PALESTINIAN ECONOMIC BULLETIN By The Portland Trust
Palestinian Authority Budget for 2014
In February the Palestinian Council of Ministers and President Mahmoud Abbas approved the Palestinian Authority (PA) budget for 20141. The total budget reached US$ 4.2bn, up by 9% from the level registered in 2013. The projected expenditure on public employees’ wages and salaries is around 5% higher than the amount spent in 2013, and represents slightly more than half of total expenditure. With assumed zero net hiring, the expected wage bill increase is explained by recent pay rise agreements between the government and labour unions. The budget for development expenditure, at US$ 350m, remains the same as projected in last year’s budget, although it is 87% higher than the amount effectively disbursed in 2013.
The Government expects to secure around US$ 2.7bn in total revenues: US$ 924m from domestic sources (up by 8% from the amount collected in 2013) and US$ 1.82bn from clearance revenues (up by 7% from 2013). While the Ministry of Finance aims to decrease tax rates over 2014-2016, the expected rise in domestic revenues is based on plans to expand the tax base and improve tax collection and administration. The budgeted levels of revenues and expenditure leave a total deficit of US$ 1.63bn (including the US$ 350m development expenses). The financial gap (up by 4% from the gap at the end of 2013) is expected to be covered by international assistance: US$ 1.33bn of budgetary support and US$ 300m of development aid. The International Monetary Fund (IMF) assessed a draft version of the budget and considered that although it “envisages modest further progress in fiscal consolidation [it] still leaves a sizable financing gap”.2
The Fund recommended that “given the projected financing gap and substantial fiscal risks, including with regard to the wage bill, it is imperative to contain the 2014 budget deficit beyond the level envisaged in the budget. If not, accumulation of arrears will continue, thereby hurting the private sector and undermining the credibility of the PA”. In particular the IMF recommended controlling the level of expenditure by “containing the overall increase in the wage bill to 2%, accelerating the reduction of poorly targeted fuel subsidies, and means testing and rationalisation of transfers for recipients outside the cash transfer programme”.
An IMF team visited East Jerusalem and Ramallah to assess recent developments in the Palestinian economy and evaluate the financial situation of the PA3. Following meetings with (now former) Prime Minister Rami Hamdallah and other PA senior officials, the mission concluded that the economic outlook for 2014 greatly depended upon the outcome of the ongoing peace talks between the Palestinian and Israeli governments. Under the assumption of status quo, the IMF forecasts an annual growth rate of merely 2.5% for 2014, which would be sustained over the medium term, together with rising unemployment. However, Mission Chief Christoph Duenwald indicated that “a breakthrough in the peace talks could launch major donor initiatives, such as the Economic Initiative for Palestine, which could boost average annual real GDP growth to about 6.5% in 2014 – 19”. On the other hand, the IMF estimates that “failure of the peace negotiations could trigger a political and security crisis” that would lead to further economic contraction, especially if donors scale back their support.
Labour Market at the End of 2013
In Q4 2013, unemployment continued its upward trend and reached 25.2% across Palestine. This is the highest quarterly unemployment rate in the last three years, marking an increase from both the previous quarter (23.7%) and from Q4 2012 (22.9%)4.
The annual rise in total unemployment was highest in Gaza, where the proportion of jobless people grew by more than 5 percentage points to reach a high of 38.5%. Female and youth unemployment, at 33.5% and 39% respectively, also increased from both Q4 2012 (31.7%; 35.1%) and Q4 2011 (27.2%; 32.7%). The very high unemployment levels registered across all regions and segments indicate the urgent need to promote sustainable, job-creating growth during 2014 and the coming years. The risks of further economic slowdown and rise in unemployment would be particularly worrisome in Gaza, where currently more than 1 in 2 youths aged 15 – 29 and almost 3 in 5 women do not have a job.
The Sharek Youth Forum, an independent Palestinian organisation contributing to the development of youngsters, recently launched ‘Your Right to Know’, a campaign prepared in conjunction with the PA Ministry of Labour to raise community awareness about the adoption of the PA Cabinet’s resolution on the minimum wage(5).
Following recommendations made by the National Wage Committee (formed of five PA Ministries and several trade unions), the PA Council of Ministers issued the Palestinian Minimum Wage Law in October 2012. The resolution, setting a minimum monthly wage of 1,450 NIS for all Palestinian workers, became effective on 1 January 20136.
The Labour Force Survey results for Q4 2013 show that there are 106,500 private sector workers in Palestine (36.2% of the total) whose remuneration is currently below the minimum wage threshold7. Commenting on the launch of the campaign, PA Minister of Labour Ahmad Majdalani also pointed out that in 2014, “the pay between men and women in the State of Palestine will be equal, both in the public and private sectors”(8).
In 2012 Palestinian women with a high school degree (or less) received a salary 27.5% lower than that of men with an equivalent educational level. The gender pay gap was 14% among workers with a diploma or bachelor degree and 24% for workers holding a masters or higher. The overall average gender pay gap for the OECD and MENA countries was 14% and 51% in 2010, respectively9.