National Early Recovery and Reconstruction Plan for Gaza 2014-2017_FINAL

68The National Early Recovery and Reconstruction Plan for Gaza 2014SECTION 6: FINANCING REQUIREMENTS AND MECHANISMS6.1 Overview of Current Fiscal SituationThe Palestinian Government has made significant and continued efforts to improve its fiscal performance through revenuereforms and expenditure limitations. In 2013, on account of these measures, the fiscal deficit declined by 2.7 percentage pointsto 13.9 percent of GDP. However, the Government’s fiscal position remains extremely fragile, highly reliant on donor support,and highly dependent on economic and political relations with Israel. By the end of 2013 public debt, including arrears andclearance revenue advances, had reached $4.6 billion, close to 40 percent of GDP.The total budget for 2014 was $4.4 billion, comprising 92 percent recurrent and 8 percent development expenditure. Even beforethe National Consensus Government was formed, expenses on Gaza comprised almost 40 percent of the budget, comprisingpayments of salaries for public-sector workers; coverage of non-wage bill items like health referrals, medical supplies, and socialassistance; and coverage of fuel and net lending expenses for electricity and water. Disbursements amount to approximately$120 million on a monthly basis or $1.44 billion annually.2013 (Actual) 2014 (Projected) % ChangeUSD m USD m %Gross Revenues 2,687 2,923 9%Total Net Revenues 2,443 2,752 13%Total Expenditure and Net Lending 3,903 4,110 5%Of which Gaza expenditure 1,440 1,440 -Current Balance (1,460) (1,358) -7%Development Expenditures 197 316 60%Total Balance (1,657) (1,674) 1%In its September 2014 report to the AHLC, the IMF described the near-term fiscal outlook as challenging in any scenario, withoutaccounting for the spending needed for Gaza reconstruction. It forecasts a fiscal gap of approximately $350 million for 2014,accounting for 16.5 percent of GDP, assuming that overall donor financing will reach $1.5 billion.The July/August assault in Gaza has provided an unprecedented shock to the Government’s already strained budget position.The National Consensus Government is faced with a recovery and reconstruction bill that is equivalent to the entire 2014 budget,13 times the 2014 development budget, and over 20 times the 2013 development budget. In the absence of external support,incurring the cost of reconstruction would imply not being able to meet recurrent expenditures in the West Bank and/or up to adoubling of the existing public debt, neither of which is practically or politically possible.Given the scale and urgency of the challenge, the Government has no choice but to reach out to the international community forsupport with this momentous task.The Government sees the investment in Gaza as an investment in stability and the viability of a future Palestinian state. Whilst Gaza’srebuilding will be costly in the short- to medium -term, the Government’s vision for Gaza is one of sustainability and self-sufficiency,where Gaza is an integral driver of the Palestinian economy and where it contributes to the fiscal position of the Government.