Aid to PA Nearly Tripled in '06, Despite International Boycott

Donations to the Palestinian Authority almost tripled last year as a result of the international boycott of the Hamas government, according to a report published this month by the United Nations Office for the Coordination of Humanitarian Affairs (OCHA). Aid in 2006 totaled $900 million, up from $349 million a year earlier.

The boycott meant that most countries refused to channel money directly to the PA, and Israel refused to transfer the tax revenues it collects on the PA's behalf.

However, Arab and Western nations continued and even increased their donations, channeling them through either a "Hamas bypass" mechanism known as the Temporary International Mechanism (TIM), or the office of PA Chairman Mahmoud Abbas. This money, which compensated entirely for the halt in Israeli tax transfers, partially financed the salaries of PA employees and was used to make welfare payments to the needy.

GDP fell by 10 percent

Normally, Israeli tax transfers cover about two-thirds of the Palestinian Authority's budget. Had economic activity in 2006 continued at the same level as the year before, they would have reached an estimated $800 million last year. But in fact, the PA's gross domestic product fell by 8 to 10 percent in 2006.

According to the report, the biggest contributor to the PA last year was the Arab League, which gave $448 million.

The European Union gave $219 million and the World Bank gave $42 million. In addition, the government obtained an estimated $180 million by smuggling in cash from abroad.

The report noted that, in part because less money was funneled directly to the PA, the trend toward greater financial transparency was reversed in 2006, even though the PA's donors have pushed for transparency for years.

For instance, instead of monthly reports on the utilization of the PA's budget, reports were published only semiannually, violating the PA's budget law.

Abbas' office issued no comprehensive data on its expenditures or receipts of money from abroad, while the Palestinian Investment Fund did not fully report its dealings with either the banks or Abbas' office.

Finance Ministry has no control

Overall, TIM meant that the PA Finance Ministry had no control over income and expenditures and could not draft a budget for 2006, while its 2007 budget proposal lacked relevant data such as income and expenses for 2006 or the number of public-sector employees. It also caused other government offices to lag in payments to suppliers and resulted in the government's total expenditure falling 31 percent in 2006 to $1.37 billion. Its payments for salaries in particular dropped from $1 billion in 2005 to $655 million.

TIM also resulted in bureaucratic duplication and financial uncertainty for the recipients, the report said. For example, many employees did not receive their salaries regularly.

The document was written by Dr. Karim Nashashibi, who until two months ago was the International Monetary Fund's representative for the West Bank and Gaza.