Steady economic decline since 2011. Negative per y g p capita - - PowerPoint PPT Presentation

 Steady economic decline since 2011. Negative per

y g p capita income growth in the WB since 2013

 External budget support reduced from 18% of GDP

in 2009 to 8% of GDP in 2013-15

 Fiscal deficit reduced from 22% of GDP in 2009 to

12% of GDP in 2013 15 It is still ns stainable 12% of GDP in 2013-15. It is still unsustainable, with $ 500 million unfinanced gap in 2015

 No Israeli facilitation of restrictions The  No Israeli facilitation of restrictions. The

• ccupation is more entrenched.

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Real Real gro growth

2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018

Palestine

6.3 2.2

• 0.4
• 0.7

2.9 2.9 2.9

WB

6.0 1.0 5.1

• 2.0

2.0 2.0 2.0

Gaza

7.0 5.6

• 15.2

7.0 5.0 5.0 5.0

Per Capi Per Capita Income Income Income Income gro growth

Palestine

3.1

• 0.1
• 3.3
• 3.6

0.0 0.0 0.0

WB

2 9

• 1 6

2 4

• 4 7
• 0 7
• 0 7
• 0 7

2.9 1.6 2.4 4.7 0.7 0.7 0.7

Gaza

3.4 2.0

• 18.2

3.3 1.7 1.7 1.7

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 Most sources of growth have been either stable or

declining

1997 99 2007 2008 2009 2010 2011 2012 2013 2014

 The largest decline has been in the fiscal deficit

1997‐99 2007 2008 2009 2010 2011 2012 2013 2014

Capital formation

37.6 18.1 22.1 24.6 22.1 21.7 21.6 22.0 18.6

Machinery d and Equipment

12.8 5.4 5.9 6.3 6.0 6.3 5.3 5.4 4.7

Exports

18.0 19.3 17.4 15.6 15.3 17.2 16.6 16.6 18.0

Workers Remittances

15.5 10.9 11.2 11.4 12.1 12.0 10.0 10.2 11.2

• Rec. Budget

deficit

0.0 24.5 20.1 22.3 13.9 12.2 12.9 12.5 11.9

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 Private sector investment in machinery and

i h l d 5 1% f GDP ll equipment has only averaged 5.1% of GDP annually

• ver 2012-14. After depreciation, net private

investment is only 1% y

 Public development expenditures declined from 6%

• f GDP in 2007 to 2% of GDP in 2012-14

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 External budget support declined from 18% of GDP  External budget support declined from 18% of GDP

in 2009 to 8% of GDP annually in 2012-15.

 The recurrent fiscal deficit has been reduced from

22% of GDP in 2009 to12% of GDP in 2013-14, a major achievement in “fiscal consolidation”

 We have a 10 percentage points decline in both

external budget support and in the recurrent budget

• deficit. A huge withdrawal of fiscal stimulus which

g has reduced economic growth

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30 20 25 15 perce percent Budget deficit Budget Support 5 10 udget Suppo t

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Fiscal Fiscal Deficit Deficit and and West est Bank ank Real eal Growth Growth in in percen percent

20 25

Fiscal Fiscal Deficit Deficit and and West West Bank Bank Real Real Growth Growth in in percen percent

15 20 cent ent Budget deficit 5 10 Per Perc Budget deficit WB real 2008 2009 2010 2011 2012 2013 2014

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I h f I li i i i

 In the context of Israeli economic restrictions,

which undermined private sector investment in productive capacity, the recurrent fiscal deficit was p p y, good for Palestinian economic growth.

 But because budget deficit financing had to rely on

d d h private sector payment arrears, it damaged the economy

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 Debt to commercial banks $ 1.2 billion. This may

y be an upper limit, given that PNA debt and debt of its employees constitute 41% of banks portfolio.

 Borrowing from abroad is not advisable  Domestic bonds would be too expensive  Private sector payment arrears, $ 600 million  Public debt: $ 4.8 billion or 38% of GDP (external

$ 1 1 d i $ 3 7) $ 1.1; domestic $ 3.7)

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 During 2014 $ 280 million of private sector  During 2014, $ 280 million of private sector

arrears were repaid but new arrears of $ 740 million were accumulated

 Three major problems in using arrears to finance

the budget

 f d d h k It is forced credit on the private sector, taking away funds which could be used for investment It is opaque inequitable and invites corruption It is opaque, inequitable and invites corruption It is used as residual financing which undermines the Budget and expenditure control

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 Palestinian private savings are high, $ 7 billion in

deposits (60% of GDP) and banks are very liquid deposits (60% of GDP), and banks are very liquid.

 Yet, for lack of private sector demand for

investment financing, due to Israeli restrictions on investment financing, due to Israeli restrictions on economic activity, 35% of Palestinian bank deposits are invested abroad. This is a withdrawal of liquidity from the income stream which also liquidity from the income stream which also reduces economic growth.

 At a time when we are in need of basic  At a time when we are in need of basic

infrastructure and an upgrading in private sector productive capacity, over one third of our savings i i t d b d is invested abroad

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 We have lost economic viability. Declining per

i i hi h l d capita income, higher unemployment and poverty which may lead to political instability.

 We have lost fiscal sustainability Large financing  We have lost fiscal sustainability. Large financing

gaps, ($ 500 million estimated in 2015) but the private sector cannot continue to serve as a bank f h fi hi for the government to finance this gap.

 We need to reduce the recurrent deficit but at the

same time we need to revive the economy same time we need to revive the economy

 How do we deal with this contradiction ?

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We need to do four things: We need to do four things:

 Reduce the recurrent fiscal deficit to available

legitimate financing legitimate financing

 Compensate this reduction by increasing public

investment in infrastructure

 Reintegrate Gaza into the Palestinian economy  Improve financial management and governance

p g g

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60 40 50 30 40 rcen centage o age of GDP Revenue Expenditures 10 20 Pe Per p 199619971998199920002001200220032004200520062007200820092010201120122013 Year Year Year Year

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Rec rrent p blic e pendit res increased from 22%

 Recurrent public expenditures increased from 22%

• f GDP in 1997-99 to 45% of GDP in 2007. They

were reduced to 34% of GDP by 2014, a major achievement.

 Revenues have declined from 23% of GDP in 97-99

t 21% i 2014 to 21% in 2014

 We have a structural deficit of 12% of GDP, and

foreign budget support is only 8% of GDP In foreign budget support is only 8% of GDP. In addition, we have a small deficit in the development budget

 We have to take fiscal measures equivalent to 4

percentage points of GDP over two years to cover the unfinanced gap ($500 million) the unfinanced gap ($500 million)

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 Revenue:

 d f l f d ( ll ) Reduce fuel tax refund (NIS 500 million in 2015) Broaden the domestic income and VAT tax base Land registration g

 Expenditure:

Limit yearly wage increase to 2% Reduce electricity subsidy (NIS 1 billion in 2014) Reduce PNA expenditures in Gaza ( NIS 5 billion or 34% of total public expenditures) p p ) Security costs of 8.7% of GDP are relatively high

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 Palestinian infrastructure and resource based  Palestinian infrastructure and resource based

projects should be given priority to jump start the economy and stimulate private investment.

Gaza Marine Gaza desalination plant Electricity generation (Jenin) using natural gas Electricity generation (Jenin) using natural gas Water projects in the West Bank ($ 60 million) Bus transportation system between West Bank cities U di i l l d i i h Upgrading agricultural production to compete with imports (imports from Israel $ 450 million annually)

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 A look at the record:

While there is a view that the PNA has passed the “threshold” for statehood, we are faced with 3 issues:

• The two state solutio

wo state solution. This prospect is regressing, the

• ccupation is more deeply entrenched
• A sustain

A sustainable growth path ble growth path. Here, we have also regressed into negative per capita income

• Fiscal sust

scal sustainabilit

• ainability. While progress has been made in

y p g reducing the deficit, we still have unfinanced gaps and reliance on financing from private sector

In the absence of significant progress in these areas, t e abse ce o s g ca t p og ess t ese a eas, the role of the PNA and the international community has been reduced to sustaining the occupation.

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 Clearly define a reform agenda and a set of

y g priorities in public investment projects

 Agree with the international community on a

financeable budget deficit target and adopt necessary measures Establish a stock of arrears and a repa ment

 Establish a stock of arrears and a repayment

schedule

 Muster political will to achieve reconciliation with  Muster political will to achieve reconciliation with

Gaza

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 Agree with PNA on a budget deficit target and  Agree with PNA on a budget deficit target and

provide necessary budget financing

 Agree with PNA on a reform agenda and hold PNA

g g accountable

 Press GoI to lift the siege from Gaza and facilitate

f implementation of public investment

 Press GoI to implement public investment projects

in the West Bank in the West Bank

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Thank you

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