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"As is" reference - not a United Nations document

Source:
12 December 2005





PURPOSE

This paper reflects perspectives of a core group of donors involved in governance on the key building blocks for establishing more effective, accountable and transparent systems of governance in the Palestinian Territories. The ideas presented here are intended to support the Palestinian National Authority (PNA) in developing its priorities for the next three years under the Medium Term Development Plan (MTDP).

CONTEXT

The most notable development in the Palestinian governance sphere over the past year has been the holding of free and fair elections at both the presidential and local levels. These polls, together with the upcoming PLC elections, represent significant milestones in the democratic development of the PNA as a legitimate government of the Palestinian people.

In terms of internal PNA reform, a number of initiatives have been taken forward since the publication of the One Year Reform Action Plan in September 2004. These include the March London Meeting on Palestinian Reform and the subsequent EC/TFPR Short-Term Strategy for Governance, which was endorsed by the Prime Minister in September. Despite these useful inputs, progress on reform over the past year has generally stalled. This has been partly due to the Israeli withdrawal from Gaza, which has absorbed considerable time and attention of both the PNA and international community. However, more progress would also have required stronger political leadership in driving the reform agenda forward. The drawn-out process to agree new donor co-ordination arrangements has created additional difficulties, with donors failing to effectively co-ordinate their assistance, particularly in relation to institution and capacity building.

There is now an urgent need for the PNA to spell out a program of significant governance reform within the context of the forthcoming MTDP. The MTDP should include a clear statement of PNA governance priorities over the next three years, including information on key deliverables, timelines and costings. It should also set out the roles and responsibilities of different PNA ministries in implementing various parts of the governance programme and identify areas where donor support is required. The main focus areas identified in the MTDP will also feed into the core workstreams of the proposed Governance Strategy Group (GSG) under the new donor co-ordination arrangements.

Donors stand ready to support the PNA in delivering on its governance agenda. However, the extent to which increases in aid are forthcoming will depend to a large degree on the PNA’s own performance in pushing forward critical reforms. As the Quartet Special Envoy for Gaza Disengagement, James Wolfensohn, has made clear governance is one of the key issues on which the PNA needs to deliver if aid is to be effectively utilised. The upcoming AHLC will be a good opportunity to take stock of progress against the framework of responsibilities agreed at the previous AHLC/TFPR meetings last December.

KEY PRINCIPLES AND PROCESSES IN SUPPORT OF GOVERNANCE REFORM

Better governance and institutions are critical for economic recovery, democratic development and for building the foundations of a future Palestinian state, as envisaged under the Road Map. Effective and accountable governance is also important in terms of enhancing the day-to-day quality of life for Palestinian people. Without improved budget, planning and human resources systems and processes, for example, the PNA will struggle to deliver better health, education and social services over the coming period. To that extent, the reform and development agendas are inextricably linked.

Sustainable governance reform can only be achieved however if it is domestically driven and owned and based on the wishes of the Palestinian people and their leadership. It also requires the international community to act in a co-ordinated fashion so that available resources are utilized efficiently and effectively and in a manner which empowers the PNA to deliver on its reform priorities. Without these critical elements, progress on reform will inevitably remain limited.

If the governance agenda is to be progressed over the coming period, it will be important for the PNA to provide:

• High-level Political leadership and ownership of the reform agenda from the President, Prime Minister and Cabinet.
• A set of credible and effective institutional arrangements for the co-ordination, implementation and monitoring of governance reform.

Specifically, action is required to:

• Identify a single political counterpart who is responsible for delivering on existing reform commitments and on those contained in the MTDP. This would ideally be an empowered Minister reporting directly to the Prime Minister, and accountable to the PLC.
• Clarify the mandate, tasks and institutional home of the Reform Co-ordination Support Unit.
• Empower and build the capacity of senior managers within PNA ministries to engage on all these issues.

The MTDP should provide a framework under which donors can provide co-ordinated support for governance and institutional reforms. This should help to guard against the tendency towards parallel capacity building initiatives taking place in isolation from each other.

Similarly, the MTDP should also describe the ways by which the PLC, civil society and Palestinian citizens can effectively participate in and monitor the reform process. Amongst other things, this will include presenting ideas for the revitalisation of the National Reform Committee and the development of a public communications strategy on reform.

PRIORITY AREAS UNDER THE GOVERNANCE AGENDA

The One Year Reform Plan and the Short-term Strategy for Governance have already identified a number of priority areas which should be at the heart of the MTDP. A number of the reform targets included in these documents have already been met, while many others remain work in progress. The international community recognises that not everything on governance reform can be accomplished overnight and that there is a need for sequencing and prioritisation. There are clearly a number of urgent measures, however, which can be taken forward in the short-term. These include:

• Approval by the Cabinet of a Medium Term Fiscal Stabilisation Plan and associated measures to bring the wage bill under control
• The development of properly costed and comprehensive programme on Public Administration and Civil Service Reform Reform;
• Initiation of process to develop a National Anti-Corruption Strategy;
• Launch of a White Paper process on Security Sector Reform;
• Implementation of key provisions included in the Amended Judicial Authority Law
• The establishment of a consultative and transparent planning process for the disposal of settlement assets in Gaza.

Below, we explore in more detail some of the broader governance issues which would also need to be addressed in the context of a three year programme of work. We look to the MTDP to further refine these priorities and in so doing to identify concrete and realistic deliverables over that time-frame which can be supported by donors.

PUBLIC FINANCIAL MANAGEMENT REFORM

Highlights – progress since December 2004

• July 2005 – legislative process on pension reform completed with by-laws to the Unified Pension Law. Concerns remain on governance structure, management of assets and financial sustainability of the pension system
July 2005 – budget circular for 2006 issued; Fiscal stabilisation plan submitted to cabinet. Salary increases render original parameters of the circular and FSP irrelevant. No revised budget expected to be approved prior to elections
• Establishment of internal Audit Committee and nomination of members underway
• Presidential decree that the new external audit agency would take over the assets, staff and structures of the existing General Control Institute, though external auditor has not been appointed
• New Financial Regulations published in Official Gazette
• November 2005 – first draft of single unified Procurement Law prepared
• Three year Medium-Term Development Plan 2006-2008 nearing completion

Overall – some steps taken to build on earlier important reforms, but legislative and administration steps now overshadowed by increasingly precarious fiscal situation

Significant progress has been made in the financial management sphere in recent years. Specific milestones include:

• Establishment of a Single Treasury Account capturing government revenues that were formerly outside the budget
• Establishment of a central payroll system and payment of all public sector salaries into bank accounts
• Establishment of a Palestinian Investment Fund which brought all public assets under the supervision of MoF

However, several key areas identified in previous PNA reform plans, as well as the 2004 Country Financial Accountability Assessment (CFAA), have not been addressed. Most notable amongst these is the slow progress in establishing an external audit institution. The challenge ahead will be to complete unfinished reforms and deepen the progress of public financial management reforms. One key priority will be to strengthen the budget and planning architecture to ensure that scarce resources are appropriately allocated to implement national priorities and policies. To that extent the current efforts by Ministries of Finance and Planning to develop an integrated Medium Term Planning and Budget process remains important work in progress.

Related to this, there is an urgent need to ensure that PNA’s budget deficit is put on a sustainable footing through a Medium Term Fiscal Stabilisation Plan, endorsed by the PNA and donors. The PNA’s fiscal outlook has deteriorated sharply as a result of wage bill hikes and increases in net lending over the past few years. As a result, there will be a projected deficit in 2006 of some $900 million and significant deficits looks set to recur over the medium term unless radical measures are taken to address the structural flaws in the budget. The current fiscal trajectory is totally unsustainable and at a level that cannot be filled by donors.

Reform of the public sector pension systems has been an ongoing priority of the PNA for several years given the large fiscal liabilities associated with the current arrangements. Pension contributions are becoming a very significant component of the PNA’s budget deficit – to date, the PNA has some NIS 1 billion in arrears to the Gaza Pension Corporation (GPIC). Whilst significant progress was made towards unifying all the systems under a single, new pension agency, this has been undermined by the passing of pension legislation for older security services personnel that promises extremely generous pension provisions and raises serious questions about equity between older and younger security forces employees. Moreover, the recently approved unified pension law also sets parameters (benefit and contribution levels) for the civil service and younger security services employees that are financially unsustainable.

Specifically, the MTDP should outline measures on financial management to:

• Introduce the proposed Medium Term Planning and Budget process
• Contain the wage bill through retrenchment and other measures
• Reduce net lending to municipalities (for unpaid utility bills)
• Ensure the MTFSP parameters, once endorsed by the PNA, are reflected in the MTDP
• Strengthen the internal audit function, establish an external audit institution and improve PLC oversight of the budget
• Reassess current pension legislation in terms of fiscal impact and financial sustainability

It should also comment on current donor-supported budget reform fund and what a new fund might look like – the kind of long-term sustained support that the PNA is looking for to give greater certainty in fiscal planning.

PUBLIC ADMINISTRATION AND CIVIL SERVICE REFORM

Highlights – progress since December 2004

• March 2005 – Cabinet decision making non-ministerial public institutions currently reporting to the President accountable to the relevant Ministry or to the Cabinet
• May 2005 – Passage of a revised Civil Service Law covering all non-uniformed civil servants (N.B. but this still contains a number of important gaps and weaknesses , and led to wage bill expansion)
• September 2005 – Approval by Cabinet of ‘Executive Regulations’ which explain how the new Civil Service Law should be applied to non-uniformed civil servants
• November 2005 – Cabinet approval of the Minister of Planning’s proposal to implement an integrated medium-term planning and budgeting process
• December 2005 – Cabinet approval of the General Personnel Council’s (GPC)Development Plan, including plans to enhance the GPC’s oversight of recruitmen
and promotion and to establish a single HR system linked to the payroll system
• Ongoing – Ministerial Development Plans have now been completed by all of the 22 Ministries and 11 Agencies in addition to the PMO plan and structure.
• Ongoing – Gradual improvement in recruitment procedures in certain Ministries (posts are being publicly advertised and selection panels are more independent)
• Ongoing – GPC, in consultation with the MoTIT and other stakeholders, is developing an HR ICT strategy for the whole of government

Overall: Some important Cabinet decisions taken and piecemeal improvements. But there is still no comprehensive framework for civil service reform or a coherent approach to implementation.

Public administration and civil service reform is at the heart of efforts to improve the ability of the PNA to deliver more effective, efficient and transparent services to its citizens. Some steps have been taken recently to improve the internal organisation of ministries through the development of new internal structures and ministerial development plans. However, much work remains to be done to strengthen Cabinet processes, streamline the machinery of government, introduce meritocratic recruitment policies and practices, and improve public sector incentives and capacities.

The main challenge for the MTDP therefore will be to produce an operational plan to move forward the implementation of civil service reform over the next three years. This should build on the “Work Programme for Public Administration and Civil Service Reform” endorsed by the Cabinet last year. If it is to be successful, the plan will require endorsement from the highest political levels and the active support of key PNA stakeholders such as the Prime Ministers’ Office, the Ministries of Finance and Planning, the General Personnel Council and key line ministries. It will also require a credible and effective institutional architecture to assist with implementation, co-ordination and monitoring of what is a complex agenda. This might include a dedicated sub-Committee of the Ministerial Reform Committee to drive forward the PACSR agenda, as well as a properly capacitated RCSU to provide day-to-day supervision and support to PNA ministries.

In terms of content, the plan should include specific measures to:
• Strengthen the capacity of the PMO and Cabinet Secretariat for strategic policy making, including enhancing links with the President’s Office
• Review and rationalise the number, mandate and status of government institutions
• Enhance the overall management of the civil service, including the development of sound human resources polices and procedures and a PNA-wide HR system linked to the payroll
• Develop a PNA-wide training and capacity building strategy led by the General Personnel Council
• Develop a service delivery improvement system which requires PNA ministries to set and publish standards for services they provide to citizens.

ANTI-CORRUPTION

Highlights – progress since December 2004
Overall – little progress. Public perceptions of corruption continue, Palestine ranks 15th of 18 Middle Eastern countries surveyed for Transparency International Corruption Perception Index, a relative deterioration since 2004

While the PNA has recently taken some measures to address problem of corruption including new laws governing civil service appointments, public procurement and financial disclosure by public officials, corruption and nepotism in the PNA remain key concerns of Palestinian people as expressed in repeated opinion polls. The MTDP should seek to address this by outlining a process towards the development a National Anti-Corruption Strategy. This should include steps to:

• Launch a public consultation exercise to better understand perceptions of corruption
• Initiate analytical work to: reform the current legal framework to address corruption better and to define the mandates and roles of the various agencies involved; map the areas where corruption is problematic in the public sphere; and assess the vulnerability of key financial agencies to corruption
• Consideration of a specialised anti-corruption agency, with a clearly defined role, task and mandate, while in the meantime supporting the work of the Commissioner established under the Law on Illicit Wealth.

JUDICIARY AND RULE OF LAW

Highlights – progress since December 2004

• 14 March 2005 – Presidential decree entered into force establishing a Steering Committee for the Development of the Judiciary. Work is on-going, including to elaborate a solution to the constitutional issues related to the Judicial Authority Law (see below)
• 10 November 2005 – President ratified new Judicial Authority Law, clarifying the mandates of the Ministry of Justice, Supreme Judicial Council (SJC), and Office of the Attorney General; providing criteria for the appointment and promotion of judges; reorganizing the SJC; and formalizing the budgeting process for the SJC (ruled unconstitutional by High Constitutional Court, 27 November 2005)
• New Attorney General appointed

Overall – little effective change

Ongoing efforts are required to develop an independent judiciary and embed rule of law in the Palestinian context. The amended Judicial Authority Law, which was ratified by President Abu Mazen on October 11th, includes key provisions on clarifying the mandates of the Ministry of Justice, Supreme Judicial Council (SJC) and Office of the Attorney General; providing criteria for the appointment and promotion of judges; reorganizing the SJC; and formalizing the budgeting process for the SJC. However, on November 27th the Palestinian High Court ruled that the law is unconstitutional. Urgent steps should therefore be taken to clarify the situation with regard to the constitutionality of the law

The Steering Committee for Developing Judiciary and Justice should continue to promote institutional development across the judicial sector. This is required to enable the judiciary to discharge its role effectively and build popular confidence. Key priorities for the MTDP should include:

• Establishment of the new Supreme Judicial Council, including a strategic action plan
• Drafting a Development Plan, including a needs assessment, for the Ministry of Justice
• Establishment of the Constitutional Court, as well as the labour and administrative courts systems; pass legislation governing the functioning of the military courts; and formal abolishment of the security courts
• Identify needs and define measures for improving the performance of the judiciary with relation to finances, infrastructure, human resources, case management and enforcement of decisions
• Provide necessary regulatory and financial assistance to the Judicial Training Institute
• Development of the relationship between public prosecutors and police

SECURITY SECTOR REFORM

Highlights – progress since December 2004

• Ongoing – basic law on security service prepared by the Cabinet, MoI, RCSU and civil society and presented to PLC. Approved by Legal Committee and is now to be presented for 1st and 2nd reading to PLC
• Ongoing – Cabinet initiated work to develop a policy paper (white paper) on security reform, presented at workshop in November.
• September 2005 – budget execution data confirms 35% salary increase for security services staff, breaching Wage Bill Containment Plan. No progress in removing nonperforming security staff from payroll (see “security sector reform”).

Overall – some late developments but little effective change

Reform of the security sector is a key priority of both the PNA and the international community. It is also a major concern of the Palestinian people. Recent opinion polls have highlighted the legitimacy deficit which official PNA security organisations currently face and the importance which Palestinians place on improving security sector oversight, accountability and responsiveness.

In July 2004, a Presidential decree was passed ordering the unification of the security forces into three branches under the ministry of Interior. However there is still much to be done in terms of professionalising the security services. The overstaffing and large size of the security component of the wage bill also presents a major challenge to fiscal stability over the medium term and is something which would need to be addressed as part of a security sector reform strategy.

Drawing on the work which has already been taken forward by the US Security Coordinator, General Ward, in consultation with key PNA stakeholders, the main priorities for the MTDP should be to:

• Support the development of a comprehensive security sector reform strategy-or "White Paper"-under clear PNA leadership. This strategy, will serve to delineate the roles, missions, and functions of the security services, as well as identify the fiscal requirements of any such reform strategy.
• In parallel, develop a comprehensive plan to transform the current security force structure to one which is appropriately sized, financed, and equipped to execute this national security strategy.
• Support the ongoing implementation through EUCOPPS and MoI of the Palestinian Civil Police Development Plan (PCPDP)
• Improve co-ordination and management within and between the various branches of the security sector reinforcing clear lines of authority and responsibility
• Strengthen institutional development and oversight capacities of the MoI

ELECTIONS

Highlights – progress since December 2004

General elections

• 9 Jan 2005 – “free and fair” Presidential elections praised by international observation missions
• May 2005 – CEC conducted supplementary registration in view of PLC elections still planned for July and registered another 184,000 voters
• 18 June 2005 – PLC adopted Electoral Law, providing for a “50-50” mixed system, proportional at national level, majority block vote at district level. The law also raises the number of seats to 132.
• August 2005 – President decreed PLC elections will take place 25 January 2006, signed Electoral Law
• August-September 2005 – voters’ education campaign led by the CEC on the new Electoral Law.
• October-November 2005 – CEC submitted budgetary estimations for PLC elections (donors coordinated adequate provision of financial support), and began preparing for PLC elections.

Local elections

• 23 December 2004 – First round in 26 West Bank municipalities and 27 January 2005 in 10 councils in the Gaza Strip, turnout of 84%. Their conduct was viewed as generally acceptable with some flaws, notably concerning the use of the civil register
• 5 May 2005 – Second round of local elections in 76 councils in the West bank and 8 in Gaza, with a high turnout.
• 29 September 2005 – Third round of local elections in 82 councils in the West Bank (seats in another 22 councils were attributed without competition where only one eligible list was registered)
• 15 December 2005 – Fourth round to take place on 15 December, mostly in the West Bank, in large urban centres, open to a larger number of voters than in previous rounds.
• Legal framework requires minimum representation of two women in each local council

Overall – this is the area in the governance sphere where the PA has made the most significant progress

The January 2005 Presidential “represented a genuine effort to conduct a regular electoral process. Despite the difficult and tense conditions, Palestinian electoral authorities made adequate and sufficient arrangements for voters and the public was enthusiastic to exercise its democratic rights. However, the occupation and continuing violence as well as restrictions on freedom of movement meant that a truly free election was always going to be difficult to achieve” – EU Election Observation Mission (EUOM) Final Report.

However, concerns were also expressed about difficulties related to the use of the civil register were noted, a decision by the CEC to change the procedures during the day of the election “after serious and sustained pressure by political authorities”, and misuse of public resources. There was also concern about electoral procedures in East Jerusalem. Despite repeated concern by the international community that all elections should be supervised by a single independent electoral commission - the CEC - the Higher Commission for Local Elections has continued to prepare and run various rounds of elections in localities in the West Bank and Gaza Strip. However, the HCLE's mandate is due to expire in December 2005.

The Palestinian Authority and Government of Israel now need to ensure that all necessary arrangements are in place for PLC elections on 25 January 2006. In addition the Palestinian Authority should finalise local elections in all Palestinian localities, giving supervision responsibilities to the CEC if they are to take place in 2006. The CEC should also develop an operational plan for the period after January to ensure operational and financial stability for future elections.

SUPPORT TO PLC REFORM

Highlights – progress since December 2004

• April 2005 – PLC Reform Committee presented its plan for improving the performance of the legislature to the international community.
• Ongoing – donors have continued to work with this committee to articulate a programme of support to the PLC’s internal reform plan.
• September-December 2005 – implementation of some areas within the overall plan (“Capacity Building and Institutional Support to the PLC”) such as drafting code of ethics guidebook for newly elected MPs, developing a plan for dissolving the current PLC branch offices

Overall – the post-election period may provide a more suitable environment for donors to step up their support for the PLC.

The PLC Reform Committee has already taken significant steps towards the articulation of a plan for reform of the legislature (“Capacity Building and Institutional Support to the PLC”) and a number of donors have been working with it to develop a programme of support for the coming period. Implementation of this plan is now what is required. Internal PLC reform also needs to be accompanied by complementary measures to strengthen the PLC’s role in law making and oversight of the executive. In the regard, specific priorities under the MTDP should be to:

• Enhance PLC participation in a revitalized National Reform Committee.
• Provide regular reports to the PLC on the progress of reform
• Ensure Presidential ratification of all outstanding laws passed by the PLC and publication in the Official Gazette
• Propose mechanisms for amending legislation inconsistent with the Basic Law and other laws in force
• Find an acceptable solution to the situation and mandate of the Diwan-Al Fatwa

LOCAL GOVERNMENT REFORM

Highlights – progress since December 2004

• Local Government Review Commission established to consider options for rationalisation/streamlining of local government structures, including Ministries of Local Government, Planning and Finance
• Joint Councils for Services, Planning and Development established under the terms of the 2004 amendment to the Local Government Law. 20-30 multi-local government unit councils established, although clear definition of roles, responsibilities and mandates of LGUs vis-à-vis central government needed as well as coordination of approaches to Joint Councils
• October 2005 – cabinet decision to establish Municipal Development and Lending Fund

Overall – good policy framework for rationalisation being established, although room for improvement in both local government financing and overall vision for local government. Implementation needs to be accelerated.

The local government system in the Palestinian Territories has been the beneficiary of multiple donor technical assistance and infrastructure support programs. However, the impact of these interventions has been affected by the lack of a clear PNA vision for the reform of local government and weak donor coordination structures at the local level.

The establishment of the Municipal Development and Lending Fund (MDLF) in October 2005 by Cabinet decision represents an important development in the right direction. Embedded in the concept of the Fund is the notion that local governments, when properly incentivized, will undertake necessary reforms to improve their financial management practices and local revenue collection effort. Over time, through a combination of increasing grants and technical assistance, provided against improved performance, the Fund aims to assist municipalities in graduating to a state of creditworthiness and thus be able to access private sources of finance to address their infrastructure finance needs.

After a 30 year hiatus, the recent local elections represent another important development which has served to increase the legitimacy of government at the local level. This must be matched, however, with legal and regulatory reforms that give local authorities greater autonomy in decision-making, service delivery and revenue raising powers. In addition, the proliferation of local government units, now well over 500, needs to be addressed in the short term. The creation of each new local government unit has had far-reaching, negative effects on the national budget by establishing a new budget holder. Rationalizing and streamlining the system to ensure greater cost effectiveness in the delivery of services should therefore be pursued as a matter of urgency. The MTDP should include measures to:

• Articulate a future vision of local government in the Palestinian Territories based on the principles of decentralisation and streamlining
• Enhance the financial, organisational and administrative capacity of the local government system
• Increase citizen participation at the local level
• Develop clear mechanisms and principles for donor engagement at the local level to ensure consistency, coherence and effectiveness of donor support.
• Ensure that the MDLF is made operational by early 2006 and on the principles of a rules-based process providing performance based grants to local governments.

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