Palestinian Wage Explosion: A Test of Donor's Resolve
January 23, 2006
The Funding for Peace Coalition reported that the EU had recently suspended funding of the Palestinian Authority (PA) due to financial instability. In particular, there have been few attempts to restrict the ever-growing wage bill.Determining how this crisis arose will affect the scope and level of response of any future aid.
The PA has just published what amounts to an official appeal to donors to help it out of its latest financial mess. In a statement issued 2 days before the Palestinian elections, it has admitted debts approaching US$1 billion.
Interestingly, in order to express the depth of the problem, the PA resorted to quoting from the English version of the Israeli newspaper "Ha'aretz".
The former representative of the World Bank and the occupied Palestinian Territories Nigel Roberts, told Haaretz on January 10 that the PNA's lack of responsibility "forced the Bank, supported by the European Commission," to freeze 60 percent of funding the PNA's operational budget.
The statement also quoted the economist Salah Aabed Al Shafi, a former consultant of the World Bank. He observed that:
...the PNA is the biggest employment sector in OPT and it was obliged to recruit the armed groups in its institutions to contain them and lull looseness.
The PA's announcement conveniently omitted reporting on a second article from Ha'aretz, which was printed only the previous day. This quoted a Fatah spokesman, who explained the significant expansion of the long-standing policy to award openly PA salaries to Al-Aksa Martyrs and other members of violent groups:
...the Palestinian Interior Ministry has hired some 16,000 workers - 9,000 from Al-Aqsa - in a bid to influence the election results by giving jobs to the unemployed.
The EU has consistently asserted that employment of these terrorists by the PA would in itself be a reason to cease aid. An unofficial 'code of silence', which the PA has now broken, had previously allowed the EU to fund budgets, which paid for the salaries of terrorists.
In other words, the PA was not coerced into recruiting militant groupings. It was a calculated move, political and diplomatic. The PA is seeking votes at a time when Hamas is catching up in the opinion polls. And, as in previous so-called financial crises, it is surely expecting donors, to find an excuse to fill the gaps.
It is also worth taking a moment to recall that the PA and the PLO continue to maintain considerable resources around the world. For example, with a degree of irony, a similar sum to that previously mentioned, US$1 billion, has already been acknowledged in PA bank accounts in America. The PA consitently refuses to call on these reserves before requesting alternative resources from Brussels.
The question is how the donors, particularly the Europeans, will respond. Will they maintain the principles laid down by the World Bank and withhold future aid until financial milestones have been secured? Or will they succumb to the latest round of manipulations and thus knowingly fund the salaries of the perpetrators of violence?
Below is the official statement from the Palestinian Authority State Information Service.
World Bank Foresees PNA's Budget deficit to reach $1 billion
GAZA, Palestine, January 23, 2006 (IPC+Agencies) - -The World Bank expected that the PNA's Budget deficit to reach $1 billion by 2006 due the wages inflammation in Government sector.
Thus so far the Palestinian National Authority is facing a cute financial crisis on the eve of the Palestinian PLC election that could unable it, as early as next month, from paying the salaries of at least 130.000 officials and members of its security forces.
The President Mahmoud Abbas acknowledged the crisis saying "we are going through a suffocating financial crisis. Unemployment is the cause of the crisis because when we employ those unemployed people, wages are increased and donors suspended finances."
The European Union announced this week EU decided on Tuesday to suspend 35 million euros ($42 million) in aid to the Palestinian National Authority (PNA) at a behest of the World Bank, citing the lake of budgetary discipline.
The Economist Salah Aabed Al Shafi, Ex-consultant of the World Bank opined "the PNA is the biggest employment sector in OPT and it was obliged to recruit the armed groups in its institutions to contain them and lull looseness."
Abed Al Shafi added "we are revolving in a vacant loop, the closure imposed by Israeli and lawlessness Palestinian territories dissuade the investors to invest money in economic projects, thus the only sector for employment is the public sector, deepening the financial deficit."
The former representative of the World Bank and the occupied Palestinian Territories Nigel Roberts, told Israeli online daily Haaretz on January 10 that the PNA's lack of responsibility "forced the Bank, supported by the European Commission," to freeze 60 percent of funding the PNA's operational budget.
This far-reaching step was taken because the Palestinians did not fulfill their commitments on "budget control," he said, adding that the PNA raised salaries "at a time when resources are unavailable."
However Roberts warned also that the PNA "is facing a crisis." The PNA "is on the verge of functional bankruptcy; its failure to pay the hundreds of thousands of employees will make them unable to buy their basis daily needs, which will directly affect thousands of suppliers and merchants who earn their living from the employees," he added.
Roberts noted that the amount of assistance the PNA is getting - reportedly $5 billion in five years, or $300 per capita annually - is the highest granted to any entity since World War II.
"To maintain the deep involvement of the donors, and their diplomatic attention, as well as the desire of the private sector to invest additional money, the PA must improve its performance," he said.
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