Asharq Al-Awsat-The second term at the Islamic University in Gaza City has begun but Mohammed, aged 19, will not be attending classes. He could not afford to pay the fee of $350 US because his father, a teacher at a government school in Gaza City, has not been paid since January, just like 115 thousand employees in the Palestinian Authority and policemen. This is because Israel has refused to hand over $45 million in monthly tax revenues because of the Hamas victory but also because foreign donors are withholding some aid.
Following the Islamic movement’s sweeping victory in the Palestinian
legislative elections, donor countries threatened to cut off aid permanently if Hamas formed a government without recognizing the state of Israel and ending military operations.
Thousands of PA employees and their families were left facing an uncertain future.
These threats also posed several questions about the role international and Arab aid plays in supporting the ailing Palestinian economy and whether the Palestinians can dispense with this financial assistance, as Hamas claims.
Mazen Sankart, the Palestinian Minister of Economy told Asharq al Awsat that the PA’s annual revenues total $1600 million US, of which half is donated by European countries, Japan, Arab countries and the USA. With the exception of Saudi Arabia and, to a lesser degree Qatar, Arab countries usually do not usually give all the aid promised in several Arab summits, the minister said.
Customs revenues account for the remaining $800 million US, which Israel hands over to the Palestinian Authority, according to the 1993 Oslo Accords.
Under the customs union, it was agreed that Israel would collect customs revenues on all imported goods and hand them over to the PA.
According to official statistics, the Palestinian Gross Domestic Product (GDP) does not exceed 35 to 40% which means that more than 60% of the national GDP depends on foreign economic aid. The United States tops the list of donor countries and gives the Palestinians more than $75 million dollars in financial aid annually, that is 15% of the total aid.
The US International Agency for Development (USAID), in coordination with the Palestinian Ministry of Planning and International Cooperation invest the funds in different sectors including the economy, supporting the private sector, developing irrigation/water supplies, in addition to the development of PA institutions and civil society and improving the judiciary.
In the health sector, Washington D.C had given $34.7 million US in three years, from 2001-2003, in primary healthcare. US aid also includes higher education and training as well as social services to assist poor families in the West Bank and the Gaza Strip. The US has also donated more than $23 million dollars to the United Nations Refugee and Work Agency (UNRWA) since 2000, which Condoleezza Rice, US Secretary of State has indicated will remain separate from other aid to the PA.
On the other hand, the European Union is also one of the main financial backers of the PA, with whom it is linked by a Euro-Med association agreement since 1996. Most of the estimated 500million Euros donated every year does not go directly to the PA but funds Palestinian non-governmental organizations and reform programs.
A significant number of independent Palestinian experts and politicians doubt whether withdrawing aid or decreasing foreign assistance will result in the collapse of PA. Anne Henriksen, Communications Director of the EU Higher Commission offices in Jerusalem revealed that the EU has given variable amounts of aid in the last few years, ranging form 225.86 million Euros in 2000 to 326.66 million in 2003 and only 281 million in 205.
According to Mahmoud al Zahar, a senior Hamas official and elected member of the legislative council, these numbers are symptomatic of a wider problem with foreign aid. A significant portion of the funds are tied to specific projects and European and US donors often insist on spending them in ways they see fit, without taking into consideration the needs of Palestinian society, such as the focus on a program to empower women and democracy.
Al Zahar blames financial mismanagement and widespread corruption in the organs of the PA for the link between foreign aid and Palestinian society.
“What is the use of European aid if a large portion of it covers
Others also doubt whether the expected suspension of US economic aid would affect the Palestinian economy as has been suggested in the media. Rami Abdo, a former economic expert with the World Bank, said US aid totals 10% of the foreign aid received by the PA, adding that, with the exception of 2005, Washington insisted on giving the funds to social organization in the Palestinian territories that specialize in non-development programs, such as human rights and the empowerment of women, and not to the PA coffers.
As for aid from the EU, Abdo said that a large percentage of funds go to pay for the salaries of EU nationals and consultants working throughout the Palestinian territories.
Abdo established a connection between corruption and the largely ineffective foreign aid. For example, every Palestinian receives on average $350 US in aid annually – with every family typically receiving $3000 US per year- but most Palestinian citizens do not benefit from this aid because of the PA’s
mismanagement and the refusal of many donor countries to fund development programs.
Ahmad al Mughni, a Palestinian legislator added weight to this viewpoint during a press conference last Sunday in Gaza City , where he revealed that EU aid was allocated to imaginary posts and projects that never existed, such as the Middle East pipeline projected, funded by Italy . It was later revealed that the factory meant to produce these pipelines had never existed. In total, corruption cost the PA an estimated $700 million US, he said.
Abdo added that, in practice, EU aid stopped in September 2005, after the PA implemented the Civil Service law and increased the salaries of the security services employees, which led to the resignation of then Finance Minister, Salam Fayyad.
What alternatives to foreign aid will a future Hamas government have?
Sankart refused to enter into a discussion of alternative methods of funding and condemned the attempts by Israel, the US and the EU to punish the Palestinian people for having their say in a democratic election. For his part, al Zahar pointed out that a number of Arab sides are ready to cover the PA’s ballooning budget deficit.
Sheikh Ahmad Abu Tayr, the Hamas candidate who obtained the second biggest number of votes in the last legislative elections, was even more clear when he said that an Arab group told the Islamic movement’s senior officials it was ready to pay $100 million US as first payment to the PA, after a Hamas government is formed. In the opinion of Abdul Jaber Faqha, a Hamas member of the legislative council, the international community fears that Iran will fill in the gap in the PA’s finances and as such will have to think twice before it cuts off aid to the Palestinians.
Economic relations between the PA and Israel are bound by the Paris
agreement signed by both sides in 1994, following the Oslo Accords, which established a customs union between the two sides and stipulated that Israel collect taxes on behalf of the PA. The absence of these revenues, totaling 37% of the PA budget, would significantly increase the budget deficiency. If Israel continues to withhold these sums, it will not only mean PA employees do not receive their salaries but the total collapse of the Authority.
These payments are not the sole outstanding issue in the economic relations between the Israeli and Palestinian sides. Shalom Harari, a senior consultant for Palestinian affairs at the Israel Defense Ministry and an analyst at the Herzalia Inter-Disciplinary Center, said his country provided the Palestinian territories “with water and electricity. It also allows Palestinians to export their produce and import manufactured goods through its ports and land crossings. Israel imports many Palestinian products and exports many Israeli merchandise. It also absorbs thousands of Palestinian workers in its factories and building sites (70 thousand in total, of which 35 thousand come the Gaza Strip and the rest form the West Bank , most
without the appropriate permit).”
” Israel interests dictate that no economic crisis should befall the
Palestinians because this will explode in our face,” he added.
With Hamas’ victory in the elections, it is likely that Israel will punish the Palestinians, especially if the Islamic movement where to attack Israeli targets. Parties in the conflict, as well as the EU and the USA, must examine where economic pressure on the Palestinians.