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Finance minister says reforms are essential to improve the budget, citing mainly wages and health bills

Finance minister says reforms are essential to improve the budget, citing mainly wages and health bills
Finance Minister Shukri Bishara. (WAFA Images)

RAMALLAH, Thursday, February 24, 2022 (WAFA) – Finance Minister Shukri Bishara stressed today the importance of reforms to improve the budget of the Palestinian Authority in order to cut in expenses and increase revenues, citing mainly reforming the wages and health sector bills.

“Reforms domestically, we can do it, but it requires a lot of dedication and a lot of understanding,” he told a meeting of international donors in Ramallah. “It won’t be easy, but it is doable.”

The Finance Minister said that “over the past 25 years, the disproportionate growth of the public sector wage bill to the Palestinian Authority’s (PA) resources has become another major threat to financial stability.”

The PA pays wages and quasi-wages to over 245,000 beneficiaries with a monthly average cost of 930 million Israeli shekels ($290 million), which currently constitutes approximately 95% to 100% of the annual net revenues, he said.

“If we do not put an end to the wage bill runaway, the PA will collapse,” he warned.

Likewise, the Finance Minister warned that a spiraling health sector bill and demands by doctors and health workers to increase their wages could also contribute to the collapse of the PA.

The Palestinian national health system has grown over the past 26 years, “based on haphazard policies and medical benefits that by far exceed PA’s financial capabilities,” said Bishara.

“At the same time, numerous abuses have crept into the system. The status has now reached an irreparable stage whereby neither ad hoc nor makeshift remedies can work,” stressing, “It is now abundantly clear the overall deconstruction and remodeling of the health paradigm has become a vital requirement.”

“We have to deconstruct the whole system and rebuild it,” he said.

There are other areas that need reforms as well, such as the banking system, taxation, and most notably, net lending, he said in his briefing to the donors on the 2021 budget while looking forward to the 2022 budget.

The 2021 fiscal year witnessed a deficit of $757 million. Gross revenues amounted to a little more than $4.4 million while expenditure reached a little less than $5.5 million.

“The strong performance on the revenue side is largely due to improved collection processes, increased tax compliance and follow through on matters relating to clearance revenues,” among other factors, said the Finance Minister.

At the same time, recurrent expenditures also increased by 10% - largely offsetting the positive performance on the revenue side, he said.

Israeli government deductions and financial support for the Gaza Strip have contributed to the deficit.

“The government of Israel doubled down on the amount of unlawful deductions raising these from NIS 50 million ($15 million) to NIS 100 million ($33 million) per month as of July 2021 through December 2021,” said Bishara. “The total amount of such deductions stood at $282 million for 2021, and the balance since 2019 has reached $450 million.”

“Such unlawful deductions severely impact our fiscal situation and represent 37% of deficit of 2021 and 15% that of 2020 respectively,” he stressed.

As for the Gaza Strip, the sum total of expenditures and costs which are incurred year on year relative to Gaza range between 35% to 40% of PA’s overall budgetary outlays, said Bishara.

Looking ahead to the year 2022, the Finance Minister projected gross revenues to increase by 8% ($355 million) broken down as follows:

E-vat: improvement will increase revenue by $ 180 million.

Internal reform and process: will increase revenue by $175 million.

Reduction of main cost centers throughout 2022 of $ 279 million broken down into:

Reduction of $50 million in health cost; 20% reduction.

Reduction of $75 million in net lending; 20% reduction.

Reduction of $154 million in wage bill; 20-25% reduction.

At the same time, international budget support will remain at similar levels of 2020, that is not exceeding $334 million.

All things being equal, the deficit will be brought down by a further 15-20%; bringing it down from $757 million to $643 - $605 million by year end, projected the Finance Minister.


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