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POGAR > Countries > Country Theme: Financial Transparency: Occupied Palestinian Territories
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Fiscal

The popularly elected Palestinian Legislative Council (PLC) approves the Budget and Development Plan, according to the Basic Law. As a result of the elections of January 2006 and the formation of a Hamas-led government, Western donors cut all contributions to the budget, and Israel has frozen the taxes it had collected on behalf of the Palestinian Authority. Consequently the government had no funds in April 2006 to meet its monthly obligations of some $130 million, including the salaries of 140,000 government employees, including 60,000 police. Various Arab governments have provided budget support in the past, however, amounting to $530 million in 2001 and $450 million in 2002. Additional aid has come from NGOs and international organizations. In 2002, international aid to Palestine amounted to $2 billion. Israel’s tax transfers normally amounted to about $60 million per month, almost half of the Palestinian Authority’s fiscal deficit.

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Public Audit

The Draft Basic Law passed in 1996 called for the creation of an independent audit office. Though the Basic Law ratified in 2002 includes no mention of this office, it does now exist in the form of the General Control Institution (GCI). The GCI has responsibility to audit the accounts of governmental and non-governmental organizations. It assists in supervising the collection of public revenue and spending within the limits set out by the budget. The GCI submits an annual report regarding its activities to the President and the Palestinian Legislative Council (PLC), including observations of financial violations and the responsibility for them. The PLC passed the second reading of a law in April 2004 authorizing the PLC to appoint the director of the GCI.

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Public Procurement

The Department of Supplies and Tender was established in 2004 at the Ministry of Finance to assume full jurisdiction over all purchases made by PNA ministries and agencies, including the security. A World Bank Country Procurement Assessment had recommended the establishment of an independent Oversight Procurement Authority and the drafting a new and unified procurement law. In view of the grave fiscal crisis in May 2006, however, the World Bank was recommending use of its Emergency Services Support Program to fund a crash program of capacity-building for the Council for Financial Control, the Palestine Authority’s external auditor, for monitoring the procurement of essential goods and services.

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Banking

The Palestinian Monetary Authority, established by Decree No. 94 of 1996 and Law No 2 of 1997, supervises the commercial banking system in Gaza and the West Bank. Banking Law 2 of 2002 gives it exclusive authority to license banks in the territories. Although it has not been authorized to establish a national currency to replace the Israeli shekel and Jordanian dinar, it does act as a central bank supervising the local and foreign banks operating within its jurisdictions in the West Bank and Gaza. These consisted in 2005 of ten national banks, nine Jordanian ones including Arab Bank, two Egyptian banks, and HSBC Middle East, operating a total of 137 branches.

The Arab Bank, originally founded in Jerusalem in 1930 and by far the largest of Palestine’s banks, returned to the West Bank in 1994 along with a number of other Egyptian and Jordanian banks that had closed their doors after the 1967 occupation and/or after the 1987 intifada. The Bank of Palestine Ltd., established in Gaza in 1960, is Palestine’s largest local bank. Despite the fact that 29 percent of all loans were non-performing in 2003 due to the recession, the banks were relatively healthy due to their conservative lending position.

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Privatization

Many administrators of the state monopolies, such as the Palestinian Petroleum Authority, which held a monopoly on the import and sale of fuel in the West Bank and Gaza Strip, were under criminal investigation in 2006 for embezzling state funds. In theory the Ministry of Economy, Trade, and Industry was responsible for regulating monopolies. The ministry also establishes industrial zones and free trade areas, defines rules and regulations to measure their performance, and supervises private sector commercial registration, trademarks, patent rights, and franchises through the Chambers of Commerce and seeks to establish quality standards in production and related matters and to conduct research on raw materials and development for industrial use. In order to facilitate international transactions, the Palestine Trade Center (PalTrade) works on imports, exports, and encouraging foreign investments.

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Stock Exchange

The Palestine Securities Exchange (PSE) was established in 1995 with the Palestine Development and Investment Company (PADICO) as a major investor. The PSE was created to attract Palestinian wealth, especially that of the Diaspora, to the domestic economy. It conducted its first live electronic trading session on February 18, 1997. The purpose of the PSE is to provide the foundations for a Palestine capital market and to encourage Palestinians abroad to repatriate their long-term capital from the Diaspora. The PSE tries to offer accessible, liquid trading conditions online, to preserve fair and equitable trading conditions, to disseminate the information required for making investment decisions, to maintain an orderly market, to protect investors against all forms of fraud, to improve services and market efficiency; and to promote the exchange as a regional securities market. The PSE uses the latest computing technology in order to operate and manage all trading and clearing, depository, and settlement operations.

The market has managed to attract local and foreign investment funds. In May 1999 the UK-based HSBC bank signed an agreement to provide full custodian and clearing services to foreign investors. Twenty-eight companies were listed on the PSE in 2006, although trading on three of them had been suspended. Market capitalization reached $4.45 billion at the end of 2005, from slightly over $1 billion a year earlier, when the market had regained the losses suffered from mid 2000. The Al Quds share-price index, which was 195 at the end of 2001, rose from 277.56 to 1128.59 during 2005 but fell, like other stock markets in the Arab region, to 817 by early April 2006. The value of traded shares exceeded $2 billion in 2005, a tenfold increase of turnover from the previous year.

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Financial Institutes

The Palestine Economic Policy Research Institute (MAS), founded in 1994, is an independent, non-profit institution that seeks to influence the policy making process through appropriate and relevant applied economic and social policy research. MAS fulfills a vital role in bridging the gap between the research community and policy makers and stimulating high quality research on key policy issues. MAS also keeps policy makers aware of facts and analysis and provides suggestions for sound economic policies.

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International Transparency Standards

West Bank and Gaza began participating in the International Monetary Fund's General Data Dissemination System (GDDS) on March 13, 2006, marking a major step forward in the development of West Bank and Gaza's statistical system.

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