PA incapable of paying June salaries to employees

Shortfall considered biggest crisis in Palestinian Authority history; payment could be delayed for few weeks.

PA President Abbas and PM Fayyad 370 (R) (photo credit: Fadi Arouri / Reuters)
PA President Abbas and PM Fayyad 370 (R)
(photo credit: Fadi Arouri / Reuters)
RAMALLAH – Palestinian Authority Finance Minister Nabil Kassis announced Tuesday that the PA is incapable of paying June salaries to its 160,000 employees on time, adding that payment will be delayed for several days to a few weeks.
In a press conference held in the governmental media center in Ramallah, Kassis explained the difficulties of the current financial crisis, saying that the PA is in a position that prevents it from fulfilling its financial commitments.
The financial crisis started a few years ago as the donors cut their aid to the PA, but it is considered the biggest crisis in its history, with the potential of a total collapse of the PA.
“We are working according to a specific plan to cover the deficit by relying on the availability of Arab and international aid, and depending on revenues,” Kassis said.
The salaries topic pops into the surface every once in a while. Critics of the PA expect that the recent emphasis on the crisis aims to pressure the Palestinian streets and prevent a potential protest movement against the PA. Others thought PA Prime Minister Salam Fayyad’s hint of leaving his post led him not to postpone the crisis any further.
Last week, Fayyad remarked for the first time that he might run for PA president.
The annual budget of the PA approaches $3.5 billion, with around half of it being spent in the Gaza Strip on salaries as well as other services such as electricity, water bills and infrastructure projects. The PA has started cutting down on these bills recently.
Kassis, who replaced Fayyad as finance minister, inherited a 2011 deficit of $1.4b., $700 million of which is urgently needed to pay public employees’ salaries, bank loans, private sector dues and Gaza utility bills.
Analysts believe the Palestinian split between the West Bank and Gaza doubles the yearly deficit.
The PA is spending money in Gaza while the taxes are being collected by Hamas’s de-facto government.
The PA used to cover the usual $1.2b. deficit in the budget from donor money.
However, international aid has declined in recent years, with donors – particularly Arab states – not committing to their pledges, forcing the PA to take out loans from national and international banks.
In turn, the PLO Executive Committee called upon the Arab countries to pay their pledges.
With the shortage of the funds, the PA’s general debt reached $2.2b. – half of which was borrowed from banks working in the Palestinian territories.
Kassis announced that the PA borrowed from banks last year to fulfill its obligations.
“We borrowed $40m. from a bank, and another NIS 40m. from another bank,” he said.
The PA finance minister said they reached the limit of the money they can borrow.
“The borrowing is linked with guarantees,” he said. “Banks operating in the Palestinian territories reached their lendinglimit, and externally we can’t provide guarantees because of the occupation, and the economic downturn.”
The PA needs $100m. a month and was hoping to borrow it from external sources.
However, the International Monetary Fund rejected an Israeli request to borrow $100m. on behalf of the PA.
According to Haaretz, the IMF said it did not want to set a precedent of borrowing money on behalf of a non-state entity.
The lack of the PA’s sovereignty on it borders leads to tax evasion because Palestinian merchants purchase goods directly from Israeli merchants. All Palestinian imports go through Israeli borders and are subject to Israeli-imposed taxes that are returned to the PA.
International institutions believe half of the products in Palestinian markets are imported directly from Israeli merchants, and thus costing the Palestinian budget $400m. annually.
In the opinion of Shakir Khalil, an economic analyst, “the Palestinian government’s policy is increasing the crisis, every month it is postponing the crisis. Why are we still dependent on donor money to pay the salaries’ bill?” Khalil, a PhD candidate at Lille 1 University in France, said that when Fayyad first led the Finance Ministry five years ago, he wanted to reduce the inflation in the public sector. “But we noticed that the bill is increasing, why?” Khalil said.
Kassis announced that the PA was expecting $1b. in 2012 in funds, but only received $470m.
He added: “We expect to have another $ 500 million for the end of the year, we have a program to reduce costs and we will try to avoid any increases on the budget.”
With 59 percent of the budget being paid to salaries, it’s highly unlikely the austerity plan will work.
The absence of a real political horizon negatively affects the amount of external aid, as well as external investments.
A large portion of the PA’s budget is being spent on security.