World Bank launches multi-donor trust fund to support reform program

Palestinian children in Jenin (Photo: Carity Crouse, 2002)

With the aim of supporting the Palestinian Authority (PA) in sustaining public services in the face of a severe fiscal crisis, the World Bank announced today the Public Financial Management Reform Trust Fund.

Created at the request of the Palestinian Authority with backing from the international donor community, the Reform Fund builds on the successful budget support mechanisms implemented by the European Commission since September 2000 and seeks to mobilize additional donor resources to support the PA’s budget.

The West Bank and Gaza continue to suffer from a severe economic recession in the wake of the September 2000 intifada. Per capita income dropped by half since the beginning of the intifada and is now approaching $900; and nearly half of the Palestinian population is currently living below the poverty line of $2 per day. As a result of the recession, the PA’s estimated financing gap at the beginning of the year stood at $650 million.

Over the past three years, budget support from donors, totaling some $1.3 billion, helped meet part of the PA’s recurrent expenditures, paying public servants’ salaries, helping the PA repay some of its arrears to the private sector and providing essential services such as health, education, and water supply and sanitation to the Palestinian people. Budget support was also instrumental in preventing some 100,000 people from falling into poverty and in sustaining consumer demand for local goods and services.

“We are very pleased with the establishment of this Fund, and grateful to the Bank for agreeing to administer it,” said Palestinian Finance Minister, Mr. Salam Fayyad. “I believe that donors will have confidence that their support for this initiative will help advance the continuation of the PA’s reform effort.”

To appeal for sufficient budget support from donors for the 2004-2005 period and avoid the suspension of social and administrative services to the Palestinian population, the PA adopted a Public Financial Management Reform Program which builds upon the improvements made to date in its public financial management system.

“The Trust Fund was established by the World Bank in recognition of the very positive developments in the Palestinian financial reform domain over the past two years,” says Nigel Roberts, World Bank Country Director for the West Bank & Gaza.

Recent progress in financial management as well as the newly-adopted Reform Program will promote budgetary and fiduciary standards that will support the PA in administering donor funds in a transparent and accountable manner.

In response to the outbreak of the intifada, the World Bank’s strategy for the West Bank and Gaza shifted to maintaining a balance between short-term emergency and medium-term development assistance. The Bank also significantly increased disbursement of aid - both to help the Palestinian Authority sustain service delivery, and to slow the decline in Palestinian economic and social indicators. Since September 2000, the Bank disbursed approximately $260 million to the Palestinian Authority, including over $100 million on behalf of other donors. It is currently the fifth largest donor in the West Bank and Gaza.

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