Palestinian Prime Minister Salam Fayyad and President Mahmoud Abbas should pray hard this Id al-Adha. They must not make do with only a prayer of thanksgiving for the demonstration of international solidarity and the pledges made this week at the Paris donors conference, allotting the PA more than $7 billion in the next three years. Their main prayer should be: "Allah, let us not be like Iraq and Afghanistan, which were pledged much and which received only a tiny amount, and let us not be like Lebanon, which was given a lot of money at the Paris conference after the war but cannot receive it because it does not have a parliament to approve the budget."
Prayers said, Fayyad would do well to take advantage of the holiday break to invite Foreign Minister Tzipi Livni for a joint close reading of the World Bank report issued in honor of the Paris conference. The figures are hard to digest and annoying. The entire amount that will be transferred to the PA this year from donations, nearly $4 billion, is earmarked for recurring expenses and the tremendous, $1.8-billion budget deficit - nearly 28 percent of GDP.
According to the World Bank's figures, the Palestinian GDP is only 14 percent less than it was at its peak, in 1999, but when population growth is factored in, it translates to a 40-percent drop in per-capita output. In this regard, the bank indulges in a sharp reprimand to Israel, to the effect that had it not imposed trade restrictions, the Palestinian GDP and economic growth would both have been double what they are now, at nearly $9 billion and 8 percent a year, respectively.
The bank also warns Israel against continuing its restriction of free movement and against the checkpoints. The latter currently number 542, compared to 376 in August 2005. According to the report, even if the donor countries were to honor all of their pledges, unless the roadblocks are lifted the Palestinian economy cannot grow and its annual growth rate will be negative, at close to minus 2 percent. Without growth of at least 6 percent, new jobs cannot be created and unemployment, the official rate of which is currently 23 percent, compared with 10 percent at the start of the intifada, will only rise.
According to the report, high unemployment is also responsible for the budget deficit, as the PA has had to absorb almost 35,000 workers who previously worked in Israel or in Jewish settlements. The PA currently has over 160,000 employees on its payroll, (including the deposed prime minister, Ismail Haniyeh). The figures cited by the bank refer to the entire PA, but when the Gaza Strip is taken separately, the situation is even more alarming. There, unemployment has passed the 50-percent mark and business activity has plummeted by 95 percent.
Fayyad, a senior economist by profession, was praised for cutting high-level positions and for his promise to reduce the budget deficit to 17 percent of GDP by 2010. But the World Bank also asked him to institute real reforms in additional areas. Above all, it is demanding far greater efforts to collect fees and taxes. The report points out that the government is not charging local authorities enough for electricity. After salaries, which account for 57 percent of the budget, electricity is the second largest money-losing item on the PA budget. The local councils owe about $517 million to the PA government because of their failure to collect. In effect, the government provides the electricity as a standing loan; the municipalities, which do not pay the government for it but which do collect payment from residents, view it as a source of income.
The second issue requiring attention is the pension plan, the likes of which can be found only in developed Western countries, as the report notes. PA officials with 15 years' seniority, for example, can retire at 55. Pensions come from state coffers, not from private pension funds to which employees also contribute. Fayyad has promised to deal with this as well, but given the current political situation in the territories, it is hard to imagine him overcoming the public outcry this would draw.
For now, the PA can count on its operating expenses being underwritten this year. What will happen next year and the year after that? It's all in the hands of the donor conferences to come.
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