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PA’s Budget Woes: Lack of Fiscal Sovereignty and Political Uncertainty Threaten Financial Stability

RAMALLAH - The Palestinian Authority (PA) is facing significant budgetary challenges due to its lack of fiscal sovereignty and the political uncertainty in the region.

Challenging Public Finance Management Systems

According to a recent report, the PA’s Public Finance Management (PFM) systems are not robust enough to respond to these challenges, despite efforts to reform them. The situation has been exacerbated by the absence of fiscal sovereignty and high dependence on the Israeli economy.

The PA’s budget is sensitive to discretionary measures by the Israeli authorities, such as deductions for payments to families of Palestinian prisoners in Israeli prisons. Additionally, the sources of fiscal leakages have compounded the challenges faced by the PA in collecting revenues and controlling its sources, resulting in significant revenue losses.

Priorities for Reform

To address these challenges, several priorities have been identified:

1. Support Nascent Public Administration

The Prime Minister’s Office (PMO) has the main responsibility for aid coordination, planning, and functioning of public administration.

2. Tackle Budget and Fiscal Constraints

The Ministry of Finance is responsible for implementing the PFM strategy, while other relevant actors include:

State Audit Administrative Control Bureau
High Council for Public Procurement Policies
Palestinian Anti-Corruption Commission
Civil Society Team for Enhancing Public Budget Transparency

The Ministry of Social Development is the main stakeholder, managing the PA’s cash transfer program despite scarce financial resources.

4. Improve Institutional Capacity for Implementing Health Sector Policy Reforms

The Ministry of Health is responsible for setting and implementing the health strategy and COVID-19 vaccination plan, while East Jerusalem Hospitals are also key stakeholders.

5. Support Governance Reform in Education Sector

The ambitious education strategy faces challenges particularly at the level of educational governance and management.

6. Support Progress in Reform Process in Water Sector

Despite important investments by the PA and donors, sustainability is jeopardized by limited progress observed in the reform process.

7. Support Progress in Reform Process in Energy Sector

The National Energy Strategy sets ambitious targets, but a lack of dedicated financial resources impedes their achievement.

These priorities highlight the need for the PA to strengthen its PFM systems, improve institutional capacity, and address fiscal constraints to ensure sustainable development and stability.