The Palestinian Legislative Council (PLC) on 16 January voted overwhelmingly (by 44 to 4) to approve the proposed budget for 2004 put forward by Finance Minister, Salam Fayyad, with a deficit forecast at $888mn. The figure matches the estimated deficit for 2003, which came in $142mn over the budgeted deficit of $747mn (MEES, 13 January 2003). Both revenue and expenditure are set to rise above estimated levels for 2003, and are well above the budgeted figures for that year. Revenues – 63% of which are taxes collected by Israel on behalf of the Palestinian National Authority (PNA) – are set at $806mn, 15% over estimated 2003 revenue, and 52% over the budgeted revenue for 2003. Expenditure is set at $1,574mn, 12% over estimated 2003 spending and 23% above the 2003 budget. External budget support to help finance the deficit is put at $650mn. However, there must be some concern that budget support in 2003 was only half the expected level, bringing in just $270mn, rather than the budgeted $535mn.

Draft Palestinian Budget 2004

($Mn)

Source : Ministry of Finance, Palestinian National Authority (PNA).

* Taxes collected by Israel on behalf of the PNA.

Expenditures Benefit From Improved Transparency

Making good on his pledge on unveiling last year’s budget to improve the transparency of PNA finances, Dr Fayyad submitted a full breakdown of expenditures for 2002-04. Public security and order, financial affairs and social services receive the lion’s share of spending, accounting for $434mn (27.6%), $392mn (24.9%) and $525mn (33.4%) respectively. Under public security, the Interior Ministry receives $141m and Financial Administration receives $259mn. Within financial affairs, the Ministry of Finance receives $21mn, while that category also accounts for the $250mn set aside for development expenditures. The social services budget accounts for the Ministry of Education ($289mn), the Ministry of Health ($141mn), and the Ministry of Social Affairs ($65mn).Within the central administration budget of $109mn, the President’s office receives some $42mn.

Current and Capital Expenditure 2004

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Source : Ministry of Finance, Palestinian National Authority (PNA). Full document available at:

http://www.mof.gov.ps/english-bud/expenditure/Current%20and%20Capital%20Expenditure-usd.htm

Growth Projections Encouraging

The 2004 budget is based on growth projections which indicate that the worst period for the Palestinian economy is over. Following negative growth of around 15% in both 2001 and 2002, the Palestinian Ministry of Finance estimates that GDP grew at a real rate of 4.5% in 2003, and is set to grow at 3.5% in 2004 and 2005. This should help to stabilize the situation, but nevertheless, nominal GDP per capita is expected to remain below $900 per year, and unemployment will remain high at around 30%. The damage to Palestinian infrastructure (put at $1.1bn by a recent UNCTAD report – MEES, 1 December 2003) has also greatly reduced the economy’s growth potential.

Selected Macroeconomic Data: 2001-05