PMA Issues Public Finance and Public Debt Developments Report for Second Quarter of 2015

Ramallah, 22 September 2015

The PMA issued the Public Finance and Public Debt Developments Report for Q2 of 2015.The Report reviews the latest advances and developments in relation to the government finances and performance. It also features in-depth analysis of public debt developments (both domestic and external), including arrears, and their repercussions on the sustainability of public finance.

The Report points out that Q2 of 2015 witnessed a sizeable increase in public revenue and grants compared with the previous quarter, resulting from Israel releasing clearance revenues it withheld earlier. This contributed to the rise in the proceeds of local revenues (clearance and local revenue) to reach NIS 4 billion. Likewise, foreign grants and aid rose compared to the previous quarter to reach NIS 1 billion.

Similarly, the second quarter of 2015 witnessed a marked rise in public expenditure to reach about NIS 4 billion compared to about NIS 2.5 billion for the previous quarter. The rise came as the government paid off wage and salary arrears from the previous quarter following the release of the clearance revenues. Additionally, a rise in expenditure was seen for expenditures on social assistance benefits, assistance to vulnerable families and use of goods and services.

In summary, total deficit before grants and aid almost came to naught during this quarter (NIS 22 million), while total deficit after grants and aid recorded a surplus for the same period totaling about NIS 1 billion. This surplus contributed to the reduction of government public debt and government arrears for this quarter.

As for performance for the first half of 2015, fiscal developments still reflect the government’s difficult financial situation. Data revealed that, until mid-2015, proceeds from total local revenues including clearance revenues was 51 percent of targeted amount of the government budget. Conversely, real public spending for the same period remained well below half of the budgeted target (about 34 percent). Foreign grants and aid to budgeted target recorded disparate ratios according to aid type, reaching about 53.4 percent for grants extended to fund the budget and only 3.5 percent to fund development projects.

Financial surpluses realized during this quarter resulted in the reduction of government public debt by about 1.3 percent compared to the previous quarter to reach USD 2,344.8 million (the equivalent of NIS 8,858.7 million). It is worth mentioning that the larger part of this drop resulted from a decline in domestic government debt by about 2.9 percent compared to the previous quarter to reach USD 1,272.1 million (the equivalent of NIS 4,805.9 million) as opposed to a rise in external government debt by about 0.7 percent to reach about USD 1,072.7 million (the equivalent of NIS 4,052.7 million).

The ratio of government’s public debt to nominal GDP receded during Q2 of 2015 to reach 19.1 percent compared to about 20.2 percent for the previous quarter. However, this ratio swells to exceed the permissible ceiling under the Palestinian Public Debt Law with the addition of accrued arrears, as these are obligations payable. As such, the ratio of government public debt including accrued arrears to GDP reached 44.8 percent compared to 46.8 percent for the previous quarter and to about 35.0 percent for the corresponding quarter of 2014.