The Secretariat of the
Ad Hoc Liaison Committee

WEST BANK AND GAZA ECONOMIC POLICY
FRAMEWORK PROGRESS REPORT

MAY 31,2000

Prepared by the Palestinian Authority
in collaboration with the staff of the International Monetary fund

Lisbon
June 7-8, 2000

 

 

May 31, 2000

Mr. Horst Koihler
Managing Director International Monetary Fund
Washington,D.C.20431
U.S.A.

Dear Mr. Koihler:

1. At the Ad Hoc Liasion Committee(AHLC) meeting held in Tokyo in October last year, President Arafat announced the Palestinian Authority's (PA) intention to develop a medium-term economic policy framework (EPF) in collaboration with International Monetary Fund staff. He also announced the establishment of an economic policy committee, consisting of the Ministers of Finance, Planning and International Cooperation, and Economy and Trade, as the counterpart to IMF staff in these discussions.

2. We Write to you to report on the progress made in our work with IMF staff to develop the EPF, which We hope to be able to launch in a few months time, once the effort already underway in implementing some key measures is completed; We intend to share this report with the AHLC at the meeting in Lisbon on June 7-8. Before going into where we stand on the EPF, we would like to begin with an overview of recent developments in the Palestinian economy and in our policies.

 

I. RECENT ECONOMIC DEVELOPMENTS

 

3. The Palestinian economy continued to enjoy robust growth in 1999, making it the third consecutive year of rising real per capita income since the recession in 1995-96, albeit at a somewhat slower pace than in 1998 (Table 1). Gross domestic product (GDP) is estimated to have increased by around 6 percent in 1999 in real terms, with growth particularly pronounced in construction and tourism. Gross national income (GNI), helped by increasing labor income, is estimated to have risen by over 7 percent in real terms. The economic expansion is evidenced by soaring tax collection and rapid growth in bank credit and deposits. In 1999, tax revenue increased by 25 percent, and the Palestine Monetary Authority (PMA) reports credit to the private sector growing by 25 percent and bank deposits by 18 percent, all in shequel terms. While these vigorous growth rates reflect to some extent improvements in tax administration and the continued process of financial reintermediation, they also support the notion of dynamic economic activity . At the same time, despite the strong economic recovery in 1997 -99, real GNI per capita in 1999 was still around 10 percent below the level in 1993, reflecting the effect of the 1995-96 recession.1nflation has been low, with the consumer price index rising by only 3.3 percent in the twelve-month period through March 2000, compared with 8.3 percent a year earlier (Table 2).

4. The strong economy has brought with it a marked decline in the unemployment rate, to 10.9 percent in the first quarter of 2000, according to data from the Palestinian Central Bureau of Statistics (PCBS), compared with 13.9 percent in the same period in 1999. Although unemployment is at its lowest level since 1993 in absolute terms as well as in percent of the labor force, it is nonetheless around twice the level of 1993, and it is still a serious problem when taking into account the high dependency ratio-only about 19 percent of the population actually work. On the positive side, while the decline in unemployment from its peak in 1996 has mostly been on account of a rapid expansion of employment in the PA and a recovery in the number of Palestinians working in Israel, the last two years have also seen significant job growth in the Palestinian private sector.

5. While data on external sector developments are weak, both exports and imports of goods and services appear to have grown quite strongly in 1999. reflecting a large increase in tourism earnings and higher imports fueled by the expanding economy and rising labor income. Estimates based on data from the Ministry of Planning and International Cooperation (MOPIC) Show total donor disbursements for the development plan of roughly US$416 million (10 percent of GDP) in 1999, modestly higher than in 1998. but still significantly below the amounts received in 1994-97 (Table 1). While disbursements for technical assistance and other uses rose, disbursements for investment continued to decline. Furthermore, it appears that foreign financed public investment spending on the ground declined even more sharply, although these estimates are still subject to considerble uncertainty.

Fiscal developments

6. The fiscal situation remained difficult in 1999 despite the good revenue performance. Revenue of the PA increased by 25 percent to NIS 4.1 billion (23.4 percent of GDP), with both domestic and clearance revenue recording strong growth (Tables 3 and 4). Fiscal management continued to be impaired by the rapid and uncoordinated expansion of PA employment and the diversion during 1999 of some excise revenue to accounts outside the control of the Ministry of Finance. Employment in the PA rose by 11,187 people in 1999, to 103.554 at the end of the year. contributing to a 21 percent increase in the wage bill.In the  civil service, the excessive growth in employment is in large part due to the General Personnel Council(GPC)in Gaza operating without regard to the budget constraint. Nonwage expenditure, following a spurt of spending in the last quarter, rose by almost 23 percent in 1999. The PA recorded a surplus on the recurrent budget on a commitment basis of around NIS 191 million(1.1percent of GDP), but since roughly NIS 325 million of the PA's revenue (included in the revenue data above) did not come to the treasury, the Ministry of Finance continued to experience liquidity difficulties (Table 5) and budgetary arrears rose further to NIS 348 million (2 percent of GDP) at the end of 1999.

7. As regards structural reforms in the fiscal area, preparation for the 2000 budget started in a timely manner , in welcome contrast to previous years. An effort was also made to better integrate the recurrent and development budgets, but more is needed in this area. Income tax rates were reduced by a Presidential Decree on January 1, 1999, as envisaged in the draft income tax law dating back to 1997, which has yet to be approved by the Palestinian Legislative Council (PLC). In general, progress on structural reforms in areas of tax administration, ~enditure management and treasury operations did not proceed in 1999 at the speed we had envisaged. Although the tax base was broadened to some 70,000 tax payers, progress with reform in other areas of tax administration has been delayed as it required a significant departure from the existing management of tax administration. Liquidity constraints faced by the Ministry of Finance undermined efforts to centralize control over payment$ and establish a system for timely detection and monitoring of arrears.

Banking system developments

8. The banking system continued to expand in 1999 and the PMA made progress in improving banking supervision. The number of banks increased to 23 with a total of 114 branches at the end of 1999. Private sector deposits in the banking system increased by 18 percent in dollar terms in J999, reaching US$2.6 billion dollars (70 percent of GDP) at the end of the year(Table6).Deposits rose further to US$ 2.8 billion in the first quarter of 2000. Likewise, loans and overdrafts extended to the private sector have increased rapidly and total claims on the private sector is around US$900 million, or about 32 percent of deposits.

9. The rapid credit growth over the past years has, exposed weaknesses in some banks, but with recent decisive actions including placing one bank in difficulty into conservatorship in late 1999 and safeguarding the bank's assets and preserving its value as a going concern, the PMA has strengthened its authority in the banking system. With the heightened attention to banking supervision, the President has appointed an interim board of directors of the PMA. The PMA has also intensified its efforts to improve the supervision of the banking system. To this end it has increased the staff for both on- and off-site inspections, and is also introducing new software and designing new questionnaires for an improved off-site inspection,including an, early warning system for bank crisis. Nonetheless, the capacity for rapid decisions and day-day management is hampered by the continued absence of executive directors in key departments. Moreover, further training, in particular on-the-job training, is needed"as most staff have only very limited experience in banking supervision. The Banking Law has not yet been passed by the PLC, limiting the authority of the PMA and the sound evolution of the banking system.

 

II. DISCUSSIONS ON THE ECONOMIC POLICY FRAMEWORK

 

10. The over all objective of the EPF is to ensure that our economic policies over the coming years make a positive and significant contribution to overcoming the challenges facing the Palestinian economy . We recognize that the most important contribution the PA can make to a significant and sustained improvement in living conditions of the Palestinian people is to address resolutely the obstacles that now stifle private investment and growth. Obviously,some critical impediments to investment and growth---such as a high degree of uncertainty and the costly restrictions on economic activity and trade-are not under our control. At the same time, within the constraints of the current setting, we can significantly improve the climate for investment and private economic activity in the West Bank and Gaza by intensifying our efforts to improve economic management, enhance public infrastructure investment. build strong institutions, establish a modern legal and regulatory framework, and safeguard the soundness of the banking system. Fiscal policy can support economic growth by improving the composition of budgetary expenditure, by ensuring adequate expenditure allocations for the education, health, and judiciary sectors, as well as for new public investment and the operations and maintenance of past investments. While the range of issues that would need to be addressed is broad, the EPF would in its first year focus sharply on policies to strengthen fiscal management, enhance transparency and governance in the PA's commercial and financial operations, improve banking supervision, and strengthen the legal and regulatory framework. All of these are essential areas to create more favorable conditions for private sector economic activity . We have made good progress in the discussions with IMF staff on policy measures in these areas, and we actually implemented some of these measures in early 2000 (see below). Of course, reforms in other areas would be undertaken in parallel with the EPF.

11. In order to ensure the credibility and success of the EPF, we have decided to implement some critical policy measures upfront, before launching the EPF . The key up front measures that we have identified aim at enhancing economic governance and strengthening public finances. These measures are: (i) to stop the diversion of excise revenue to accounts outside the control of the ministry of Finance as from January 1,2000; (ii) to move the Gaza payroll unit from the GPC to the Ministry of Finance; (iii) to make a substantial upfront reduction in budgetary arrears;and(iv) to disclose information on the PA's commercial operations and investments. On January 10, 2000, President Arafat issued a Decree addressing these key issues as well as other issues, such as privatization. The Decree, which also established the Higher Council for Development and charged it with, inter alia, overseeing the implementation of the above-mentioned reform measures, represents an important orientation of the PA 's economic policies. Again, we have been successful in implementing some of the upfront measures, and we hope to implement the remaining ones shortly.

 

Actions imploymented

12.  As from late April, all revenue collected by the government of Israel on behalf of the P A is transferred directly to the Ministry of Finance, thus ending the practice of revenue diversion. This measure greatly improves governance and transparency in public finances, and will go a long way in easing the liquidity problems of the Ministry of Finance.

13. Some of the diverted revenue in the past has been used for recurrent expenditure, but the bulk has been saved or invested in commercial operations, through the Palestinian Commercial Services Company (PCSC), in the West Bank and Gaza and abroad. The PCSC, which is fully owned by the PA; was audited by Saba Company, part of Deloitte Touche Tohmatsu International in Febroary2000. As of December 31, 1999, the PCSC had assets worth approximately US$345 million, of which US$292 million was in the form of equity holdings (Annex I). The four most valuable holding 30 percent in the Jericho Resort, 100 percent in the Cement Company , 35 percent in Palcell, and 8 percent in PALTEL-account for about half of the value of the PCSC's total assets, as reported by the PCSC. In 1999, the PCSC made net profits (after provisions) of roughly US$77 million, of which approximately US$18 million came from the sale of cement. The profits have been reinvested by the PCSC.It should be recognized that by disclosing this information, including the list in Annex I, we are adopting a policy of openness that is high by international standards. We are now preparing a privatization strategy under which we will gradually phase out the PA's equity holdings and privatize most public enterprises. We are mindful, though, that it would not represent any improvement to Simply turn a public monopoly into a private one, and for that reason, the privatization of some public enterprises will take time and wi1l have to go hand in hand with reforms, including in the legal area, to increase competition in the concerned sector. On the other hand, privatizing minority equity positions in listed companies can and will be done more quickly. The process of elaborating a privatization strategy is already underway. Private sector input into this process has been encouraged and sought, including in the context of two workshops that were held earlier this month with full private sector representation. The key features of the privatization strategy are expected to be finned up in the light of the deliberations of the national economic forum convened on May 30, 2000.

Actions to be implemented

14. The establishment of the Palestinian Investment Fund (PIF) is a key element of the Presidential Decree of January 10,2000. The PIF has been charged with managing all of the PA' s assets and commercial activities, in the West Bank and Gaza as well as abroad, and also with executing the PA 's privatization strategy once it has been finalized. When the PIF becomes operational, which should be soon, the PCSC will cease to exist. W e are now working with the management consultancy firm PricewaterhouseCoopers to develop the PIF's articles of association in a manner which ensures that e organizational structure and , investment guidelines for the fund will conform with the highest international standards for transparency and accountability . As stipulated in the Presidential Decree of January 10, 2000, the PIF will issue all relevant information and annual financial reports covering the full range of the PA's commercial and investment activities, and will be audited by an internationally reputed accounting firm. We believe that these measures will significantly increase transparency and improve governance in the PA 's financial and commercial operations.

15. In order to better control hiring by the PA, we want to move the Gaza payroll unit from the GPC to the Ministry of Finance, but this measure has proven more difficult to implement than envisaged. The lack of progress in this area has contributed to continued excessive expansion in PA employment in the first four months of2000. We are determined to make progress on this matter over the coming weeks, and we view this progress, and more generally, the exercise of firm restraint on recruitment, as a critical prerequisite to the successful implementation of an early retirement program. Indeed, if the slippage's in recent months were to continue along the trends of recent months, it would entail additional budgetary costs of some NIS 250 million (1.3 percent of GDP) on annual basis, which is clearly unaffordable(see paragraphs 20-21 below).

16. Furthermore, we have not yet been able make a substantial reduction in the stock of arrears. In fact, the stock rose further during the first three months of2000, in part because revenue diversion did not end on January 1 as the budget had assumed, and in part because of the continue expansion in the payroll. These slippages, which need to be addressed before the EPF can be 1aunched, are elaborated on below.

Fiscal Developments in 2000 and the Outlook for the Rest of the Year

17. The budget for 2000 was submitted to the PLC in November and approved on January 27. It represents a serious effort to put fiscal policy on a viable path and to move toward a better allocation of resources over the medium term. Its timely preparation, submission and approval was also a major improvement over the past two years, and it is the first budget to be presented in a medium-term macroeconomic framework. As voted. the budget, which is based on a conservative revenue projection, was fully financed (in contrast to the 1999 budget) and targeted a surplus on the recurrent budget of about 0.5 percent of GDP, allowing a domestic contribution to the development budget.

18. , The voted budget was based on the assumption that all arrears would be cleared before the end of 1999 using previously diverted excise revenue, and that all revenue would go directly to the budget during 2000. It was also based on the assumption that new recruitment to the PA would be limited to around 2,000 people in the fourth quarter of 1999, and 3,410 in 2000 mostly in the latter part of the year; In the event, the stock of arrears was not eliminated in 1999. excise revenue started to flow to the budget in late April, and PA  employment increased much more rapidly in the last quarter of 1999 as well as in the first four months of 2000 than what had been assumed when the bUdget was prepared.

19. As regards the stock of arrears, a payment of roughly NIS 127 million was made in March. However, the stock increased by around NIS 22 million in the first three months of 2000, to NIS 370 million. The arrears payment was financed with a short-term loan from the Arab Bank and this should be seen as a strictly exceptional operation. We will pay amortization and interest on this loan from the profits of the commercial operations and not from the budget.

20. The expansion of the PA's payroll represents the largest deviation from the voted budget and is now by far the most serious fiscal problem. PA employment growth in the fourth quarter of 1999 and in the first quarter of 2000 vastly exceeded what had been assumed when the budget was prepared. Roughly 6,000 people were added to the payroll in the fourth quarter of 1999-three times as many as the budget had assumed-and some 4257 were added in the period January-April 2000, compared with the budget's 3,410 for the year as a whole. Due to the unplanned way with which hiring decisions are still made, very few of those recently recruited are in fact for positions envisaged in the budget, thus leaving genuine demands for employment in the judiciary, health, and education sectors still to be met. Taking into account these demands (including some 2,000 teachers) and employment already in the pipeline, we project PA employmnt to increase further during the rest of 2000, to over 112,500 by the end of the year . The rapid expansion in PA staff not only makes less resources available for other important recurrent and capital expenditure, it also makes it exceedingly difficult to ensure adequate remuneration of PA employees, as well as to implement the long-standing reform of the West Bank pension system.

21. The burgeoning payroll has increased the projected wage bill in 2000 by an estimated NIS 244 million, compared with the budget, and has also added somewhat to nonwage expenditure relating to the additional pension contributions the PA has to make. At the same time, the revenue projection has been raised by NIS 67 million to reflect the outcome for 1999 and a modest upward revision to the projection of economic growth. Despite the higher revenue projection,however, and even if we reduce the budgeted contribution to the development budget from NIS 100 million to NIS 50 million, there is now a projected deficit in the budget of NIS 147 minion, before taking into account the repayment of arrears and foreign financed capital expenditure. Including the repayment of arrears would bring the overall financing gap to around NIS 600 million (more than 3 percent of GDP) for the year 2000 as a whole.

22. We are exploring ways to close this gap, recognizing that reductions in nonwage recurrent expenditure must be avoided. In order to stop the gap from growing further, the first order of business has to be to rein in new hiring. To finance the budget gap, we think the most appropriate solution is to use previously diverted revenue and profits from the PA's ,commercial operations, as well as the purchase tax proceeds once agreement on this matter is finalized with Israel.

23. In closing, we believe we have made considerable progress toward a successful launching of the IMF staff monitored economic policy framework, and we are fully determined to implement shortly the actions that remain outstanding. We highly value the extensive assistance provided by IMF staff, and the constructive spirit in which it has been rendered, and we look forward to continued close and productive cooperation with them.

 

Sincerely yours,

 

Mohammed Z. Nashashibi
Minister of Finance		 Nabil Sha'ath
Minister of Planning and
International Cooporation		 Maher El-Masry
Minister of Econmy and Tade

 

Mohamed Rachid
Economic Advisor to the President
Coordinator of the Higher Council for Development

cc: Mr. Thorbjorn Jagland
     Foriegn Minister, Norway (AHLC Chair)

     Mr. James Wolfensolhn
     President, World Bank ( AHLC Secretariat)

 

 

Table 1. West Bank and Gaza:Selected Economic Indicators, 1994-2000  

 

1994 1995 1996 1997 1998 Prel. 1999 Proj. 1999

      Annual percentage change, unless otherwise indicated)
Income employment, and inflation Real GDP growth 1/ 8.5 -2.4 -3.2 4.8 7.0 6.0 5.0
Real GNI per capita growth 1/ -4.9 -9.6 -9.0 3.5 7.7 3.5 0.8
Unemployment rate (in percent of labor force) 15.0 18.1 24.2 19.6 14.5 11.8 10.0
Total employment (thousands) 1/ 395 408 397 441 494 537 568
  In Israel and settlements 2/ 70 65 55 77 107 122 124
In West Bank and Gaza 325 343 342 364 387 415 444
Inflation (CPI), year-on-year 14.0 10.0 8.4 7.6 5.6 5.5 4.0
Investment 1/
Gross capital formation		 29.2 36.3 32.7 39.4 35.0 32.9 32.8
Private 23.2 25.4 23.1 29.5 26.1 26.1 26.2
Public 3/ 6.0 9.2 6.7 6.8 6.0 5.0 5.3
Change in inventories 0.0 1.6 2.9 3.1 2.9 1.8 1.4
Fiscal operations
Revenue 4/		 7.9 11.8 18.9 21.6 22.0 23.4 21.9
Current expenditure 5/ 8.8 13.6 22.9 22.7 21.4 22.3 22.4
Total expenditures 5/ 14.7 22.9 29.6 29.5 27.5 27.3 27.4
Recurrent Balance 5/ -0.9 -1.9 -4.0 -1.1 0.6 1.1 -0.5
Recurrent Balance 6/ -0.9 -1.9 -4.0 -1.0 2.5 1.3 -2.4
Overall balance 5/ -6.8 -11.1 -10.7 -8.0 -5.4 -3.9 -5.5
Balance of Payments 7/
Exports of goods and services 1/		 456 611 653 661 730 740 814
Import of goods and scrvices 1/ 1,433 2,089 2,509 2,735 3,169 3,398 3,590
Net Factor income 1/ 575 535 469 606 828 914 954
Current transfers 7/ 559 553 594 385 354 385 482
Current account balance 7/ 157 -390 -793 -1,083 -1,256 -1,358 -1,340
Donor financing 8/ 665 795 735 716 549 594 601
Of which: development plan 8/ 497 615 539 489 382 416 430
Donor financing ( in percent of GDP) 8/ 19.6 22.1 20.3 18.7 14.0 14.1 13.4

 

Table 2. West Bank and Gaza: Selected Quarterly Economic Indicators

 

Dec-96 Dec.97 Dec-98 Mar.99 Jun-99 Sep-99 Dec-99 Mar-00
Prices
CPI- 12 month change in %		 -- 8.9 9.7 8.3 6.8 3.6 2.5 3.3
Excluding food -- 7.5 6.5 7.4 7.1 5.5 4.1 4.9
NIS per US$,period average     3.3 3.5 4.2 4.0 4.1 4.2 4.2 4.1
Real Sector ( data forthe quarter)
Tourism -number of bednights (in thousands) 		172 165 157 156 202 253 -- --
Change in percent from previousyear -- -4.1 -4.8 20.3 21.4 70.1 -- --
Building licenses issued 2396 1498 2457 2103 2810 2912 -- --
Change inpercent ftompreviousyear -- -37.5 64.0 9.6 29.9 6.1 -- --
Licensed areas forbuilding (1000m2) 828 444 770 695 937 986 -- --
Change in percent from previous year -- -46.4 73.6 0.2 41.5 12.7 -- --
Labor Market

Unemployment rate(%)

 18.3 18.5 12.8 13.9 11.8 11.6 10.0 10.9
Total employment (thousands) 431 454 529 510 536 547 555 544
West Bank and Gaza 348 371 414 390 416 424 429 425
PA 75 83 92 95 97 98 104 107
Non-PA 273 288 322 294 320 327 325 318
Change in percent from previous year -- 5.5 11.7 3.9 8.4 13.1 1.2 7.9
Israel (includingwithout permits) 83 83 115 120 120 122 126 119
Average daily net wage (NIS)
  In West Bank		 46.2 -- 60.8 63.9 94.9 67.0 67.8 --
  In Gaza 36.9 -- 48.1 49.9 51.9 50.9 52.7 --
In Israel 90.0 -- 101.8 102.6 104.5 107.7 107.8 --
Banking System(US$ millions)
Deposits		 1,501 1,815 2,216 2.309 2,420 2,561 2,615 2,801
Credit to the private sector 409 563 733 780 787 831 913 895
Net claims on the PA -44 -97 -41 -20 -16 -26 -49 7
Fiscal Policy (data for the quarter, in NIS millions)
Revenue 614 797 891 909 973 1,022 1,191 862
Domestic tax revenue 164 192 237 242 257 266 272 267
  Current expenditure (cash) 8/ 700 995 940 817 1,003 900 1,115 1,029
Wage bill 367 491 541 490 535 535 587 577
Nonwage expenditure 333 504 399 327 468 365 529 452
Recurrent budget balance ( cash ) -86 -199 -49 92 -30 121 74 -167

 

 

Table 3. West Bank and Gaza: Fiscal Operations of the Palestinian Authority, 1996-2000
(In millions of NIS)

 

1996 1997 1998 Jan_Mar 1999 Prel. 1999 Prel Jan-Mar 1999 Voted budget 2000 Revised rogection 2000
Revenue 9/ 2,185 2,848 3,280 909 4,093 862 4,068 4,135
Domestic 846 1,136 1,220 374 1,508 375 -- --
Tax 571 728 852 242 1,037 267 -- --
Notax 274 408 368 105 472 108 -- --
Revenue clearance 1,339 1,712 2,060 562 2,584 488 -- --
Current expenditure (on commitment basis) 2,647 2,994 3,196 817 3,902 1,051 3,968 4,232
Wage bill 10/ 1,286 1,622 1,774 490 2,147 612 2,371 2,615
Nonwage 1,204 1,352 1,412 327 1,732 438 1,597 1,617
Forign financed 11/ 157 20 10 -- 223 -- -- --
Recurrent balance (commitment basis) -463 -146 83 92 191 -188 100 -97
PA financed capital expenditure 0 0 0 0 0 1 100 50
Recurrent balance plus PA financed capital expenditure (cash basis -463 -146 83 92 191 -189 0 -147
change in the stock of arrears 0 18 288 -- 42 21 0 -348
Recurrent balance plus PA financed capital expenditure (cash basis -463 -128 372 -- 233 -167 0 -495
Foreign financed capital expenditure 12/ 773 905 896 -- 874 -- 1,688 941
Overall balance (cash basis) -1,235 -1,033 -525 -- -641 -- -1,688 -1,436
Financing 1,235 1,033 525 -- 641 -- 1,688 1,436
Banking system,net 13/ 255 -183 213 29 -33 236 0 0
Foreign financing 1,197 1,043 907 -- 897 -- 1,688 1,436
Net revenue diversion -- -- -329 -54 -325 -105 0 -105
Excise revenues diverted 437 548 598 139 616 152 -- 152
  Excise revenuetran&ferredback -- -- 269 85 290 47 -- 47
Other non-bank financin -- -- -- -- -- -- 0 --
Residual/ financing gap 14/ -- -- -266 -- 102 -- 0 601
Memorandum items:

Stock of arrears(excl, arrears on VAT refunds)

 0 18 306 -- 348 370 0 0
PA employment 75,407 83,114 92,367 95,367 103,554 107,166 103,005 112,511
Current expenditure, cash basis  15/ 2,490 2,957 2,898 817 3,836 1,029 3,968 4,580
Nonwage current expenditure, cash basis 15/ 1,204 1,335 1,124 327 1,690 452 1,597 1,965

 

 

Table 4. West Bank and Gaza:Revenue of the Palestinian Authority, 1996-99
(In millions of NIS)

 

1996 1997 1998 1999
Total Revenue 2,185 2,848 3,280 4,093
Domestic tax revenue 571 782 852 1,037
Income tax 168 228 260 310
VAT 210 259 306 372
Customs duties 73 76 92 150
Property tax 3 2 2 6
Excises 16/ 117 164 192 199
Other taxes 0 0 0 0
Revenue clearances 1,339 1,712 2,060 2,584
Customs duties 277 495 782 1,090
VAT 691 747 768 966
   Petroleum excises 17/ 320 384 406 417
Income tax 13 18 35 26
Health fees 20 28 35 36
Other clearances 19 40 33 49
Nontax revenue 274 408 368 472
Transportation fees 72 112 110 117
Health insurence 40 44 55 83
Health fees 30 35 39 38
Other nontax revenue 18/ 132 217 164 234

 

Table 5. west Bank and Gaza: Liqiuidty Position of the Ministry of Finance
( In millions of NIS)

 

1998 QI 1998 QII 1998 QIII 1998 QIV 1998 Year 1999 QI 1999 QII 1999 QIII 1999 QIV Prel. 1999 Prelim Qutturn 2000 Q1 Prel.
Actual revenues 642 618 703 736 2,682 770 814 2,442 1,035 3,477 710
Accured revenues 762 766 861 891 3,280 909 973 2,903 1,190 4,093 862
Funds transferred to accounts outside the control of the Mof 137 148 158 155 598 139 158 461 155 616 152
Cash expenditure 19/ 606 720 632 940 2,898 817 1,003 2,721 1,115 3,836 1,029
Cash balance 18 -102 70 -203 -216 -47 -189 -279 -80 -359 -319
Funds transferred from accounts outside the control of the Mof 0 160 0 110 269 85 47 240 50 290 47
Net liquidtity position  20/ 18 58 70 -94 53 -142 -38 -30 -69 -272

 

Table 6. West Bank and Gaza: Consolidated Banking System  (In millions of U.S dollars. Balances at the end of the period.)

 

1996 Dec 1997 Dec 1998 Dec 1999 Mar 1999 Jun 1999 Sep 1999 Dec 1999 Mar
  Net foreign assets 1,375 1,485 1,669 1,702 1,837 1,938 1,972 2,074
Central bank 87 109 182 193 201 178 184 199
Commercial banks 1,289 1,376 1,487 1,509 1,636 1,761 1,788 1,875
Net domestic assets 126 331 547 607 583 623 643 727
Net claims on the nonfinancial public sector -184 -167 -75 -49 -51 -71 -103 24
Net claims on the PA -44 -97 -41 -20 -16 -26 -49 7
Deposits 62 176 136 138 127 138 157 134
Loans 19 79 34 57 36 36 37 78
Overdraft 0 0 61 62 76 76 71 64
Net claims on local govemment -21 -24 -17 -14 -15 -13 -13 -17
Deposits 21 24 17 14 16 13 13 17
Loans 0 0 0 0 0 0 0 0
Overdraft 0 0 0 0 0 00 0 0
Net claims on nonfinancial public enterprises -119 -46 -17 -16 -19 -31 -42 34
Deposits 123 51 21 19 23 35 48 39
Loans 2 3 2 1 1 1 3 33
Overdraft 2 2 2 2 2 2 3 40
Credit to the private sector 409 563 733 780 787 831 913 895
Loans 128 191 299 326 336 372 402 374
Overdraft 252 324 381 398 391 400 453 447
Other 29 48 54 57 60 59 57 73
Other items (net) -99 -65 -112 -123 -153 -137 -167 -192
Liabilities to the private sector 1,501 1,815 2,216 2,309 2,420 2,561 2,615 2,801
Demand deposits 485 543 605 638 662 685 673 715
  Time and savings deposits 1,017 1,273 1,611 1,671 1,759 1,876 1,942 2,086
Memorandum items
Currency composition of deposits 21/ 100 100 100 100 100 100 100 100
U.S. dollars 39 45 61 62 62 61 62 62
Jordan dinars 42 38 25 23 24 24 24 24
New Israeli shequels 18 16 13 14 13 14 13 13
Other 1 1 1 1 1 1 1 1
Currency composition of credit 21/ 100 100 100 100 100 100 100 100
U.S. dollars 23 33 43 43 48 51 53 53
Jordan dinars 45 32 29 29 28 27 23 23
New Israeli shequels 32 34 27 27 23 21 22 23
Other 0 1 2 1 1 2 2 1
Credit to the private sector as asbare of total deposits 27 31 33 34 33 32 35 32

 

 

ANNEX I *

Palestinian Commercial Services Company: Valoe or Investments as or December 31, 1999

1. Equity Holdings

Company name

 

 Estimated market value U.S. dollan (millIon) Percent or equity
Jericbo ResOrt (hotel & casino ) 60.0 30.0
Cement Company 50.0 100.0
Palcell 50.0 35.0
PALTEL 32.2 8.0
Arab Palestinian InvestmentCompany 16.0 20.0
PADICO 15.0 8.0
Various teal estate 14.0 100.0
Bioniche Lire Sciences Inc. 9.0 10.0
United for Storage and Refrigeration 8.5 30.0
Peace Tecbnology Fund 6.2 34.0
Qaser Laser Hotel (Interconti~tal) 5.0 25.0
Palestinian Flour Mills Co. 4.1 47.0
Palestinitn Electricity Co. 2.6 6.0
Palestinian Investment Bank 2.3 8.0
Bethlehem Convention Center 2.0 45.0
Coca Cola 1.5 15.0
Gaza Insurance Co. 1.5 14.0
AI.Ahlia Co. 1.4 50.0
National Aluminum and Profile Co. 1.3 16.0
Grand Park Hotel 1.2 25.0
Steel Co. 1.2 15.0
Vegetable Oil Co. 1.0 7.0
  Palestinian- Qatar Fund 0.9 33.0
AI.MoUtkhasea Investment 0.9 15.0
College and School 0.7 40.0
AI.Ahlia InduStrialCo. 0.7 15.0
AI.Salaam International Co. 0.5 5.0
AI.Marie CO. 0.5 --
Glass Cutting 0.4 40.0
Palestinian Cigarettes Co. 0.3 28.0
Logo Company 0.3 28.0
AI. Tekanion EngineeringCo. 0.2 30.0
   Jordanian Specialized Co. 0.2 50.0
1 st Choice Managment 0.1 30.0
Sub-total 291.6
2. Other Assets

Cash and cash equivalent

 11.0
Receivables and other debit balance 32.0
Property and Land 10.0
3. Grand Total 344.6

 

 

1/ IMF staff estimates based on data  from the PCBS.
2/ Includes workers without permits and workers in Israeli industrial zones.
3/ Includes investment through UNRWA and NGOs where the financing is recorded by MOPIC.
4/ Includes revenue transferred to accounts outside the control of the Finance. The decline in the ratio in 2000 reflects mainly projected VAT refunds included in the budget.
5/ On a commitment basis.
6/ On a cash basis.
7/ IMF staff estimates based on data from the PCBS and MOPIC. Balance of Payments data are particularly weak.
8/ Total donor financing includes disbursements through the development plan plus donor support for UNRWA's operational budget and to NGOs outside of the development plan. The development plan refers to all aid recorded by MOPIC.

8/ Excludes foreign financed recurrent expenditure

9/ Net of VAT refunds, which are estimated at NIS 150 million for 2000. Includes revenues transferred to accounts outside the control of the Ministry of Finance and profits from the PMA.
10/ The projected wage bill for 2000 does not include the effect from any increase in wages and salaries.
11/ Refers to PA recurrent expenditure directly financed by donors, including for job creation. Preliminary estimates.
12 Based on MOPIC data and refers to disbursements. Preparations are underway to improve the donor questionnaire to get a better estimate of actual public investment accounts is broader than that of the budget.
13/Institutional coverage of monetary accounts is broader than that of the budget.
14/ The residual through 1999 refers among other things to differences in institutional of the monetary accounts, and bank float
15/ Excludes foreign financed recurrent expenditure

16/ Only some excise revenue were transferred to the Ministry of Finance.
17/ Excise revenues were transferred to bank accounts accounts outside the control of the Ministry of Finance
18/ Includes profits from PMA.

19/ Includes repayment of arrears. Excludes foreign financed recurrent expenditure.
20/ Includes float and possibly bounced checks

21/ Private sector only

* Source:Palestinian Commercial Services Company.

 

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