Al-Ahram Weekly Online   5 - 11 July 2012
Issue No. 1105
Published in Cairo by AL-AHRAM established in 1875

Two governments in crisis

The worst financial crisis ever is how Palestinian government officials -- at least in Ramallah -- are describing the latest shortfall in government funds, writes Saleh Al-Naami

Amer Abdel-Razeq, 49, who lives in Al-Maghazi Refugee Camp in the centre of the Gaza Strip, is trying to avoid walking past the grocery shop near his home because he can't pay for the groceries he bought in June for his family.

Abdel-Razeq, like thousands of civil servants in the Gaza government's offices, has not been paid because the government is in a serious financial crisis. "In fact, I am only paid one month's salary every two months, which limits my ability to take care of my family and makes me pinch pennies," he told Al-Ahram Weekly. "It has become difficult to continue providing for the family on the basis of IOUs."

Representatives of the Gaza government claim there is no financial crisis, and the delay in paying salaries is momentary and that soon everything will be better. But these reassurances no longer convince anyone in the Gaza Strip. It has been seven months of irregular salaries.

Informed sources told the Weekly that the Gaza government is paying salaries every other month because of a drop in foreign funds. "It is certain that the crisis is caused by the withdrawal of Iranian funds from the Gaza government, after Hamas declared its support for the Syrian revolution," the source revealed. "The Iranians are punishing Hamas by severely cutting down their financial support for the Gaza government."

The source expects that Tehran will stop all forms of financial support to the Gaza government because the Iranian leadership has realised that Hamas will not change its position on the Syrian revolution. What made matters economic worse, the source added, is a decline in government revenues from taxes because of a slowdown in economic activity. This reality has given rise to civil servants moonlighting, most notably as taxi drivers, after work to cover the drop in their income due to late wages.

Jamal Rateb, 29, a government employee, re-opened the barber's shop he owned before he was hired by the government two years ago. "There was nothing else I could do," Rateb said. "Without extra work I cannot provide for my family."

The troubles of those working for the government pale in comparison to the unemployed whose ranks are inflated every year by thousands of university graduates who can't find jobs. For example, the government advertised for 500 teaching opportunities for university graduates, and received more than 10,000 applications. This is why many graduates are seeking employment outside Palestine.

Jamal Faydi, 27, has been looking for a job since he graduated with an engineering degree five years ago. Unemployment has prevented him from getting married. Faydi was finally forced to travel to Libya in search of work. One of his relatives said that he was hired on a poultry farm where he supervises the farm and splits the profits with the Libyan owner.

The Gaza government's budget that was passed by parliament for 2012 reached $769 million compared to the year before of $630 million. According to Jamal Nassar, the chairman of parliament's financial committee, local tax revenues came to $174 million, which is only 20 per cent of expenses. Nassar said that this means there is a deficit of $695 million, which will be covered through grants and donations and other forms of assistance to the Gaza government.

The Gaza government's undersecretary for finance, Ismail Mahfouz, said that 62 per cent of the budget is spent on security and social services, including healthcare and education. Mahfouz noted that the budget of the interior ministry in Gaza amounts to 34 per cent of the overall budget, while the health ministry came to 17 per cent, and the education ministry to 11 per cent.

The finances of the Ramallah government are not much better, and there are even rumours it too will soon be unable to pay salaries. Palestinian Labour Minister Ahmed Al-Majdalani said that his government is going through "the worst" financial crisis since its creation. "Yes, we can say that the current financial crisis is the worst ever," Al-Majdalani declared. "What is left in the government coffers is not enough to cover the salaries of employees this month, although Ramadan is fast approaching. Neither is it enough to pay for the government's dues to private companies."

The Ramallah government's media director, Ghassan Al-Khateeb, said the budget deficit this year has touched $1 billion, or 10 per cent of GDP, noting that last year the deficit was $1.2 billion, or 13 per cent of GDP, while the deficit in 2008 was about 22 per cent of GDP. Al-Khateeb added that the government is discussing the general budget that this year amounts to $3.18 billion, and this is why the Palestine Liberation Organisation (PLO) recently released a statement urging Arab states to pay their financial pledges to the Palestinian Authority (PA) in order for it to be able to afford to pay the salaries of public sector employees.

"The executive committee urges all brotherly Arab states to urgently assist in resolving the severe financial crisis that the PA is going through," the statement said. "The current financial situation is worse than at any other time and requires urgent intervention because the PA is unable now -- so close to the blessed month of Ramadan -- to pay salaries and other necessary and urgent financial obligations to other economic institutions in the country."

The PLO statement further warned that if the crisis continues, "it will very soon undermine the stability and role of the PA and its institutions, as well as social and national security which could result in adverse and perilous domestic and regional effects."

It added: "Banks operating in Palestine have raised government lending in the past two months by more than $300 million, which makes it difficult for banks to increase lending in the coming phase without actual payment by donor countries."

The government in Ramallah pays some 160,000 civil servants in both the civil and military sectors, and partially relies on assistance from Arab and foreign states for these salaries.

Meanwhile, Palestinian economic experts are very critical of the PA for continuing economic ties to Israel. Writer Nicola Nasser said that the volume of trade between the PA and Israel amounted to about $4.3 billion in 2011, mostly of Israeli goods flooding into areas under PA control. Nasser said that Israel continues to be the PA's primary trade partner and PA areas are the second largest market for Israeli goods after the US. He continued that the PA allows 35,000 Palestinians to work in Jewish settlements, and each pays $6 every day as a work license fee, which means they pay $210,000 every day to the coffers of the occupation.

Nasser added that the PA still applies the Paris Protocol that allows Palestinians to invest in Jewish settlements. Meanwhile, Palestinian private sector investment in Israel amounts to $2.5 billion.

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