Public Debt and Arrears in Palestine for 2020

·       (public debt) in Palestine -2020

-        The total public debt for 2020 amounted to 11,730 million shekel (ILS), equivalent to 3,649 million dollars (exchange rate on 31-12-2020 / 3.2159 shekel (ILS) per dollar). The total public debt — according to the tables and statistics of the Ministry of Finance and Planning — consists of domestic debt and external debt.

·       (domestic debt)

-        The total value of domestic debt amounted to 7,476 million shekel (ILS), equivalent to 2,325 million dollars (exchange rate on 31-12-2020 / 3.2159 shekel (ILS) per dollar). The domestic debt consists mainly of the following items:

1-    Loans and bank facilities in the amount of 6,228 million shekel (ILS).

2-    Loans to the Petroleum Authority in the amount of 1,046 million shekel (ILS).

3-    Loans to public institutions in the amount of 200 million shekel (ILS), which consist of loans to the Public Petroleum Authority from the following funds and institutions:

4-    A loan from the Dar Al-Aytam Institution, and a loan from the Palestinian Alimony Fund to the Petroleum Authority, amounting to approximately 48 million shekel (ILS) approximately.

5-    A loan from the Road Traffic Victims Alimony Fund in the amount of approximately 143 million shekel (ILS).

·       (external debt): The total value of external debt amounted to 4,260 million shekel (ILS), equivalent to 1,324 million dollars (exchange rate on 31-12-2020 / 3.2159 shekel (ILS) per dollar)... The external debt is composed of the following institutional debts:

1-    Debt of Arab institutions): It amounts to 2,624 million shekel (ILS), and consists of the following Arab institutions:

2-    Al-Aqsa Fund : in the amount of 1,650 million shekel (ILS).

3-    Arab Fund for Economic and Social Development: in the amount of 45 million shekel (ILS).

4-    Islamic Development Bank : in the amount of 123 million shekel (ILS).

5-    Qatar National Bank : in the amount of 803 million shekel (ILS).

-        (Debt of international and regional institutions): It amounts to 1,084 million shekel (ILS), and consists of:

1-    The World Bank in the amount of 882 million shekel (ILS).

2-    International Investment Bank in the amount of 122 million shekel (ILS).

3-    International Fund for Agricultural Development in the amount of 6 million shekel (ILS).

4-    OPEC : in the amount of 72 million shekel (ILS).

5-    (bilateral loan debt): Its value amounts to 551 million shekel (ILS), and it consists of the following countries:

-        Spain : in the amount of 275 million shekel (ILS).

-        Italy: in the amount of 275 million shekel (ILS).

-        It is noteworthy that the public debt figures have been continuously rising in both domestic and external components; the increase in public debt in 2019 over 2018 was 8%, while the increase in public debt amounts in 2020 over 2019 rose by approximately 22%. Domestic debt in 2020 increased over 2019 by 37%. It is worth noting that 2020 was the year of the outbreak of the Corona pandemic, which required increased health expenditures and coverage of related costs and expenses...

·       Arrears

-        As for (the arrears), which constitute a debt separate from public debt, the total cumulative value of arrears amounted to 6,613 million shekel (ILS) (six billion six hundred thirteen million shekel (ILS)) – Table No. 3 from the statistics of the Ministry of Finance and Planning –

-        The value of arrears consists of the following items:

1-    The total balance of arrears from previous years, as of December 2020, amounted to 2,954 million shekel (ILS), noting that its value at the end of 2019 was 4,516 million shekel (ILS), of which arrears to the private sector amounted to 2,106 million shekel (ILS). The government paid 1,562 million shekel (ILS) of arrears from previous years in 2020 (of which to the private sector 1,072 million shekel (ILS), and government payment orders 414 million shekel (ILS)).

2-    The total arrears for the year 2020 (current year) amounted to 3,658 million shekel (ILS), of which arrears to the private sector amounted to 1,820 million shekel (ILS).

-        In light of the above, the total cumulative arrears (for the private sector) up to the end of 2020 amounted to 2,854 million shekel (ILS), consisting of arrears from previous years in the amount of 1,034 million shekel (ILS), and current year arrears – year 2020 – in the amount of 1,820 million shekel (ILS).

-        In comparison with the net cumulative arrears for 2019, which amounted to 4,516 million shekel (ILS), of which arrears from previous years amounted to 1,298 million shekel (ILS), and current arrears – year 2019 – amounted to 3,217 million shekel (ILS).

-        Compared with the net cumulative arrears for 2018, they amounted to 2,836 million shekel (ILS), of which arrears from previous years amounted to 733 million shekel (ILS), while current arrears — i.e., year 2018 — amounted to 2,103 million shekel (ILS)...

-        On the subject of arrears, we note that the net cumulative arrears figures for the three years 2020, 2019, 2018 have risen significantly, as arrears in 2019 increased compared to 2018 by approximately 59%, while in 2020 the net cumulative arrears increased compared to 2019 by approximately 46%.

-        The private sector is one of the primary victims of the rising accumulation of arrears owed by the government in payment for goods and services sold to the government, as indicated by the statistics of the Ministry of Finance and Planning, as noted above... This affects national economic development and investments, and represents an increasing financial burden on the government, alongside the rising public debt figures whether domestic or external debt...

·       Cumulative arrears owed to the Palestinian government

·       Off-book item: It amounted to 16.6 billion shekel (ILS) up to 2020, which raises the actual public debt for 2020 to more than 28 billion shekel (ILS), and to 52% of GDP.

-        Note: the exchange rate of the shekel (ILS) against the dollar on 31/12/2020 is 3.2159 shekel (ILS) per dollar..!

-        I recorded the value of the net accumulated arrears up to the end of 2020 in my post (Part Five) dated 2-4-2021, at 6,613 million shekel (ILS) (six billion six hundred thirteen million shekel (ILS))... according to Table No. 3 of the Ministry of Finance and Planning statistics for 2020."

-        A friend who follows my Facebook page regarding budgets and statistics kindly made a remark regarding the value of the arrears, as he believes that the amount of cumulative arrears outstanding against the government in 2020 is much larger than the amount stated in my post dated 2-4-2021, amounting according to his information to about 16.6 billion shekel (ILS), based on a report from the Palestine Monetary Authority. After I reviewed that report, it is a report from the Research and Monetary Policy Department dated March 2021. It appears that the value of accumulated arrears reached (16.6 billion shekel (ILS)), according to the Palestine Monetary Authority (PMA) statistics, whereas the financial data on the Ministry of Finance and Planning website in Ramallah (which is the main source for public finance data — the Treasury General) showed the cumulative arrears up to the end of 2020 at only 6,613 million shekel (ILS).

-        The actual accumulated arrears up to the end of 2020 amounted to 16.6 billion shekel (ILS), and not as shown in the Ministry of Finance statistics at 6.613 billion shekel (ILS)..!

-        In this regard, the reasons for the Ministry of Finance and Planning not clearly disclosing in its monthly statistics, over many previous years, the value of the arrears debt of the Public Pension Authority were not disclosed clearly; in my assessment this may be due to some of the following reasons:

·       First reason: The government does not consider the arrears to the Public Pension Authority primarily as domestic debt, since they are arrears owed to a public government authority, and therefore their value did not appear in the Ministry of Finance statistics in 2020 or previous years, which confirms that the arrears debt of the Pension and Pensions Fund is excluded from the Ministry of Finance statistics, despite the fact that the amount of arrears owed to the Public Pension Authority is a debt and an obligation due by the government, as it is in essence savings for government employees mainly. These are amounts deducted from the salaries of government employees as monthly contributions for pension purposes, which must be transferred monthly by the Ministry of Finance under the law of the Public Pension Authority, noting that these deductions represent the employees’ share combined with the government’s share monthly, and they are transferred to the Pension and Pensions Fund...

· The second reason (in my estimation), may be due to the problem of the arrears debt to the Pension Fund, which amounted at the end of 2020 to 16.6 billion, and if added to the amount of public debt (domestic and external) as shown in the Ministry of Finance statistics at the end of 2020, amounting to 11.730 billion shekels, the total actual public debt of the government becomes 28.33 billion shekels (including all arrears), and this amount constitutes about 52% of GDP for 2020, and this ratio exceeds the limit allowed in the Palestinian Public Debt Law of 2005 Article No. 30, which states that the balance of existing public debt shall not exceed 40% of GDP... However, if all arrears debt is not included in the public debt data in the Ministry of Finance statements, the total public debt becomes about 11.730 billion shekels (external debt and domestic debt according to Ministry of Finance statistics 2020), and this constitutes about 23% of GDP for 2020, which is below the 40% ceiling that must not be exceeded, and consequently, the government avoids appearing to be in violation of the aforementioned Public Debt Law..!

- It is worth noting that the problem of accumulated arrears owed by the government to the Pension and Provident Fund originally resulted from the failure to transfer the contributors’ contributions - the contributions - of all civilian and military employees, as well as the government’s contributions in full, to the accounts designated for this purpose for the General Pension Authority, noting that such accumulated arrears began essentially in 1999, when they amounted then to only 14 million shekels, and their amounts accumulated annually. For example, the arrears accumulated over successive years; in 2000 the value of contributors’ contributions and government contributions not transferred to the General Pension Authority’s accounts amounted to 75 million shekels, and in subsequent years on succession they reached about 10 billion shekels in 2020.!

- In this context, the arrears amounts — the debts due to the Treasury of the Pension and Provident Authority in 2016, for example, constituted most of the Pension Fund’s cash and assets at about 88%!.

- The problem of accumulated arrears of the General Pension Authority constitutes a negative indicator for the public regarding any potential government initiative, such as a social security program, since as long as the government does not commit to transferring contributors’ contributions and its contributions on a monthly and periodic basis as required by the Pension Law, and distrust in the government’s performance and management of public money accumulates... Especially since there are public funds established for social, professional and economic purposes under the law, sometimes referred to as public institutions, whose treasuries have become almost empty, such as the Dar al-Ayam Institution Fund, the Al-Naqba Fund, the Road Accidents Compensation Fund, etc., where most of their savings and allocations were lent to public authorities suffering financial distress such as the Public Petroleum Authority, which is supposed to be income-generating rather than perpetually borrowing or indebted (according to Ministry of Finance and Planning statistics)..!

- In this regard, the government tried to find a settlement or solution to gradually repay the Pension Fund’s arrears, as it agreed in 2015 with the General Pension Authority to pay a monthly amount of 20 million shekels, where the government began paying gradually an amount of 20 million shekels monthly, but without signing an agreement between the two parties, as reports indicate - !

- I clarify here that the donor countries, through the "Palestinian-European Mechanism to Support and Manage Social and Economic Assistance," granted civil service employees and retirees (including the Civil Police and Civil Defense) in 2020 an amount of about 442 million shekels (Table No. 6 - External Support - from Ministry of Finance and Planning statistics for 2020), and this European mechanism usually provides annual support regularly and over many previous years to civilian employees, retirees, the Civil Police and Civil Defense; this support amounted in 2019 to 410 million shekels, in 2018 to 368 million shekels, in 2017 to 560 million shekels, and in 2016 to 530 million shekels, while in 2015 it amounted to 525 million shekels, etc., by way of example..... It is clear that this support appears under the external support item of the government’s annual budget to cover the annual and periodic financing gaps or deficits that occur in the government’s annual public budgets.!

- These debts — the arrears — are considered zero-interest debts, although the General Pension Authority Law stipulates charging late payment interest of 1%, and if the delay in payment or transfer exceeds one month, late payment interest is calculated at - LIBOR interest + 1.5% as a margin.!

· The accumulation of arrears for the General Pension Authority deprives that authority of investing its funds and creating income sources beyond contributors’ and government contributions... by deploying the Authority’s funds in safe financial investment ventures with returns, in order to cover pension payments for potential retirees in subsequent generations..! At the same time, the accumulation of arrears for the private sector and other items due to the government also hinders private sector investment growth and curbs its ambition to invest, and the private sector will find itself unwilling to develop the economy and establish economic projects, given that its arrears debt amounts are large, representing the prices of goods and services sold to the government—especially for the Ministries of Education and Health, for example: the private and non-profit hospitals’ debts to the Ministry of Health were $150 million until the end of 2016, and reached 1 billion shekels in 2018). Meanwhile, the private sector is under pressure from its suppliers of these goods and services, which were sold to the government and whose payments were not settled, and therefore suppliers will stop supplying any goods or services to the private sector, and then the private sector will stop continuing its operations properly... which leads to a slowdown in the national economy’s momentum... and thus, economic growth in the country declines to discouraging levels for continued private sector investment...!

· Opinion:

- I clarify here that it is not surprising for governments to borrow from public funds such as the Social Security Fund, as happened in many countries, like Jordan, or even in the United States of America; what governments are blamed for, however, is not repaying such loans gradually, or for such governments failing to transfer employees’ contribution shares (deductions from employees’ salaries) and the government’s monthly contributions, allowing them to accumulate annually to a large extent, which will lead to the bankruptcy of such public funds and the inability to pay retirement entitlements to contributors in the future..!

- We hope that a schedule of net balances of such dues will be agreed upon between the government and the Pension and Provident Authority and that the government will continue payment or transfer. At the same time, the officials of the General Pension Authority should publish the Authority’s annual and quarterly reports and any related reports affecting contributors’ interests, transparently, on the Authority’s website, so that the Authority’s financial operations and data can be reviewed... We also hope that no financial information or data of the Treasury, Ministry of Finance and Planning, as well as related statistics required to be published by the governing law, will be withheld, and that this will be done transparently.

- We are not here advocates for stirring up and focusing on negatives; rather we are advocates for arousing determination and positive motivation in the management of public money, since we believe that of the glass that is half empty, the other half is full, and certainly it was filled by the government and the stewards of public funds; we are all in the same boat.!

· Sources of the publication:

- Report of the Coalition for Integrity and Accountability (AMAN).. and the report on "The Government’s Policy in Repaying the Pension Fund’s Debts and Addressing the Authority’s Sustainability Challenges."

- Report of the Coalition for Integrity and Accountability (AMAN) .."The Reality of Public Debt and Private Sector Arrears in Palestine" 2019..

- Report of the Palestine Monetary Authority March 2021, "Developments in Public Finance and Government Debt Q4 2020"

- Reports and statistics of the Ministry of Finance and Planning for 2020.

- Date: 2/4/2021