Translated by Sabrin Qadah

International Monetary Fund said that the Ministry of Finance and Planning dealt skillfully with difficult circumstances in the Palestinian territories while warned that the current year will be a challenging year.

This came during a detailed report published by the International Monetary Fund, on Tuesday, after the visit of the head of the International Monetary Fund’s mission, Karen Oungli, to the Palestinian territories in the period from January 31 to February 9, 2017.

She said that the Palestinian economy is facing increasingly difficult conditions, noting that GDP growth to 4% in 2016 was not enough to reduce the level of unemployment which reached 28% last year.

She added that consumption remains the main engine of growth in an environment of political uncertainty and the restrictions on the crossing, which constitutes an obstacle to private sector investment in the West Bank. In addition to the delay in donor funds for the reconstruction of the Gaza Strip.

She said that the Ministry of Finance has dealt skillfully with these difficult circumstances, noting that its efforts to increase revenue contributed in reducing the fiscal deficit. Oungli expressed satisfaction at the continuation of discussions between the PA and Israel in the repayment obligations.

She explained that the delay in donor funds contributed to the lack of funding and the accumulation of arrears.

Despite the remarkable progress in the revenues collection, the "IMF" predicted that this year would be full of challenges, noting the cautious approach that characterizes the 2017 budget, which assumes low donor support and not receiving additional transfers from Israel.

The "IMF" forecasted a constant facing of challenges due to low clearance revenues and other payments from Israel while spending pressures will continue unchanged. It also predicted an increase of spending deficit by about 2% of GDP, which could cause, with low donor budget support by 15% extra, a financing gap of approximately 6% of GDP.

The IMF encouraged the PNA to search for options to alleviate existing conditions that for example the increase in wages become limited to inflation

In the medium term, Aungli said that the new public financial management strategy, which is nearing completion, is another step that can support efforts to enhance the efficiency of spending and push forward to achieving lasting improvements in public financial budget.

She explained: Through an action plan that identifies public financial management procedures and puts careful arrangements of priorities, a strong foundation for increasing the participation of donors and their support for the government's priorities in the context of the national policy agenda for the period 2017-2022 can be established. The other priority areas are, however, the reform of the civil service system and pensions, since the adoption of a strategic approach to deal with the wage bill would create public investment resources of priority.

She said that "strong local policies will be a key factor in addressing public financial risk, but all parties have a role to play, which is particularly important to ensure that the delivery of public services is not negatively affected by the efforts to reduce the deficit, and to achieve conditions that are more viable in terms of the budget. In this regard, it is necessary to stop the decline in donor support and to continue discussions with the Government of Israel in order to establish revenue transfers on a path that can be predicted. We also look forward to completing the implementation of the recent agreement on the electricity sector at the scheduled time, and based on transparency and justice. This indeed with paying particular attention to the implications of implementation success on the public budget”. She stressed the importance of "making efforts to maintain financial stability in order to ensure the financial sector the possibility of supporting the continuation of economic progress."

In this regard, Aungli said: " the possibility of Israel’s ending banking relations is still of the basic risks, and that the PMA remains committed to strengthening the fight against money laundering and financing of terrorism in accordance with international standards. In this context, we welcome the fruitful work relationship between the Palestinian Monetary Authority and the Israeli Central Bank. Among the other important steps is the recent acceptance of "financial action Task Force for the Middle East and North Africa" ​​request of the Palestinian Monetary authority to conduct a comprehensive assessment of the anti-money laundering and terrorist financing policy. This is in addition to the continuation in the relevant anti-money laundering and terrorist financing reforms, with techical support from the international Monetary Fund and other development partners. "

Aungli concluded saying "expected prospects for the economy look very challenging. With the growth expectations that refer to just 3% in the medium term, the income averages will continue unchanged and unemployment will continue to increase. Even these expectations are overshadowed by a likely drop in donor aid and a slow pace of the reconstruction of Gaza compared to the desired pace. In this context, the importance of addressing the risks of public finances and the financial sector, and it must also be noted that the perseverance to restore confidence in the peace process efforts is crucial in restoring and releasing economic growth potentials. "