EUROPEAN UNION DIRECT
FINANCIAL SUPPORT TO THE
I. The European Union has provided more than 5,6 billion euro in assistance to the Palestinian people since 1994 to support its overall objective of helping bring about a two-state solution to end the Israeli–Palestinian conflict. Since 2008, its largest programme in the occupied Palestinian territory (oPt) has been Pegase direct financial support (DFS), which provided approximately 1 billion euro in funding from 2008 to 2012. Pegase DFS seeks to help the Palestinian Authority (PA) to meet its obligations to civil servants, pensioners and vulnerable families, maintain essential public services and improve public finances.
II. The audit examined if the Commission and the European External Action Service (EEAS) had managed Pegase DFS well. I t was carried out from July to December 2012 and included a 2-week visit to the West Bank, including East Jerusalem, and Gaza in October 2012.
III. The audit concluded that the Commission and the EEAS had succeeded in implementing direct financial support to the PA in difficult circumstances, but that a number of aspects of the current approach are increasingly in need of an overhaul. While some important results have been achieved, their sustainability is in doubt without major revisions to the current approach. As part of these revisions, the PA also has to be encouraged to undertake more reforms, notably in relation to its civil service. At the same time, a way needs to be found to bring Israel to take the necessary steps to help ensure that Pegase DFS is effective.
III. The audit found that several aspects of the programming of funding for Pegase DFS need to be strengthened. In addition, while the verification procedures established by the Commission are generally robust, there is scope for it to obtain savings by making more use of competitive tendering and simplifying the complex management system. The Commission and the EEAS have not made sufficient use of the large-scale funding from Pegase DFS to help leverage reforms from the PA, particularly in the field of civil service reform.
V. Pegase DFS has reached the eligible beneficiaries and thereby made a significant contribution to covering the PA’s salary bill. However, with the number of beneficiaries increasing and funding through Pegase DFS from other donors declining, there were serious delays in the payment of salaries by the PA in 2012 which led to unrest amongst the Palestinian population.
VI. Pegase DFS has contributed to essential public services, but the audit found that in Gaza a considerable number of civil servants were being paid without going to work and providing a public service due to the political situation in Gaza. The Commission and the EEAS have not sufficiently addressed this problem.
VII. Despite the large Pegase DFS funding, the PA was facing a severe budget deficit in 2012 which was also threatening to erode public finance management (PFM) reforms. Ultimately, however, the threat to the financial sustainability of the PA can to a considerable degree be traced to the manifold obstacles imposed by the Government of Israel to the economic development of the oPt. These obstacles also undermine the effectiveness of Pegase DFS.
VIII. The report sets out a number of recommendations which the Commission and the EEAS should address when undertaking the necessary review of Pegase DFS.