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Government bracing for a long battle over clearance money

Thursday 07/March/2019 - 09:40 AM
Jafar Sadaqa
Jafar Sadaqa
WAFA - By Jafar Sadaqa

Until this moment، there is no specific date for the disbursement of salaries، and it is not clear what the Ministry of Finance will do in terms of how much to disperse. Things are moving in the direction of applying the 2014 plan، plus or minus. It seems that the leadership and the government، including the Ministry of Finance، deal with the crisis as an opportunity to modify the imbalance in the relationship that gives Israel the ability to completely control every aspect of the clearance proceeds.

In order to affirm the stance towards the allocations for prisoners and those killed by Israel، the first step of the government and under instructions from President Mahmoud Abbas was to disperse the families' allowances in full as a way of defying the Israeli decision.

According to sources in the Ministry of Finance، Minister Shukri Bishara sent three days ago an official letter to his Israeli counterpart، Moshe Kahlon، saying the Israeli control of the clearance revenues will no longer be tolerated، not only cutting the allocations of families of martyrs، prisoners and wounded، but also the general deductions to pay for electricity، which is unilaterally decided on its value، and the 3% commission Israel collects from the revenues، which amounts to about 20 million Israeli shekels ($5.5 million) a month.

In short، “we want all the clearance revenues، without any deductions and after that any money owed to Israeli providers of services will be calculated and agreed on between the two sides،” said the sources. The minister gave Israel seven days to transfer the full amount without any deductions.

But it seems that Israel is going to defer dealing with this matter until after the general elections scheduled for April 9، which means that the crisis may go on for months as the various Israeli parties are competing over who is going to be more extreme in dealing with the Palestinians.

Nasr Abdul Karim، professor of economics at the Arab American University in Jenin، said he expects this crisis to continue until after the Israeli elections. "It seems that Israeli Prime Minister Benjamin Netanyahu، for purely electoral purposes، will not go back on his decision to deduct the allocation from the clearance revenues،" he said.

"We have one month for the Israeli elections، and then a period of 70 days of consultations on forming a new government. I do not expect a solution before that، and the crisis may continue even beyond that. It also depends on the election results."

Abdul Karim considered the Israeli decision an opportunity to rearrange the economic and financial relationship with Israel by saying: “Maybe what is bad is going to turn out good after all."

"The Israeli decision puts us on a path that will be hard to go back on،” he said. “There is the 3% commission، which amounts to 20 million shekels a month Israel takes for collecting the taxes paid by the Palestinian people. This is money we must get back. We have other demands to reform the relationship with the Israelis. There is procrastination and no progress. It is time to change this situation by all means."

Meanwhile، the Palestinian government is facing a dilemma. On one hand meets its obligations toward its citizens، including paying salaries of its employees، and on the other، take advantage of the reasons for the escalation with Israel to change the reality of the relationship with it once and for all. This requires patience and resilience. On the way there، the government wants to have some sort of safety net to meet the minimum of its obligations. This is being done in two directions:

The first is led by President Mahmoud Abbas himself by mobilizing more international support to compensate for what can be compensated for from the total cessation of US aid on the one hand، and refusal to receive the proceeds of the clearance money on the other، including activating the Arab safety net.

In this context، Foreign Minister Riyad Malki revealed diplomatic and legal efforts to pressure Israel in international forums to stop manipulating Palestinian revenues، including deciding on the relevant international tribunals in order to file lawsuits against Israel to force it to comply with international law and bilateral agreements.

The second is financial led by the Finance Minister and it ranges from rationalizing spending and rearranging priorities during this period، and increasing domestic revenues by expanding taxpayers' base، without raising taxes، and raising borrowing ceiling from banks.

With regard to the borrowing ceiling، Bishara began a visit to the Jordanian capital Amman where he will meet with the governor of the Central Bank of Jordan، who oversees half of the Palestinian banking system (seven are Jordanian banks)، in the presence of the Governor of the Palestinian Monetary Authority (PMA) Azzam al-Shawwa، in addition to meeting with leading Palestinian and Jordanian bankers who are currently in Jordan to participate in a conference called for by the PMA and held on the Jordanian side of the Dead Sea with wide Arab participation.

By the end of 2018، the total loans and credit facilities of the Palestinian government amounted to about $1.3 billion، constituting 10% of the total deposits in the banks، and about 15% of the total credit facilities، “which is a small percentage and it means that we have room for more borrowing، said Bishara.

"We will resort to borrowing، but wisely. We will not borrow one penny without being able to repay it،” he said.

According to Abdul Karim، bank borrowing is one of four options for the government to temporarily make up for the clearance proceeds until the crisis is resolved and the money is transferred to the Palestinian treasury.

"There is confusion between the budget deficit، which is shortage in revenues to cover expenses، and the liquidity deficit، which we are currently experiencing and could end with the transfer of the clearance money at any moment،" he said، adding، “The clearance will be transferred sooner or later، and it will end the liquidity crisis. But until this is done، the government has a range of options that must be resorted to individually or collectively to be able to manage the crisis."

The first of these options and the least costly economically and socially، according to Abdul Karim، is the success of Palestinian diplomacy in the mobilization of more Arab and international support

The second: is austerity measures and re-prioritization of spending. This requires cancellation of some expenses، postponing what can be postponed as some operating expenses، reduction of net lending and more rationalization in medical transfers.

The third option، said Abdul Karim، is to expand the tax base، raise the efficiency of collection and reduce tax evasion.

"The savings from these steps are not expected to make up for the clearance proceeds and solve the liquidity crisis that the government is facing. Therefore، the fourth option is to borrow from banks،" he said.

But what about the private sector، other than the banks?

Until the end of 2018، the accumulated arrears on the government for suppliers of goods and services from the private sector was about 2.6 billion shekels ($0.72 billion)، which is the most serious of the government debts as it directly affects the economic cycle.

The head of the Ramallah and Al-Bireh Chamber of Commerce، Abdul Ghani al-Atari، said "the private sector has always stood by the government، and will also stand by it in this crisis if it decides to confront Israel until it gets back all its clearance money."

"We have only one option: more patience regarding the government’s arrears. We waited for months and we will not demand payment in this crisis،" he said. "The private sector will continue to supply the government with the goods and services it needs. We will not stop that."

In addition، the PMA، the Ministry of Finance and the banks have procedures for dealing with loans of government employees in case salaries are not paid in full.

The PMA Governor Shawwa said that a joint committee of the three parties is in the process of implementing a plan to deal with the crisis of the clearing funds، including that the proportion of the deduction of loan installments be in parallel with the salary paid and to stop the classification of employees on the system of returned checks.

Shawwa said that the committee studied all aspects and prospects and put the keys to a solution to the crisis، which may worsen with the continued seizure of Palestinian funds.

Edited by Rabea Yehia

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