VZCZCXRO9032
OO RUEHROV
DE RUEHJM #0411/01 0581508
ZNR UUUUU ZZH
O 271508Z FEB 07
FM AMCONSUL JERUSALEM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6826
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY

UNCLAS SECTION 01 OF 02 JERUSALEM 000411 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
NEA FOR FRONT OFFICE; NEA/IPA FOR 
WILLIAMS/SHAMPAINE/STEINGER; PRM FOR PDAS GREENE AND 
PRM/ANE; NSC FOR ABRAMS/DORAN/WATERS; TREASURY FOR 
SZUBIN/LOEFFLER/NUGENT/HIRSON; BRUSSELS FOR LERNER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV KWBG
SUBJECT: PA DRAFT BUDGET REJECTED; PA SPENDING CHALLENGED 
 
REF: JERUSALEM 143 
 
¶1.  (SBU) Summary:  The Budget and Financial Affairs 
Committee of the Palestinian Legislative Council (PLC) 
rejected the PA government's draft general budget law for 
fiscal year 2007.  In a January 31 report, the Budget 
Committee cited unrealistic expectations -- such as 
assumptions on levels of international aid and customs 
revenues from Israel, technical shortcomings, and a disregard 
for legal requirements as grounds for rejecting the draft 
budget.  The report also challenged the legality of continued 
PA spending and levying in the absence of an approved budget. 
 End summary. 
 
¶2.  (SBU) Acting PA Minister of Finance Samir Abu Eisha 
submitted the draft FY 2007 PA budget to the PLC on January 
16, approximately two and a half months after the deadline of 
November 1, as stipulated in Article 61 of the Basic Law and 
Article 31 of the Public Budget and Finance Law.  The 
proposed budget totals USD 2.562 billion, including USD 1.2 
billion in domestic and clearance revenue and USD 1.362 in 
external assistance, according to press reports (reftel). 
The PLC Budget and Financial Affairs Committee received a 
copy of the draft budget on January 21. (Note:  The Budget 
Committee reviews budget proposals before they are submitted 
to the full PLC.  The PLC must approve or amend the budget by 
March 31, according to Article 4 of the Budget Law.  End 
note.) 
 
------------------ 
Flagrant Omissions 
------------------ 
 
¶3.  (SBU) In a January 31 report, the Budget Committee 
concluded that "the draft law in its current form does not 
constitute a proper basis for discussion and evaluation." 
The report, signed by PLC member and Budget Committee Chair 
Salam Fayyad, asserted that the draft budget "fails to abide 
by the minimum legal requirements that are stipulated in the 
Basic Law and in other laws and regulations governing 
relations between the executive and legislative powers in the 
sphere of financial management."  Contrary to the provisions 
of Article 25 of the General Budget Organization and 
Financial Affairs Law (No. 7, 1998), the draft budget does 
not contain a macroeconomic framework.  Also omitted is a 
report from the Finance Minister reviewing the financial 
policy adopted by the Council of Ministers as well as the 
core elements of the draft budget.  The Budget Committee 
report stated that these and other "flagrant" and "unlawful" 
omissions preclude any meaningful evaluation of the draft 
budget. 
 
------------------------ 
Unrealistic Expectations 
------------------------ 
 
¶4.  (SBU) The report also cited unrealistic expectations and 
technical shortcomings as grounds for rejecting the draft 
budget.  The report asserted that, in projecting revenues of 
USD 1.2 billion, the draft budget failed to consider the 
impact of the Palestinian economy's steep decline on revenue 
performance.  It noted that in the second half of 2006, total 
local revenues fell about 40 percent in comparison with the 
second half of 2005.  In addition, the draft budget projected 
USD 1.365 billion in foreign assistance -- an estimate 
greatly exceeding what the PA has received in the past -- but 
failed to disclose any information about assistance received 
in 2006. 
 
----------------- 
Unlawful Spending 
----------------- 
 
¶5.  (SBU) The Budget Committee report was especially critical 
of a letter from the Secretary General of the Council of 
Ministers enclosed with the draft budget.  The letter 
acknowledged serious omissions but requested that the draft 
law be submitted to the PLC for approval "as soon as 
possible."  The report stated that "the same apparent 
ignorance of or disregard for the law" is evident when the 
letter notes that "the government will continue spending and 
levying pursuant to Article 4 of Law No. 7 of 1998."  The 
report, however, explained that this article postulates the 
existence of an approved budget for the previous year, and 
 
JERUSALEM 00000411  002 OF 002 
 
 
there currently is none.  (Note:  The Hamas-led government 
had previously failed to submit a FY 2006 budget to the PLC. 
The PLC subsequently approved a resolution authorizing the PA 
to spend money at the 2005 rate until December 31, 2006.  End 
Note.) 
 
------------------------- 
Committee Recommendations 
------------------------- 
 
¶6.  (SBU) The Budget Committee recommended in its report that 
the draft budget be returned to the Council of Ministers; the 
Council of Ministers be reminded that any spending pursuant 
to Article 4 of Law 7 of 1998 is unlawful; and the Budget 
Committee be tasked with preparing a formula for resolving 
the legal predicament arising from the absence of an approved 
budget for the previous and current years. 
 
WALLES