Public Financial Management Reforms in Palestine (Research Paper Sample)

Public Financial Management Reforms in Palestine
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Public Financial Management Reforms in Palestine
The World Bank has continued to support Palestine through the program DPG (Development Policy Grant). Through this support the finance ministry managed to increase the property tax collections from the initial 22 municipalities to 37 municipalities from 2008 to 2010. The social safety program championed by the social affairs ministry has managed to improve livelihoods of households in West Bank and in Gaza Strip with more than 60,000 households benefiting from the net program in West Bank and 31,000 in Gaza Strip (BINDER 2007).
The extent of suffering of Palestine people living in Gaza Strip and West Bank has been unprecedented. Property has been destroyed and security in the region has remained unstable. The security situation has forced the Israeli government to impose restrictions on boarders monitoring closely the movement of people and goods into and outside West Bank and Gaza Strip. The disruptions frequented by closure of boarders have affected the economy of Palestine. The level of unemployment in the region is high leading to high poverty rates due to low income. Over the last decade the Palestine people have had to deal with the deteriorating economy. The Government of Palestine has been forced to bank on international aid from donors to fund government institutions, finance government operations and maintain steady flow of public service (JUNNE & VERKOREN 2005, pp. 232).
The incident of 2006 where an election was held led by Hamas government forced many donors to withdraw support for the Palestine authorities. The unfolding events led to economic depression and institutions were severely affected. The establishment of a temporary government in 2007 facilitated the rebuilding of institutional basic operations by the Palestine Authorities and the creation of strong institutions paramount for the future establishment of the State of Palestine. The period between 2006 and 2007 saw a heated debate on the separation of West Bank from Gaza. The strides that had been made in the previous year’s fell apart randomly. The accounts of treasury run dormant due to the withdrawal of donations. The budgetary operations seized due to shortage of revenue (Jensehaugen 2008, pp. 856).
The system understanding however remained intact and control responsibilities were unaffected. An example is the financial control in the line ministry. The ministry continued its responsibilities of checking and verifying invoices. The end of the Hamas era saw a quick restoration of the status quo since most of the officers were still in office. The period since 2007 has seen many efforts aimed at reforming the region economically and improving the system of governance. The period between 2007 and 2010 was mostly stable with gradual move from emergency response mechanisms to sustainability efforts and improvement of institutions. The reform efforts since the year 2008 have been widened and deepened until the point where the public finance management system appears to be firmly in place with respect to execution of budgets and progress has been noted in other disciplines.
The assessment of the PFM has shown credible improvement of the budget credibility, transparency, comprehensiveness, control and predictability and accountability. The process of record keeping and reporting has drastically improved. Budgeting based on policy and scrutiny by external entities has gradually improved (Ahern 2010, pp. 232). The period between 2006 to 2010 was largely stable with insignificant deteriorations if any although some setbacks over some specific times were noted. The region of West Bank and Gaza has not attained State status and therefore the operations of the Palestine Authorities in the region are susceptible to disturbances in revenue flow. The largest sources of Palestine revenue are international aid and revenue from clearance which are vulnerable to disruptions through avenues beyond the Palestine authorities to contain. The Palestine Authorities have to engage external players for the sake of sustainable politics and governance in the WBG (West Bank and Gaza). The community of donors is in support of the Palestine people with close to 40% of the total revenue coming from external avenues. The political status in WBG makes the moderation of donations more complex. The World Bank’s support comes in the form of grants through the arrangement of trust funds. Other donors employ different mechanisms such as funding projects and budget aids (EVANS 1985).
The foundation of public finance reforms in WBG found its shape from political revolution as opposed to public finance reform initiatives between the years 2002 and 2010. The reform opportunity was more of opportunistic contrary to a preconceived financial reform initiative. The three notable reform phases included the 2002/2005 period when Salam Fayyad was appointed Finance minister in 2002 summer. The reign was ended abruptly when the Hams Government came into power in 2006. The 2006/2007 was one of the worst times in WBG with many reform initiatives reversed and other fundamental projects put on hold. The divorce of Hamas and Fatah in 2007 June and the breakup of West Bank and Gaza saw Fayyad takes the reins of power. The new government restored the disruptions that occurred since 2005 and deepened the reform efforts since 2008. The initial reform initiative was faced with serious fiscal difficulties and political instabilities. The Prime minister worked towards quick response to avert the disaster. The main challenge in Public finance management was fragmentation and informality. The crisis that needed to be dealt with instantly was the crisis of lack of fiscal credibility (Studies 2009, pp. 83-99).
There was immense pressure from external players over poor fiscal control allegations where money was taken from budgetary allocations and used to fund terrorist activities. The claims badly hurt the flow of aid and also forced Israel to suspend transfer clearances. The funds in arrears were $370 million by the year 2000 and the figure was quickly rising (IMF 2003). During this period the government suffered liquidity shortage. The Finance ministry was faced with the challenge of lack of capacity to foster political support for the important reforms and the supervision of the detailed implementation issue. The initiatives from the ministry of finance seemed to bare no fruit despite the fact that they were willing to explore new avenues. The main contention at this point was the recentralization of cash for both expenditure and revenue.
The initiative for centralization of revenue bore fruit when the TSA (treasury single account) was formed and the accounts of all private banks maintained by the various ministries were locked down. There were incredible efforts by the government to consolidate revenue at the TSA. All expenditure initiative was also centralized taking the power from line ministries. The payroll was taken up by the ministry of finance. The subsequent years till the year 2005 were dominated by government efforts to consolidate all the budgetary revenues into one formal budget and the flow of cash to the TSA. The control of expenditure was also extended to cover security officers. The political dynamics necessitated appropriate actions to be taken in light of the prevailing situation and taking advantage of available opportunities any time they came up. The efforts by the ministry of finance to limit funds control by line ministries made it hard for the authorities to continually link up with donors with respect to direct individual donor funds to specific projects. The officials in the Finance and planning ministries dubbed this a problem of precedence.
The introduction of the zero balance Account in the year 2009 was the culmination of the government efforts. This initiative led to the closure of many ministerial and donor accounts. There were however no figures to be used as a basis to quantify the development. The reforms did not also take account of the amount of aid that was streamlined into the budgetary process. It was noted that some donations away from the budgetary system were still active. The efforts to restore financial sanity through centralization of revenue and expenditure by the Palestine authorities has borne substantial results and helped control public spending through the finance ministry. Though Palestine has been faced with many political challenges the financial reform initiatives seems to have yielded results rather quickly.
The centralization process is one good example of the Public finance reform agenda that has had overwhelming success. The switch to the Treasury single account happened in a single day after a period of thorough preparation. The commercial banks obliged to the call to transfer all funds held by government actors to the central account held by treasury. The need to gather political support by external actors was the primary motivation behind the realization of early gradual gains contrary to the normal efforts in technical engagements. The reforms in the first face of change were characterized by quick gains that yielded results in an instance. During the initial financial reform stages the emphases were rare on budgetary reforms and planning. The reform efforts were almost crippled by the Hamas regime although a quick recovery came in after Fayyad became prime minister in June 2007.
The efforts by World Bank to offer assistance were found on the premise of goals reinforcement through empowering the Palestinian Authorities fiscal position. Through the Development policy Grant (DPG) III Palestine authorities recorded considerable success in achieving the objective of reduci...