AHLC Meeting in New York


Excellencies,

Ladies and gentlemen,

It is a pleasure to welcome you to this AHLC meeting in New York, which has become a tradition in the lead-up to the UN General Assembly session. I would like to extend my thanks to Under-Secretary-General Jeffrey Feltman, Minister of Finance Nabil Kassis, Deputy Foreign Minister Daniel Ayalon, EU High Representative Catherine Ashton and Quartet Representative Tony Blair.

This meeting is convened against a backdrop of political upheaval in North Africa and the Middle East – as well as great frustration regarding the lack of progress in the efforts to resolve the Israeli–Palestinian conflict.

We have said that it is in our strategic interest to resolve this conflict. Yet it remains deadlocked, with no clear horizon as to its resolution.

Our goal as donors remains the same: the establishment of an independent, democratic and viable Palestinian state that will live side by side with Israel, within mutually recognised borders in peace and security, and in a way that enables both Palestinians and Israelis to realise their national aspirations.

Our contribution to this goal is to help develop a Palestinian institutional structure upon which an independent Palestinian state can be built.

 

Ladies and gentlemen,

This aim has been achieved.

The World Bank, the IMF and the UN concluded more than a year ago that the Palestinian Authority is ready for statehood, and that the Palestinian institutions compare favourably with those of several established states, in the region and elsewhere.

This assessment still stands.

Our task will not be completed, however, before the Palestinian economy can prosper and ensure fiscal independence. The Palestinian Authority should not be allowed to become a perennial client of the international donor community.

 

Ladies and gentlemen,

The Chair said a year ago that the main obstacle to the realisation of Palestinian statehood is the occupation. The occupation has created structures on the ground that are severely hampering the Palestinian economy. As the World Bank states in its report to this meeting, and I quote: “… sustainable Palestinian economic growth will be challenging absent fundamental and significant changes that remove the impediments caused by the dissection of the Palestinian territories – impediments which constrain investments, raise costs and hinder economic cohesion.” End of quote.

The strong growth achieved in 2009 and 2010 has slowed down. The reports to this meeting show that the economic benefits from reforms alone have reached their potential. However, there has been no substantial easing of restrictions since 2010. Donor contributions have also been reduced.

According to IMF estimates, the Palestinian budget deficit this year may grow from USD 953 million to USD 1 295 billion – close to the result of 2011 – due to shortfalls in domestic revenues, tax income, and donor contributions.

In sum, like last year, the Palestinian Authority may face a financing gap of at least USD 400 million at the end of the year. Domestic debt and arrears have already reached a critical point. This is alarming.

 

Ladies and gentlemen,

Since the Paris donor conference in 2007, donors have provided direct budget support totalling USD 5.7 billion.

In addition, substantial funding has been provided to UNRWA, and to a variety of development projects and humanitarian relief efforts.

Clearly, the high levels of external budget support are not sustainable. From USD 1.8 billion in 2008, and around 1.3 billion in both 2009 and 2010, the contributions fell to USD 760 million last year. Pledges amount to USD 926 million for 2012. So far this year only 620 million has been disbursed.

It is clear that even more donor support than has been pledged so far is needed to stabilise the fiscal situation for the PA. If we fail to solve this short-term fiscal crisis, the economy is destined to deteriorate and undermine the overall goal of a peaceful end to the conflict.

***

We welcome the Palestinian Authority’s effort to strengthen its fiscal position, including the steps taken to raise domestic revenues and control expenditure.

We also acknowledge Israeli efforts since our last meeting to improve the situation, as outlined in their report, such as helping alleviate the acute shortage of cash by advancing transfers of clearance revenues. We have publicly welcomed the understanding reached between Israel and the Palestinian Authority on clearance and revenue collection.

For these efforts to be successful, however, they need to be sustained by much bolder steps to support private sector development. We must encourage further entrepreneurship and job creation, in particular among women.

***

The reports to this meeting provide a clear warning signal, but also demonstrate encouraging potential if the impediments of occupation are reduced significantly.

In this context I would like to point to the information in the World Bank report on the substantial export value of goods that were partially or fully produced in settlements in Area C of the West Bank.

This shows the potential of Area C for the Palestinian economy. According to the Oslo Accords, Israel would maintain full responsibility for administration of Area C during the interim period, until the area was gradually handed over to be administered by the PA.

However, responsibility for administration was not meant to give Israel an opportunity to expand Israeli settlements and value creation to cover 60 % of the West Bank at the expense of Palestinians.

I am aware of the argument that these are disputed territories, but our position is that according to international law they are occupied. Therefore, the Palestinians should be given their rightful access to the land, resources and development opportunities in this area.

The current crisis tells us that progress in strengthening the Palestinian economy depends on further removal of obstacles to trade and market access. This relates both to Palestinian products and to Palestinian business people.

In accordance with the Paris Protocol the removal of such obstacles will help to foster a more thriving private sector in the Palestinian Territory.

In addition, it is important that all available Palestinian resources are further mobilised in a transparent, accountable and responsible way in order to overcome the crisis – and not the least to encourage additional efforts by donors.

We should also remind ourselves of the economic importance of Gaza for the Palestinian economy.

Economic growth in Gaza is higher than in the West Bank, estimated at around 9 % for 2012 thanks to the building boom in the private sector. However, this is coming to an end.

The border regime with Gaza needs to be normalised, and trade between the West Bank and Gaza needs to be stimulated. While remaining aware of Israeli security concerns, donors no longer understand the logic of the remaining parts of the blockade.

The Gaza Marine gas resources represent a potentially huge income generator, but political obstacles must first be overcome.

***

Ladies and gentlemen,

The Palestinian institutions are up and running. Over the last few years the Palestinian Authority has taken great strides towards bringing expenditure levels closer to domestic income levels. Today, two-thirds of the Palestinian budget comes from domestic income and tax revenues, and the dependency on foreign support has been reduced to around 12 % of GDP.

We remain convinced that the Palestinian economy should and could provide a sustainable basis for its institutions without external assistance, if it was allowed to grow to its potential.

In many ways we are now at a make-or-break point.

Just continuing with business as usual is not an option. Social unrest is spreading on the West Bank due to reduced public spending. This is threatening political stability.

In my view, we need to take several steps to address the Palestinian Authority’s current financial crisis:

  • The short-term liquidity crisis must be dealt with, and I urge all donors to disburse outstanding commitments.
  • In addition, some kind of extraordinary stabilisation measure will be necessary to address the short-term problem. The best option is that donors increase their contributions to match the need.
  • I call on the Palestinian Authority to continue to reform and improve its institutions, so as to align revenues and disbursements and further enhance the business environment.
  • I call on Israel to take bolder steps to relax the current restraining structures, including access to land and resources in Area C.
  • I am looking forward to the implementation of the understanding on enhancing trade tax collection.
  • As donors we must remain committed to our vision of a future two-state solution, and maintain our levels of contributions to help to make the transition towards economic independence for a Palestinian state.

Thank you for your attention. The floor is now open for comments.

 

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