The Required Reform from Us.. Always

Author: سمير حليلة

The Palestinian government and the Mas Institute, along with other public institutions and a large number of experts and private sector representatives, reviewed the general economic crisis facing the Palestinian economy, especially the exacerbated clearance crisis and its direct impact on civil service employees and Palestinian security forces, particularly in the West Bank.

In the final review of the reasons for these crises, the Israeli government and occupation top the list of those primarily responsible, considering that what is happening is an attempt to comprehensively suffocate the Palestinian economy with the aim of weakening it and driving displacement, and an attempt to dismantle the national authority and undermine its legitimacy in front of its public.

Without reviewing the proposals presented by many experts and institutions to overcome this crisis, I feel that we are facing a much broader responsibility than merely addressing the salary issue of this month or that, despite its importance for the resilience of people and the continued provision of government services. The repeated exposure of Palestine over the years to such pressures in various forms drives us to search for medium-term solutions with more structural characteristics, not as a substitute for direct measures but as a complement to them. This summary is based on a report by the World Bank issued in June of this year regarding the review of public spending of the Palestinian authority, where perhaps we can together outline the features of a medium-term reform plan after identifying important facts related to civil service and security forces within the Palestinian national authority.

Key Data

International aid to the authority's budget has significantly decreased over the last decade from about $2 billion annually to approximately $400 million (from 27% of GDP in 2008 to 2% in 2023). The authority has been able, through its successive governments, to raise and improve its revenues significantly but without being able to cover the accumulated annual deficit. Therefore, it resorted to borrowing from local sources such as banks ($2.88 billion by the end of 2024), pension funds ($3 billion), authority employees ($1.47 billion), and the private sector ($1.5 billion), leading the public debt at the end of last year to become $11.8 billion, which is 85.7% of the GDP.

The authority collected its revenues prior to the war at a rate of 3% from Gaza and 97% from the West Bank, while 29% of its expenditure has been on Gaza since 2007.

Initially, the revenue-to-GDP ratio in Palestine is within the regional and international level, hovering around 26% of GDP, while tax revenues alone are around 20.3%, among the highest rates in the region.

The salary rate for authority employees has been around 14% of GDP while rates in countries of the region are around 11%. Upon examining the reasons for the high wage bill, it was found that the rates of increase annually are 3% in basic salaries (due to the increasing number of employees) and 2% in allowances and additions. The number of employees in the civil service and security forces has increased, reaching 155,614 employees by the end of 2024 from a previous 153,574, while the value of annual salaries increased from 6.4 billion shekels in 2011 to 8.4 billion in 2021.

The share of the West Bank rose from 57% of employees in 2011 to 72% in 2021, reaching 116,458 employees in the West Bank (75.4%) and 39,156 employees in Gaza (24.6%) by 2024.

However, the most important point remains that the most significant increase in the salary bill has not been the increase in the number of employees, but the tremendous and continuous increase in allowances and additions to salaries, as most public employees receive all kinds of allowances which are not linked to professional performance or job role. Of course, the increase in salaries has not been reflected in government performance, as Palestine's comparative performance dropped from ranking 43/100 in 2010 to 29/100 in 2020, while the average for the region was 42/100.
Local revenues increased from 4.3% of GDP in 2015 to 6% in 2022 while the regional average is 5.1%, despite the fact that the corporate income tax rate in Palestine (15%) is lower than the global average (22.6%).

As for public expenditures, they rose between 2015-2022 to reach 30.4% of GDP, which is higher than Jordan, Egypt, Morocco, and the regional average. Although the authority considers that its expenditures are the basis for growth and confronting Israeli measures, these expenditures have not been able to create sustainable growth or generate new job opportunities, as half of the expenditures go to salaries while investments hover around 2%, which is much lower than most countries in the world. Although expenditures on education and health were around the global average, security and social protection expenditures were much higher.

From the payroll item, it emerged that the salary expenditures in the security sector were 37%, in education 33%, and in health 11%. However, an in-depth study in these three sectors highlighted key observations: in the health sector, a third of its budget is allocated to cover transfers to hospitals outside the healthcare system, and the number of employees is insufficient compared to the region, except for Gaza, along with other additional observations. In education, there remains a shortage of teachers' salaries and there is weakness in the pre-school system, while the expenditure rate is equal to international averages.

It is clear that the fundamental cause of the continuous increase in the wage bill is the Civil Service Law of 2005, the Security Service Law of 2007, and the Diplomatic Law of 2007, and any serious reform process must address these laws with a review and examination as it has been twenty years since they were enacted and implemented. It is worth noting that the number of permanent civil service employees reaches only 89%, while the rest are temporary workers and those on daily wages and emergency workers.

Required Steps

The wage bill is expected to reach 8.8 billion shekels next year with the number of employees approaching 156,000. The required reduction for the bill should be to a number around 7 billion shekels with the number of employees around 148,000. This is achieved not only through early retirement, although it is somewhat beneficial, but through stringent measures to control allowances and annual increases, and a temporary freeze on salary increases, in addition to a group of other creative steps that various ministries can propose. The efforts required to be made across several key ministries along with an in-depth review of the laws related to public service, health insurance, pension systems, and others can lead to a real reduction and significant control of public spending.

The question remains whether this is the solution to the current financial crisis..? Of course not, but these are medium-term reform steps that prevent us from falling into a deep abyss if the government continues to operate on autopilot.

What is urgently needed is the establishment of a commission for government reform that takes on this difficult task, supported and participated by the Palestinian presidency, Fatah Movement, and the PLO for its importance. It should be fully supported, as these reform steps may contribute to saving the sinking vessel.

The aforementioned World Bank report is rich in information and proposals, and it does not contain a ready recipe despite the presence of a sectoral and general action plan. But it is filled with indicators and goals that any government administration can start from. This places a significant responsibility on us to lead this reform process instead of merely appealing and demanding from the international community. So, is there anyone to respond?!!