West Bank and Gaza: Strengthening public sector management – World Bank report

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20002

WEST BANK & GAZA

STRENGTHENING PUBLIC SECTOR MANAGEMENT

Social and Economic Development Group

Middle East and North Africa Region

The World Bank

1999

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Table of Contents

Executive Summary – 8

Chapter 1: Introduction – 15

Chapter 2: The Palestinian Authority's Medium-Term Fiscal Outlook – 20

Recurrent Budget is Balanced and Donors Finance Capital Investment – 20

Social Sectors Consume Substantial Budget Resources – 21

Public Wage Expenditure is High and Growing – 22

PA Faces Increasing Demands for Fiscal Resources – 22

Donor Assistance may Decline and there is Little Scope to Increase Central Revenue – 23

Emerging Fiscal Deficits Pose a Challenge – 23

Chapter 3: The Palestinian Civil Service – 25

Compensation Levels in the PA Civil Service – 25

Institutional Issues: The Different Administrative and Legal Systems in WBG – 25

Sources of and Remedies for Uncontrolled Growth in Public Sector Employment – 26

Inadequate Systems of Human Resource Management: Compensation, Recruitment and Promotion Policies – 26

Executive and Legislative Institutions Involved in Public Administration and Human Resource Development – 27

Aborted Reform: The New Civil Service Law – 28

Recommendations – 29

Chapter 4: Budgetary Institutions for Good Expenditure Outcomes and Propriety Safeguards – 31

Further Development Needed in Budgetary Institutions for Good Expenditure Outcomes – 31

Accounting and Auditing Institutions and Rules are Central to Stewardship of Public Funds – 34

Comprehensive Accounting Principles are Needed for Transparency and Accountability – 34

In Sum, a Substantial Institution-Building Agenda Still Lies Ahead – 35

Chapter 5: Public Service Delivery: The Role of Non-Governmental and Private for Profit Organizations – 37

NGO and Private Sector Provision of Social Services is Sizable – 37

Between 700 and 1000 NGOs Provide Social Services in WBG – 38

Funding, Donor Dependency and Sustainability are Crucial Issues for NGOs – 38

Private Provision of Social Services is Increasing, Especially in the West Bank – 39

Further Expansion of Private and NGO Services Requires Economic and Political Incentives – 39

PA Outsourcing to NGO/Private Providers Needs to be Systematized – 39

The PA Can Improve Resource Allocation by Involving the NGO/Private Sector in Planning – 40

Towards an NGO Law – 40

Quality/Accreditation Standards must be Enforced in the Public and NGO/Private Sectors Alike – 40

Recommendations – 41

Chapter 6: Education – 43

PA and UNRWA Provision and Financing are Complemented by the Private Sector/NGOs – 43

The System Maintains a Fragile Fiscal Equilibrium, Except for the Universities – 44

The PA Education Budget Includes Increasing, but still Limited, Funding for School Textbooks, Maintenance, and Construction – 44

Allocation of PA Education Resources is Equitable – 44

High Birth Rates Threaten Fiscal Sustainability in Basic And Secondary Education – 45

Trends in PA Basic and Secondary Education that Need to be Reversed – 45

Education's Governance Arrangements are Reasonable, but could be Improved – 45

The PA's Education System is Transparent, but Accountability is Embryonic – 46

Recommendations for Changes in Financing, Efficiency, and Institution-Building – 47

Chapter 7: Local Government and Utility Reform – 49

Municipal Government: Utility Operations Complicate the Picture – 49

Non-Utility Revenues are Restricted and Relatively Meager – 50

Raising Local Tax Capacity Through an Expanded Local Property Tax – 51

Regional Utilities to Improve Efficiency and Service Quality – 51

Large Fiscal Disparities Among Municipalities Call for Equalization – 52

An Agenda for Local Government and Utility Reform – 53

Figures and Tables

Figure 1: Recurrent Budget – 9

Figure 2: Share of Central Government Payroll in Current Expenditures: NNA Countries and Averages for Bank Regions – 10

Figure 3: Local Government Expenditure as a Percent of GDP – 12

Figure 4: Local Property Taxes as a Percentage of Household Expenditure – 13

Table 2.1: Fiscal Accounts of the Central Government – 21

Table 2.2: Central Government Expenditure – 21

Table 5.1: Provision of Education/Health Services by Organization – 37

Table 6.1: Outlays on Education by Source, FY 1997 – 43

Data Annex

Figure A. 1: Central Government/UNWRA Employment as Percent of Labor Force in MNA Countries

Figure A.2: Share of Central Government Payroll in Current Expenditures: MNA Countries and Averages for Bank Regions

Figure A.3: Local Government Expenditure as a Percent of GDP

Figure A.4: Local Property Taxes as a Percentage of Household Expenditure

Figure A.5: Nontax Revenue of Local Governments as Percentage of Total Revenue and GDP

Table A. 1: Growth of PA/UNWRA Employment, 1994-1997

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Executive Summary

I. Introduction

Strengthening the Capacity of Public Sector Institutions in the Palestinian Authority to Meet Coming Needs for Public Services and Investment

Despite a renewed round of pledges of donor support following the Wye Accords in late 1998, the Palestinian Authority faces potentially severe fiscal constraints in meeting the need for public services and investment over the medium term. While there are no simple ways of alleviating these constraints, efficient management of public expenditures would ensure the best possible use of available resources and avoid crises. Developing strong public sector institutions that foster good budgetary and public sector management thus deserves top priority. Donor support is needed to help strengthen these institutions, with emphasis on four priority areas.

First, present efforts to improve the management of public sector employment in the Authority need to be strengthened to avoid unsustainable levels of expenditures and to build an efficient and qualified civil service. Second, continued efforts to build effective budget management systems (such as the Government Financial Management Information System) are critical to ensure fiscal discipline, resource allocation according to strategic priorities, and efficient and effective use of resources. Third, to obtain more cost-effective public services, NGOs and the private sector need to be more fully involved in their delivery. And fourth, better management of local government and utilities can make a significant contribution to public sector responsibilities in service delivery.

The Authority is gradually moving beyond the reconstruction/rehabilitation of physical assets and the initiation of essential public sector functions. Donor assistance has been a critical factor in these achievements.

While the need for donor support for new investment remains critical, there is now an urgent need for increased donor support to strengthen the institutional framework for public sector management. Strong public sector institutions (rules, norms, and procedures) and supporting systems – with particular emphasis on those that bear on public finance – are needed to ensure the Authority's own capacity for good policy design and implementation and sustainable, high-quality provision of services to the Palestinian population.

The following example is just one among many that show how much material difference improved public sector management can make to public service access and quality.

Although per capita consumption of water in the West Bank/Gaza is only one-third that in Israel and below the minimum amounts recommended by WHO, 45-50 percent of water in West Bank/Gaza municipal systems is lost in transmission and distribution! Such losses are far greater than in efficient utilities elsewhere in the world; in Singapore, for example, transmission and distribution losses are as little as 6 percent. Better management can reduce these losses, increase revenues and improve service without increasing payment burdens of utility customers. In Gaza, new management arrangements supported by donor credits have already resulted in significant improvements.

Additional donor support to build management capacity can similarly improve other infrastructure and "people" services.

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