The Palestinian Economy. Theoretical and Practical Challenges

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Proceedings “The Palestinian Economy: Theoretical and Practical Challenges” 287 5.3. Assessment of the Relative Importance of the PNGOs To assess the economic value added of the NGOs sector in the Palestinian Territory, I referred to the PCBS data. The data reveal that the value added by the social and community activities including those of the NGOs increases steadily from $20.4 million in 1994 to $69.9 million in 2007, i.e. an annual growth of 9.7% and raising their share in the GDP from 0.68% to 1.54% in the remaining West Bank and Gaza Strip (i.e. excluding East Jerusalem for the data stagnated and not collected after 2000). The growth of these activities was more pronounced in the Gaza Strip (18.4%) as compared with the remaining West Bank (6.9%). These are conservative estimates as the average of annual salary at these NGOs is about $6000. Taking the lower estimate of employed persons at these NGOs, which is 20,000 persons, the value added by them can be put at $120 million, i.e. their share in the GDP could rise to about 3%. These calculations indicate that the FDI might increase by 3.4 percentage points in 1994 and 6.2 percentage points in 2007 if the NGOs expenditures were added to the expenditures by the local governments. 6. Conclusions and Policy Implications Based on the Palestinian experience in fiscal decentralisation the following conclusions are in order: • The traditional theory of fiscal decentralisation has to be adapted to the conditions of the developing countries as many assumptions of the theory do not hold in their conditions. • The question is whether fiscal decentralisation is “coming together” or “holding together”. These two directions are in conflict as the poor and minorities look for the central government as the protector. Therefore, economic considerations of efficiency are overruled by consideration of political economy. • Moreover, fiscal decentralisation has to include the NGO sector which will have implications for the measurement of fiscal decentralisation but above all will require a new approach to their inclusion in the public financing schemes and division of expenditure among them and the LGUs. • The best division of these expenditures is to leave infrastructure projects to the LGUs while leave the delivery of other “soft public services” to the NGOs.
288 Zagha Fiscal decentralisation in the Palestinian context is far behind the administrative decentralisation that had taken place after the creation of the PA. This means that the PA should empower the LGUs with more tax assignment to bring the assignment of expenditure in line with the assignment of tax. The PA should allocate more of the VAT taxes it collects to the LGUs to make this balance of expenditure assignment with tax assignment. However, tow more important policy implications are to be considered in this balancing act: • There should be more frequent update of property valuations upon which property taxes are levied and paid to LGUs. • The PA should allocate more revenues of fuel taxes to LGUs to enable them maintain the roads and expand them according to approved structural plans. • The LGUs should contract the NGOs on competitive basis and according to wellspecified TOR to provide soft public services. In other word, we should remember that provision does not necessarily require that these soft services be produced by the LGUs. Alternative and more efficient providers should be considered. Decentralisation after all is a comprehensive concept and is more complex than paying lip service to it. It is all about bringing the power near to the people to decide about what to do with the taxes they are liable to pay. A balancing act between fiscal decentralisation and administrative decentralisation should be developed to ensure that the process is compatible with its true meaning.
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The Palestinian Economy. Theoretical and Practical Challenges

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