Palestinian National Authority - Economy and Budget

Economy and Budget

According to the World Bank, the budget deficit in PNA was about $800 million in 2005, with nearly half of it financed by donors. The World Bank stated, "The PA's fiscal situation has become increasingly unsustainable mainly as a result of uncontrolled government consumption, in particular a rapidly increasing public sector wage bill, expanding social transfer schemes and rising net lending."

In June 2011, Prime Minister Salam Fayyad stated that the Palestinian Authority is facing a financial crisis because funds pledged by donor nations have not arrived on time. Fayyad said that "In 2011, we have been receiving $52.5 million dollars a month from the Arab countries, which is much less than the amount they committed to deliver."

In June 2012, the Palestinian Authority was unable to pay its workers' salaries as a result of their financial issues, including a cutback in aid from foreign donors, and Arab countries not fulfilling their pledges to send money to the Palestinian Authority, in which the Palestinian Authority is heavily dependent. Finance Minister Nabil Kassis called the crisis "the worst" in three years. Adding to the complications are the fact that in the same month, the head of the Palestine Monetary Authority, Jihad Al-Wazir, stated that the Palestinian Authority reached the maximum limit of borrowing from Palestinian banks.

In July 2012, Prime Minister Salam Fayyad urged Arab countries to send the money they promised, which amounts to tens of millions of dollars, as they have not made good on their pledges, while Western donors have. The Palestinian labor minister Ahmed Majdalani also warned of the consequences of a shortfall in the delivery of aid from Arab donor nations.

In order to help the Palestinian Authority solve its crisis, Israel sought $1 billion in loans from the International Monetary Fund, intending to transfer this loan to the Palestinian Authority who would pay them back when possible. The IMF rejected the proposal because it feared setting a precedent of making IMF money available to non-state entities, like the Palestinian Authority, which as a non-state cannot directly request or receive IMF funding.

In mid-July 2012, it was announced that Saudi Arabia would imminently send $100 million to the Palestinian Authority to help relieve them of their financial crisis. Still, the Palestinian Authority is seeking the support of other countries to send more money to help fix a budget deficit that is approximately $1.5 billion for 2012, and it is estimated that they need approximately $500 million more. Ghassan Khatib, a Palestinian Authority spokesman, said, "This $100 million is important and significant because it's coming from a leading Arab state, and this hopefully can be an example for other countries to follow... We will remain in need of external funding. Whenever it is affected, then we will be in crisis."

By 15 July 2012, Palestinian Authority workers received only 60% of their salaries for June, which caused discontent against the government.

In a "goodwill gesture" to the Palestinian Authority to renew dialogue with Israel, Israeli Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz decided to give Ramallah an NIS 180 million advance on tax money it transfers on a monthly basis. The Israeli government’s economic cabinet also decided to increase the number of Palestinian construction workers allowed in Israel by approximately 5,000. One Israeli official said that the money helped the Palestinian Authority pay its salaries before Ramadan, and it was part of Israel’s policy of helping to "preserve the Palestinian economy."

The World Bank issued a report in July 2012 that the Palestinian economy cannot sustain statehood as long as it continues to heavily rely on foreign donations and the private sector fails to thrive. The report said that the Palestinian Authority is unlikely to reach fiscal sustainability until a peace deal is achieved that allows the private sector to experience rapid and sustained growth. The World Bank report also blamed the financial issues on the absence of a final status agreement that would allow for a two-state solution to the Israeli-Arab conflict.

As of May 2011 the Palestinian Authority spent $4.5 million per month paying Palestinian prisoners. The payments include monthly amounts such as NIS 12,000 ($3,000) to prisoners who have been imprisoned for over 30 years. The salaries, funded by the PA, are given to Fatah, Hamas, and Islamic Jihad prisoners, despite financial hardships by the Palestinian Authority. These payments make up 6% of the PA's budget.

As of September 2012, the PA is "NIS 617 million in debt to the Israel Electric Corporation."