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A World Bank Study
■ The creation of the central treasury account has improved the control of cash bal-
ances by the PA—and after a period of fragmentation during the Hamas government—was quickly reestablished by the Caretaker Government in 2007. ■ The establishment of the Palestinian Investment Fund (PIF) has substantially improved the oversight of the state assets and successfully reduced the potential for abuse. The PIF is considered to be a transparent and well run organization, and the legislative arrangements for the Fund should ensure it is enduring. ■ The introduction of monthly reporting on budget execution has improved fiscal transparency. The system stopped operating during the Hamas government but was quickly reintroduced by the Caretaker Government. ■ The quick implementation of a new accounting system in 2007 and early 2008 was particularly impressive. Because of the crisis faced by the PA, the process followed in developing the system was not ideal. But the fact that it was able to process payments within four months of the concept being discussed was exceptional. The system has required further development since that time, and the ongoing costs of managing a bespoke system may be problematic. In contrast, a major failure was an IT project that the EU carried out for revenue administration. The project was abandoned by the PA after €5 million was spent.
Implementation Strategies for Reform There has been no grand strategy to guide the PFM reform process, although a number of recent donor reports have strongly advised that a reform action plan be developed. In the initial 2002–05 period, Minister of Finance Salam Fayyad deliberately took an “opportunistic” approach to pushing reform priorities guided by a few basic principles. The approach, which has continued since mid-2007, was outlined as follows in a recent study of the PFM reforms in the West Bank and Gaza.4 Focusing on the Structural. Minister Fayyad wanted to tackle the structural aspects of the PFM system instead of focusing on corruption directly. He explains, “When you get into a situation like this, people are usually looking at the ‘sexier’ aspects of managing the public finance question, corruption, who took what, when and how—but not this structural aspect. I was really preoccupied with that. It’s not that there is no corruption or anything like that—but I felt it necessary, and we took the approach that was based on, ‘Let’s stop the leakage. Let’s stop the leak and make sure the system functions well here on out.’ Then we go back to the extent that there were infractions and all that—we can deal with that—but to look back doesn’t have much effect.”5 Knowing the Priorities. Fayyad began by focusing on the major structural problems related to revenue and expenditure management and the budget. He observes, “There are elements without which you cannot have a well functioning public finance system. Conceptually, unless you have central treasury operation, unless you have consolidation of your revenues, and unless you are executing expenditures within a budgetary framework, you do not have much of a public finance system to speak of. You can be talking about catching somebody stealing some money here and there, but that doesn’t do it. Whatever it is you do, that has to be the key objective of policy early on.” Being Opportunistic. At the same time, Minister Fayyad adopted a flexible view, recognizing that he could not determine a priori the sequencing of reforms or expect to