The West Bank and Gaza (WB&G) program presents a unique challenge for the World Bank: Operations in a conflict-affected environment requires that we be flexible in our approaches, while, at the same time, ensuring that the outcomes of our actions deliver real benefits to the Palestinian people.
The pressures in conflict situations often result in economic aid fulfilling a humanitarian function, contributing to dependency rather than catalyzing sustainable economic growth. Under these conditions, we at the World Bank are obligated to constantly reevaluate and adjust our operations, to ensure that we are striking the correct balance between response to short-term needs and attention to long-term goals.
In order to achieve this balance we have identified two key principles that guide us in the planning of our operations .First, given the limited financing available to the World Bank, our work is most effective if it leverages and complements the work of other reformers and donors. Therefore, timely and accurate identification of the appropriate junctures for our interventions is an imperative.
Second, if we are to meet our primary development objective -- supporting the development of systems that can provide sustained delivery of high quality services to the Palestinian people -- we must focus on actions that facilitate the establishment of a fiscally stable Palestinian State, underpinned by robust and well governed institutions of state and civil society.
Fiscal stability is predicated on economic growth. Growth, however, is only sustainable if it is driven primarily by the private sector. The Israeli closures, significantly tightened since the outbreak of the Second Intifada in 2000, have stymied private sector development. Although some of the restrictions have been significantly relaxed in the recent past, we have yet to see the resurgence of Palestinian private enterprise required for the Palestinian Authority (PA) to reduce its dependence on aid. There are numerous committed businesses active in the market, but much more needs to be done to support their growth and the entry and prosperity of more businesses.
Restrictions on access to markets, particularly in Gaza and East Jerusalem, to natural resources, primarily land in Area C and investment continue to impede business development. Over the next few months much of the Bank’s analytical and advisory capacity will be dedicated to (a) assessing the potential for private sector growth and recommending policies that encourage its realization; (b) measuring the current economic impact of restrictions and providing recommendations both for easing them. The first products of this renewed effort will be published in the autumn.
Much of the WB&G project portfolio is designed to effectively support Palestinian institution building. Given the program’s relatively limited financial resources and the fluidity of the situation on the ground, we place particular emphasis on preserving and developing human capital,both in the public sector and in civil society. This edition of the West Bank and Gaza Update reports on a number of these projects.
Governance is another field where we strive to integrate our global expertise with local knowledge in support of Palestinian institutions. A major study of this issue is nearing completion and, based on its results, we will engage in an extensive outreach effort during the second half of the year. We believe the results will improve public confidence in the many areas where performance is satisfactory, and, in parallel, encourage reform where it is not.
As the World Bank’s new Country Director, I return to the region after thirteen years. It is a privilege to be back. The challenges we face are formidable. However, in the short time since my return, I have been struck by the extraordinary capacity and commitment of the Palestinian people to bring about change, even under the most adverse conditions. I look forward to continuing the work of my predecessors in support of Palestinian reformers and entrepreneurs through the synthesis of our global expertise with their local knowledge.
World Bank Support to the Municipalities
The Bank, together with the PA and 5 Financing Partners (the Agence Française de Développement, the Danish International Development Assistance,the Swedish International Development Cooperation Agency, German Development Bank, and the German Technical Cooperation) are supporting the MDP designed and implemented by the Municipal Development and Lending Fund (MDLF). The MDP provides capital investment grants based on priorities set by municipalities (with the participation of their citizens) and technical assistance to address the management and governance challenges that municipalities face. The PA contributes 10 percent of the MDP’s budget.The MDLF manages funds from the PA and the Financing Partners, offering municipalities a coordinated, transparent, rules-based funding mechanism and the expertise to develop capacity and improve performance. The MDP marks the first time infrastructure aid has been directly tied to municipal government performance through the Grant Allocation Mechanism, where grants are made via a formula based on population, need, and performance. Municipalities have been ranked according to 12 commonly accepted “good management” practices such as planning, transparency, and sound financial management. The MDP is a multi-phase program, with each phase lasting about three years and serves all 132 municipalities in the West Bank and Gaza. The long term goal of the MDP is to help municipalities become credit-worthy, so they are able to access the capital markets to finance local projects.
The MDP is a result of a long history of partnership between each of the Financing Partners, the Ministry of Local Government, and MDLF. This represents one of the first sector wide interventions in the West Bank and Gaza. By joining the MDP,the Financing Partners have opted for a coordinated national program based on long-term objectives. Resources are pooled so that larger infrastructure grant amounts become available to municipalities. This has a direct impact on the level and quality of services that citizens can expect from their municipalities. The pooled funding also lowers transaction costs for municipalities and the MDLF. Neither the municipalities nor the MDLF report to each donor separately; instead the same procurement and financial management systems for all activities are used. The Financing Partners have also organized themselves so all consultations and discussions with the PA and MDLF are carried out jointly, making dialogue and discussions more constructive. In addition, they have been able to leverage the strengths and technical expertise that comes from the wide international experience of each of the partners.
Tertiary Education Management
The main objective of the Tertiary Education Management Information Systems (TEMIS) is to put in place a fully integrated management information system covering all aspects of higher education data collection, data processing, and reporting requirements. The TEMIS is designed to support informed policy making and to fulfill the Ministry of Education and Higher Education (MOEHE) responsibilities to publish higher education statistics more efficiently and effectively. The TEMIS main functions are:
• Collect automated data from Higher Education (HE) institutions in a timely fashion;
• Organize and validate this information, and store it in a central location;
• Prepare timely reports;
• Generate customized reports to suit decision making and research needs; and
• Support managerial decision making, education planning, and policy formulation.
Technically the TEMIS consists of three main subsystems or modules: (i) the Tertiary Education Data Collection (TEDC) which is implemented at the higher education institutes’sites;(ii) the Tertiary Education Data Processing (TEDP),located at the ministry site;and (iii) the Tertiary Education Data Reports (TEDR), which is also a MOEHE function.
The TEMIS currently helps higher education stakeholders such as government agencies, bilateral donors, international financial institutions, etc. to obtain better-quality, standardized, and timely data on HE institutions and to better monitor the status and progress of Palestinian HE.
Other TEMIS advantages include:
• Efficiency through the adoption of an automated system for information exchange and a centralized location of HE information that reduces the time involved in searching for alternative information sources;
• Higher data reliability by introducing qualitative standards on the type of data required. This in turn ensures that data are reported in a consistent and standardized format by all HE institutions;
• Predictability via a standardized frequency of information collection; and
• Standardization and customization to respond both to generic as well as to specific information needs.
TEMIS Portal -In order for TEMIS to become fully effective a WEB based portal is being developed. This will provide quick access to all available information by all entities involved in HE in Palestine.
SUPPORTING NON-GOVERNMENTAL ORGANIZATIONS
Improving the Quality and Sustainability of NGO Social Service Delivery
Palestinian Non-Governmental Organizations (NGOs) have a long history of providing social services. In sectors such as early childhood education, specialized health care, and agriculture, they are the sole providers of services and are especially effective at reaching the poor and marginalized. Prior to the establishment of the Palestinian Authority, most donor funding to the West Bank and Gaza was channeled through NGOs. In the 1990s, following the Oslo Accords, donor assistance to NGOs contracted precipitously, leading to a real hardship among the poor and disadvantaged in areas where only NGOs were service providers.
Bank Support to Palestinian NGOs
To address this concern, in 1997 the Bank launched the Palestinian NGO Project (PNGO),an innovative project which provided grants to NGOs providing social services. Moreover, the signatory of the Legal Agreement and the recipient of the Bank’s funds was itself an NGO, the Welfare Association, the first such arrangement of its kind for the Bank.The first PNGO project far exceeded its objectives, reaching more than 213,000 beneficiaries, compared to the projected 50,000. Beneficiaries reported high rates of satisfaction with the quality of services received.Building on the lessons learned of this first experience, Palestinian NGOII was launched in 2001.The total amount of the Bank’s funding for these two projects was $US18 million but they successfully leveraged an additional $US30 million from other donors because of the transparent systems for grant-making that were established.
Under Palestinian NGOIII,launched in 2007,the Bank supported the establishment of the Palestinian NGO Development Center (NDC), born out of the project management unit responsible for managing previously PNGO and PNGOII.NDC’s mandate is to promote the development of a responsive and accountable Palestinian civil society through both technical assistance and mobilizing resources for grant making to Palestinian NGOs so that they continue to provide needed services for the poor and most marginalized. Bank support under PNGOIII continued to stress the importance of service delivery to Palestinian communities through NGOs, while focusing only on those services where there is a gap or which complement the role of line ministries so as not to duplicate services. It also contributed towards institutional development of the NGO sector. By focusing on issues such as good governance, accountability, and transparency, the project supported the sector in being responsive to the needs of Palestinians, especially those who are poor and vulnerable. Building the capacity of Palestinian NGOs will provide the basis for long-term sustainability of these services. It also contributes to equity in access to social services for the poor and marginalized.
Since the first project was launched in 1997, the PA has made concerted efforts to build a Palestinian state. A dynamic civil society signals a healthy state. Building on this long experience, the Bank, jointly with the Agence Française de Développement (AFD), has continued its engagement in the sector through the soon to be launched Palestinian NGOIV Project. Contributing towards the PA’s state building efforts, the project establishes mechanisms that promote deepening the PA’s partnership with NGOs, especially in the area of some types of service delivery and enhanced coordination to avoid duplication. In addition to service delivery, the proposed operation will enable NGOs to develop good governance systems and become more accountable and transparent. It will also map current services provided by NGOs with a view of clarifying the service delivery roles between NGOs and the PA in order to promote strong partnerships.
The long engagement of the Bank in the NGO sector through the series of NGO projects has meant that despite the intensely volatile climate the project has continued to innovate and promote institutional development of the sector. Under conflict conditions, the provision of social services through NGOs has proven to be an effective means of addressing the needs of communities, especially the poor and vulnerable while enhancing institutional capacity.
Achievements of the PNGO Projects
Developing the NGO Code of Conduct. Enabling NGOs to improve their governance, accountability, and transparency mechanisms under PNGOIII. The code describes ethical guidelines and management standards for NGOs.
Empower Households and Communities for Self-Reliance. Sub-grants supporting innovative income generating activities for the poorest households, especially in the agriculture sector. Tree planting is one of the few ways available to protect Palestinian lands from confiscation.
Developing Human Capital. Programs supporting men, women,and youth in technology training,job-skills development, adult literacy, conservation education, etc.
Social Protection. Strengthening the quality of education for children with special needs, psychosocial counseling, and mental health services.
Investments in Community Assets. Construction of assets for villages and urban communities, including facilities for computer laboratories, health clinics, and community centers. Facilitating public-private-local government partnerships in developing plans to meet infrastructure deficits.
Strengthening the Legal Environment for NGO operations.
The NGO law was revised under the PNGO project in close collaboration with the PA.
Safety Net for Employees of Palestinian NGOs. Under PNGOII, a group health insurance plan for all NGO employees was put in place. Previously,staff of NGOs had no access to health insurance.
Improving Specialized Services. Under PNGOIII, neurosurgery services were established at Al-Makased Hospital in Jerusalem and St. John’s in Nablus.This has eliminated the need for referrals abroad (or to Israel) bringing down the healthcare costs and ensuring better patient care. This service is also now being extended to Gaza through support to Al-Wafa hospital.
Despite the revival of growth and its extensive reform program, the PA’s recurrent deficit increased in 2009, mostly as a result of emergency spending in Gaza in the aftermath of Israel’s military operation. The recurrent budget deficit on a commitment basis was nearly US$1.6 billion, up from US$1.3 billion in 2008 and almost US$143 million more than projected in the revised 2009 budget. Most of the deficit growth can be attributed to the emergency situation in Gaza, which forced the PA to add US$300 million to the budget mid-year. In addition, about US$141 million in arrears were brought forward from 2008 and reported as 2009 commitments. Thus, commitments actually incurred in 2009 were below the revised budget. Nonetheless, wage expenditures exceeded the budget by about 2 percent, mostly due to compensation provided to public employees for the interest paid on loans they incurred in 2006 when the PA was unable to pay salaries.
The original 2009 budget called for donor support of US$1.15 billion to fund the recurrent deficit and another US$503 million for the development budget. It was hoped that there would be an improvement in the quality of the budget compared to previous years by beginning to shift donor funding from recurrent costs to development expenditures. In September 2009 the projected support necessary for the recurrent and development budgets was raised to US$1.45 and US$1.1 billion respectively to respond to the needs in Gaza. However, at the end of the year the recurrent deficit was nearly US$1.6 billion and including development spending made the overall deficit more than US$1.77 billion. Only about US$1.36 billion in budget support and another US$390 million in development financing materialized. Consequently, the PA was forced to turn to borrowing from local banks and accumulating arrears of US$221 million. Thus, because of the emergency in Gaza, there was no significant shift of external resources from recurrent to development expenditures in 2009.
The recently released 2010 budget commits the PA to resuming the path to less dependence on donor support for recurrent expenditures. The budget projects a recurrent budget deficit of US$1.2 billion and US$670 million in development expenditures. However, these projections are based on strong assumptions and will require discipline on the PA’s part. The projections assume real GDP growth of 7 percent and that the PA will be able to increase domestic revenues by almost 21 percent through improved tax collection. They also assume that the PA will maintain the same level of non-wage expenditures that it did in 2009. Finally, the PA’s decision to give a general 4 percent wage increase to public sector employees has increased the budget expenditures. However, the share of the wage bill in GDP is expected to decline from 24 percent in 2009 to 22 percent in 2010.
IV. Public Finance Management
Related to the reforms that strengthen the PA’s fiscal position are reforms that increase the efficiency and transparency of Government expenditure, i.e. reforms in public financial management (PFM) and procurement. The PA has a strong track record of strengthening its PFM system in order to ensure that government resources are managed in a transparent and accountable manner. The initial focus of the current government was on ensuring that cash controls were operating effectively, while more recently attention has been given to improving the budget preparation procedures, and the accounting and reporting of government expenditures.
In preparing the 2010 budget a number of advances were made. For the first time the PA received expenditure requests from budget units through a shared database. It also took another step on the path towards a program based budget by updating the accounting system so that it can capture expenditure information at the level of programs. For the 2011 budget the Ministry of Finance (MoF) intends to introduce a new budget classification based on international standards.
In recent months improvements have also been made in the way the budget is executed, which has strengthened the MoF’s control of expenditures. In particular the computerized accounting system now connects the MoF with all line ministries and governorate offices and a commitment control system has been introduced to provide MoF with more control over expenditures in 2010. Another significant step is the completion by the MoF in December 2009 of the 2008 financial statements and submission to the State Audit and Administrative Control Bureau (SAACB). This is the first time that the PA has produced closed financial statements based on international standards. Developments have also occurred in the tax administration system, which have improved the effectiveness of enforcement activity since mid-2009 and in conjunction with the stronger economy there has been a noticeable increase in the taxes being collected.
1. See World Bank. 2007. Movement and Access Restrictions in the West Bank: Uncertainty and Inefficiency in the Palestinian Economy.
2. PCBS has not yet published GDP estimates for West Bank and Gaza separately. These figures are based on IMF estimates.
3. These figures do not take into account hundreds of millions more in aid that have flowed into the economy through the United Nations and from bilateral assistance programs.
4. Employment in 2007 was already depressed since even then it was costly and difficult to import and export.
5. The PA recognized that public sector wages were higher than in the private sector and unsustainable.To deal with this challenge the PRDP committed the PA to having no general wage increase and allowing inflation to slowly lower real wages. However, due to unexpectedly high inflation of nearly 10 percent in 2008, the PA provided a 6 percent wage increase in 2009. Inflation in 2009 was only about 2.75 percent. The 4 percent general wage increase provides a real wage increase for most PA employees.