Palestinian Authority Gets to the Bottom Line

In the face of numerous obstacles, the Palestinian Authority has taken significant steps to pave the way for an economically viable, sovereign Palestinian state. Steps have been taken to directly address many of the criticisms voiced by the international community and by Palestinian citizens about our financial management.

But we will never be able to create a viable economy if Israel insists on our living in a fragmented, patchwork mini-state.

We are about to establish the Palestinian Investment Fund, in cooperation with an international accounting firm, that will become the repository of every public investment held by the PA. Each investment will be examined and audited by the international accounting firm, which will be granted unfettered access to all its holdings. The public will know without any doubt what the PA owns and where the revenue is going. This project also will help us to design an effective and transparent privatization program.

But we are not just sitting around waiting for this project to be completed. Starting last January, all PA revenues, including those derived from Palestinian public companies and public commercial activities, were placed under the purview of the new Higher Council for Development, which will issue financial statements with the oversight of international auditors and the scrutiny of the popularly elected Palestinian Legislative Council. Michel Camdessus, then-managing director of the International Monetary Fund, called the establishment of the council “a decisive step in the development of the Palestinian economy.”

The PA’s fiscal year 2000 budget, which was approved by the legislative council in late January, is fully public and transparent. In addition, tax revenues previously transferred by the Israeli Ministry of Finance to off-budget accounts are now, at our request, being deposited in the accounts of our Ministry of Finance, where they will become fully transparent. Our 2000 budget calls for a surplus on current operations that would enable the PA, for the first time since its inception, to finance a portion of the capital spending requirements out of its own revenues. Many countries that have been independent for decades have yet to attain this degree of fiscal self-reliance.

We are enacting these reforms in the face of daunting challenges. Most fundamental is the fact that the PA is held to the standards of a sovereign state while lacking the full attributes of sovereignty. For example: The territory currently controlled by the PA is not contiguous, forcing the PA to operate redundant sets of public institutions and preventing the development of a truly viable national economy.

The Palestinian economy is, to a large degree, at the mercy of Israeli policies concerning border closures and work permits. When the Israeli government restricts the number of Palestinians allowed to work in Israel, the unemployment rate in the West Bank and Gaza surges. This in turn requires the PA to spend more on public sector institutions and stifles the growth of the Palestinian private sector. We long for a sovereign state that will have normal trade and commercial relations with our neighbors: Israel, Jordan and Egypt.

Israel also controls the shipment of goods in and out of PA territory. As a result, and reflecting serious shortcomings in the design of our revenue collection arrangement with Israel, the PA has suffered hundreds of millions of dollars a year in lost import taxes, value-added taxes and purchase taxes. Estimates of the amount of loss range from $100 million to $250 million; even at the lower figure, the PA would be Israel’s second-largest “donor.”

Despite popular belief, no funds from the international aid community have gone into the coffers of the PA since 1997, when the PA successfully graduated from needing recurrent budgetary support--a major accomplishment. While donor funds play a vital role in providing assistance to the Palestinian people, the PA has no control over their disbursement.

These challenges can be overcome only with the establishment of a Palestinian state that has the full sovereign powers of other nations and fair and equitable trade agreements with our neighbors, especially Israel. Until then, the PA will continue to work to ensure that its economic house is run as soundly as possible.