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20 March 2008
World Bank Note on Palestinian Reform and Development Plan Trust Fund
The PA has presented a Palestinian Reform and Development Plan (PRDP 2008-2010) containing a 3-year fiscal framework, on the basis of which donors have committed substantial budget and development support at the Pledging Conference in Paris in December, 2007.
Equally important to the high level of donor commitment is the quick translation of pledges into disbursements to support the PA. While this is best achieved through direct channeling of funds to the Single Treasury Account (STA), the World Bank has created a mechanism to help pool and accelerate transfer of funds to the PA, the Palestinian Reform and Development Plan Trust Fund (PRDP-TF). Managed by the World Bank, the PRDP-TF aims to support the PA policy agenda as expressed in the PRDP by channeling budget support for its implementation over the three year period of 2008 - 2010. The PRDP-TF was created to provide donors who are unable to provide budgetary support directly to the STA with a mechanism for channeling untied, un-earmarked budgetary support through a trust fund linked to the execution of the policy agenda in the PRDP. The PRDP-TF complements other available mechanisms for support of PA recurrent expenditures, particularly Pegase, and would be available for all donors who wish to provide untied, un-earmarked budget support to the PA within the context of the PRDP policy framework. The PRDP-TF is designed to pool different donor funds into one administrative mechanism that will reduce the transactions costs for the PA and provide reliable disbursements on a regular basis.
The PRDP-TF would be linked to the implementation of key aspects of the PRDP (2008-2010) as they relate to budget execution within an overall macroeconomic framework. Key policy items will include expenditure containment (particularly wages, net lending and social transfers) and progressive strengthening of public finance management and country systems as described in the PRDP. The monitoring of the implementation of this policy agenda will be achieved through consultations with the PA and regular briefing/consultation meetings of local representatives of participating donors, the PA, and the IMF. The Bank will ensure coordination with the other donors who are financing recurrent expenditure (including those contributing directly to the STA or through PEGASE) through the existing donor coordination structures, namely the Fiscal Sector Working Group co-chaired by the MOF and IMF.
Participating Donors will be asked to sign an Administration Agreement with the Bank upon which Donors would transfer funds to a World Bank TF Account. In line with the Paris Declaration on Aid Effectiveness, the PRDP-TF will adopt the best approach to budget support and disburse untied, un-earmarked donor funds to the PA’s STA. The PRDP-TF will aim to provide predictable support with regular disbursements and to disburse its funds in a small number of more or less equal tranches (two to four) every year.
The PRDP-TF will rely on the PA's own fiduciary systems for public finance management, based on the IMF’s assessment that the PA’s cash control procedures have been restored to their pre-2006 levels, meaning that the PA's Single Treasury Account (STA) is fit to receive donor transfers. The PRDP-TF policy agenda will review progress of the PRDP public finance management reforms underway under the leadership of the MOF with IMF support. Furthermore, the PA will comply with the Bank's standard reporting requirements for use of Bank-managed trust funds, including an annual audit of the amounts entering and leaving the master trust fund in Washington.
The Fund is expected to begin operations in March 2008 with the signing of the first Administration Agreements followed by the first disbursement to the STA by the end of March. Based on current expressions of interest and commitments, the trust fund is expected to channel at least USD 100 million in funding from donors in 2008, and additional commitments from donors are welcome. In addition, the World Bank is planning to allocate USD 40 million of its own resources in direct support to the PA budget in 2008, and possibly similar amount in 2009.