This CFAA is able to report majorimprovements in the public financial management (PFM) systemof the West Bank and Gaza (WB&G) in the period sincemid-2002. Recent areas of improvement are in budgeting (bothdevelopment and execution) and in fiscal transparency. OtherPFM include the following: 1) All Palestinian Authority (PA)revenues are now paid into the Central Treasury Account (theCTA), a single treasury account which brings together allgovernment revenues and provides a single pool of funds outof which all expenditures are paid. 2) An orderly system ofbudgetary appropriation is now in force. 3) Reflecting thesenew and improved processes, the budget speeches andextensive background budget data are posted on a regularbasis on the Ministry of Finance's (MOF) externalwebsite, itself a symbol of a new approach to transparencyand improved budget management. 4) MOF is exercising firmcontrol over budget expenditures - with the obvious caveatthat the chronic post-September 2000 shortage of Budgetfunds has led to strict limits on non-wage expenditures andto continuous ad hoc adjustments, with h d s often beingreleased by MOF on a daily basis. One consequence of chronicrevenue shortage and the erratic nature of donor budgetsupport has been a periodic accumulation of expenditurearrears to the PA's pension funds, to commercialsuppliers. These arrears and the short-term commercial bankdebt that MOF has also contracted are, however, beingtransparently handled. The IMF is also regularly monitoringbudget execution and the arrears and debt situation. 5)Monthly budget execution reports are now being prepared andposted on MOF's external website within a few days ofthe end of each month. 6) A program of placing in eachministry financial controllers who report to MOF has beeninitiated. 7) The MOF has launched a program to develop anex post internal audit department in MOF. 8) Control overthe civil service payroll has improved significantly. 9) Inthe 2004 Budget, the previous large discretionary transferappropriation for the President's Office has beenvirtually eliminated with these funds instead transferred torelevant service ministries (Health, Education and SocialAffairs). 10) The establishment of the Palestine InvestmentFund (PIF) has brought all PA equity holdings, includingvirtually all state-owned enterprises (SOEs), under MOFoversight and within a centralized and commercially orientedmanagement framework. 11) Measures have been taken to reducePA monopolistic activities in the importation of cement,while the management of the Petroleum Commission has beentaken over directly by MOF. On the basis of theseimprovements, and of Palestinian Authority (PA) commitmentto further reforms, the World Bank is able to support aprogram of general donor budget support to the PA. However,the CFAA also identifies "residual weaknesses" infinancial accountability, which relate to the lack ofadequate public aggregate financial statements, inadequateauditing, and the undeveloped oversight role of thePalestinian Legislative Council (PLC). The report discussesa significant number of actions, which still need to beimplemented and notes that most of the essential steps areeither under implementation by the PA, or are planned.
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