|
|
|
Good
Governance Monitoring Report – Issue no. 1
|
|
|
|
3.7. Financial Resources Management: Ministry of Finance
Performance
3.7.1. Current Fiscal Situation: Crisis
and Crisis Response
Throughout the period under review, the 10th
government faced a severe and worsening fiscal crisis. The roots of this
crisis go deeper than the tenure of the current government but it is
accelerating at a rapid rate following the imposition of an international
financial embargo on large sections of the PNA. Perhaps the most prominent indicators of
the MoF’s difficulty in coping with this crisis are the fact that a large
proportion of public employees’ salaries have not been paid for several
months (leading to an open-ended strike) and the budget for 2006 has still
not been approved by the PLC. Developments in recent months have made it
absolutely clear that the 10th government did not anticipate or
have a comprehensive plan for dealing with the fiscal crisis. In the early
days of its tenure, the new government’s public statements demonstrated a
major underestimation of the extent of the crisis and the difficulties faced
by previous governments in public financial management. Many of these original statements indicated
unrealistic expectations of the extent of potential alternative funding sources
(e.g., grassroots support from non-traditional donor countries) and somewhat
unfair criticism of the financial performance of previous governments that
betrayed an ignorance of the real challenges faced. However, in response to the fiscal crisis, the MoF
and the Cabinet have announced a number of austerity measures aimed at
reducing public expenditure. These
include canceling mobile phone subscriptions of Directors General (thereby
restricting the service to Ministers and Deputy Ministers), the cutting-off
international phone lines in public institutions, withdrawal of government
cars for Directors General, and circulation of new administrative
instructions regarding the use of government vehicles for work purposes. During the period under review, it has become increasingly
difficult to obtain reliable information from the MoF regarding the PNA’s
fiscal situation. The paragraphs below
summarize certain developments apparent from the information that the GGI was
able to gather: Revenues The Israeli government continues to withhold
clearance and tax revenues which it collects on behalf of the PNA. These
revenues constitute 60-65% of the gross revenues of the PNA and, in order to
make up for some of this lost revenue, the MoF took a number of measures in
order to increase internal revenue collection. According to MoF statistics, income tax
revenues climbed by 45% during the first six months of 2006 compared with
2005. Operational expenditure The government has reduced its operational
expenditures in relation to transport, telecommunication and rent. Certain
public sector employees receive four down payments over the period covering
June 3, 2006 and September 2, 2006 from MoF and the President's office, the
latter using support from the EU-run temporary international mechanism.
The temporary international mechanism allows for monthly payments of
NIS 2,000 to the 11,500 MoH employees and also provides aid to 98,000 “social
cases” (i.e., people/households with limited income) in the form of Public Debt According to MoF data, the net internal public debt
dropped from USD 603 million to USD 547 million; on the other hand, external
public debt climbed from USD 1,270 million dollars to USD 1,277 million. Procurement The MoF published 32 invitations for tender and
issued 1,100 purchase requests during the second quarter of 2006 and work is
currently underway on drafting a new procurement law in line with more modern
practice. 3.7.2. Financial Management Reforms in
Reverse
As the fiscal crisis continues and deepens,
Palestinian society is returning to a state of reliance on emergency
aid. The progress of previous
governments in building MoF capacity and generating domestic revenues to
cover the governments current, operating expenditures are gravely at risk of
being reversed. The
status of the previous and current financial reforms can be summarized as
follows: ·
Central Treasury Account: MoF
worked hard during the past few months to identify a bank willing to continue
working operating the central treasury account, the establishment of which
was one of the most important achievements in financial reform of the PNA.
However, these attempts failed due to the major banks’ fears international
legal action. ·
Budget preparation and approval: The 2007
budget circular has been prepared and distributed but this is essentially a
copy of the 2006 circular and does not reflect the changing fiscal situation
and, in particular, the revenue impact of the ongoing financial boycott. ·
Integrating budgeting and planning: Plans
developed by the previous government to integrate PNA planning and budgeting
process have been put on hold. ·
Transparency of fiscal information: During
the months following the formation of the new government, the MoF continued
the practice of posting certain financial data and monthly reports covering
its website internet. These reports indicated, inter alia, that the MoF has
made serious efforts to increase local revenues through reassessing real
estate values in order to increase the property tax, widening the tax base
and following-up on unregistered taxpayers.
However, since the end of June 2006, such information has become more
difficult to obtain. It is clear that the challenges posed by the
ongoing fiscal crisis make progress in financial management reform extremely
difficult. However, there remains
scope for improving basic financial management processes and, in particular,
an improved budget process. Published by Good
Governance Initiative - 2006 |