frozen as a punishment to the Palestinian Authority for going to the United Nations to obtain state membership last November. Of it, 170 million dollars will be allocated to direct support for the budget. Direct support for the budget means enabling the government to pay the employees' salaries and the operating expenses, which are the source of the headache for the prime minister in the event of its absence. This happy news pushed the prime minister Salam Fayyad to say that his government would be able to pay the salaries in full and on their dates in the coming months. The budget was ratified in light of tense internal conditions and in light of supportive international pledges. Mr Salam Fayyad succeeded in his external battle, which he will most likely rely upon in consolidating his position within the political system, in facing the decline of his popularity because of the financial crisis, and in refuting the sharp criticisms and the multiple demands for dismissing the government and replacing him.

- A summary of the budget for the year 2013:

Public revenues:

The public revenues in the 2013 budget were estimated at 2,880 million dollars — that is, an increase of 413 million dollars over the revenues in the past year. The public revenues have witnessed a steady increase since the year 2009, as they jumped from 1,597 million in the year 2009 to 1,884 million for the year 2010, 2,045 million for the year 2011, and 2,235 million for the year 2012. The expected public revenues will come from the taxes, estimated at a value of 598 million dollars, and the clearance transfers at a value of 1,722 million dollars.

The steady improvement in the public revenues is attributed to the great improvement in the methods of collection and the fighting of the smuggling of goods from Israel to the Palestinian territories — but at the same time they were one of the causes of the demonstrations that swept the Palestinian Authority's territories in the past years.

Total public expenditures:

The budget of the year 2013 estimated that the public expenditures would reach 3,538 million dollars, of which 1,880 million dollars are allocated to salaries — that is, a proportion of 53% of the total expenditures — while 1,577 million dollars, that is a proportion of 45%, were allocated to the item of other current expenditures. The budget of the year 2013 notes an increase in the wages item at a value of 111 million dollars, and in the current operating expenditures item at a value of 94 million dollars. The budget statement does not show the details of the items of disbursement under this heading despite its importance. Likewise it does not touch on the number and type of the new employees, at a time when the government suffers in fulfilling the salaries of its employees, whose number is 160,000 employees.

The funding gap:

The trade deficit before calculating the allocation for development projects is 1,050 million dollars. This deficit rises to 1,400 million dollars after adding an amount of 350 million dollars allocated to development projects, which is equal to what was allocated to this item in last year's budget. The budget proposes that the total deficit of 1,400 million dollars be covered from Arab and international support. The European support is characterised by regularity, therefore it can be relied upon, whereas the Arab and American support is characterised by its being severely affected by politics and by irregularity.

A budget with some reforms:

The budget law and the budget itself include new texts giving a clear signal in the direction of financial and administrative reform; some of these texts touched the criticisms directed previously at the government, which may indicate that the Fayyad government and its resigned finance minister have at last heard the pulse of the street in preparing the budget. Among these texts:

1. It is not permissible to resort to borrowing from the insurance and pensions fund or from the Palestine Monetary Authority to implement the budget items. Likewise it is not permissible to borrow from the banks except to cover the funding gap, provided that the debt balance at the end of 2013 does not exceed what it was at the end of the year 2012. It is known that the Palestinian government resorted to borrowing from the employees' pensions and insurance fund to confront the financial crisis resulting from the delay in the arrival of the international aid. The size of the government's indebtedness to the insurance and pensions fund reached more than 1,500 million dollars. In addition to two billion dollars, which are the debts of the private sector and the Palestinian banks.

2. The Palestinian government contracts with consultants to carry out tasks requiring competences not available in the governmental apparatus. They reached about 1200 consultancy contracts up to the year 2011, and the remuneration of some of these contracts reached more than 10000 dollars monthly. The consultancy contracts were a focus of severe criticism from Palestinian society, being made outside the frame of the governmental apparatus, and it being difficult to oversee them and make certain of their usefulness; likewise the consultancy contracts were employed as a back door for employment and for buying consciences and loyalties. The budget statement for the year 2012 indicated that the government would work on reducing the number of consultancy contracts by a proportion of 30%. Likewise the budget statement for the current year affirms the work to reduce the number of contracts and set a higher ceiling for the remunerations of no more than four thousand monthly, with the necessity of the availability of an actual need for them.

3. The budget statement includes clear instructions on organising the disbursement process and specifying a unified treasury account in which all the revenues and grants are deposited; likewise it forbids opening subsidiary accounts without written approval from the finance minister, and forbids awarding any tender or carrying out any purchases without the availability of the financial allocations.

A financial budget with political dimensions:

The government's success in confronting the financial crisis remains contingent on the donors' satisfaction, and more importantly on winning the internal battle open on three fronts: the presidency, the political forces, and the Palestinian street in most of it. Mr Fayyad will realise that his battle in guaranteeing the Western funding is much easier than what awaits him on the three fronts, for President Mahmoud Abbas will not yield by accepting Fayyad's acceptance of the finance minister's resignation. The news affirms that President Abbas insists on the return of the resigned finance minister, even if the price of that is sacrificing Fayyad himself — which may open a battle between the Palestinian Authority and the Western donor bodies, which see in Mr Fayyad a trusted custodian for managing their aid to the Palestinian Authority. It appears that the 2013 budget was not merely numbers but was the fig leaf covering serious political tugging.

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