VZCZCXRO1082
OO RUEHROV
DE RUEHJM #2399/01 3241231
ZNR UUUUU ZZH
O 201231Z NOV 07
FM AMCONSUL JERUSALEM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9719
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RUEHFR/AMEMBASSY PARIS PRIORITY 3682
RUEHBS/USEU BRUSSELS PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 JERUSALEM 002399 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
NEA FOR FRONT OFFICE; NEA/IPA FOR 
GOLDBERGER/SHAMPAINE/BELGRADE; EEB FOR DIBBLE; NSC FOR 
ABRAMS/WATERS; TREASURY FOR HARRIS/LOEFFLER/NUGENT/HIRSON; 
BRUSSELS FOR LERNER; PARIS FOR JORDAN/DWYER 
 
E.O. 12958: N/A 
TAGS: EAID ECON KWBG EINV
SUBJECT: IMF OUTLINES PA'S FISCAL GAP AHEAD OF PARIS 
DONORS' CONFERENCE 
 
 
¶1. (SBU) Summary.  The IMF reports that the Palestinian 
Authority (PA) will need international assistance totaling 
more than $5.8 billion over the next three years to pay 
salaries, meet recurrent operational expenditures and make 
basic investments in health, education, security and 
infrastructure.  The IMF team produced an overall fiscal 
framework for the PA based on an expectation of relaxed 
restrictions on access and movement for the Palestinian 
private sector and economic growth that slightly outpaces 
population growth.  The projection assumes the situation in 
Gaza to remain unchanged and for the PA to undertake 
significant, but modest, reforms in addressing the civil 
service wage bill and utility subsidies.  End Summary. 
 
PA Needs More than $1.8 Billion in 2008 
--------------------------------------- 
 
¶2. (SBU) An IMF Mission, after two weeks in Ramallah and 
Jerusalem helping the Palestinian Authority (PA) prepare its 
fiscal and macroeconomic framework for the Paris Donors' 
Conference, debriefed the donor community on Thursday, 
November 15.  According to estimates developed in 
consultation with the PA Ministries of Finance and Planning, 
the PA will need $1.85 billion in external budget support in 
2008, $1.95 billion in 2009, and $1.99 billion in 2010.  The 
majority of this external assistance will be needed as budget 
support to meet recurrent expenditures (mostly the wage 
bill).  The percentage of external assistance devoted to 
recurrent expenditures is expected to decline slightly over 
the three year period, as the PA freezes its wage bill and 
devotes more of its budget to capital expenditures.  At these 
levels of external budget support, the IMF expects the PA to 
pay off approximately 60% of its $900 million in accumulated 
arrears. 
 
"Reasonable" Access and Movement Required, 
While PA Holds the Line on Salaries 
----------------------------------------- 
 
¶3. (SBU) Mission Director Oussama Kanaan said that the team 
based its economic projections on a baseline scenario that 
assumed "reasonable" improvements in access and movement for 
the Palestinian private sector and "modest growth" in the 
economy over the medium term (3.5% in 2008, 5% in 2009 and 6% 
in 2010), slightly outpacing population growth.  The scenario 
also envisions increasing donor support through the 
Palestinian Ministry of Finance (MoF) and "more aggressive" 
funding of public sector investment.  Kanaan said, however, 
that IMF projections expected the maintenance of the status 
quo in Gaza. 
 
¶4. (SBU) The IMF figures expect the PA, as part of its reform 
efforts, to essentially freeze the number and wages of public 
sector employees (with only an increase of 3,000 employees a 
year anticipated to meet increasing demands on the health and 
education sectors).  In addition, the government will work 
with municipalities in the West Bank to address the problem 
of increasingly expensive utility subsidies.  However, 
according the reform plan laid out by the IMF, by 2010 the 
wage bill will still equal more than 20% of GDP and utility 
subsidies will total more than $550 million annually. 
 
¶5. (SBU) Overall, Kanaan said, the PA's three-year reform and 
development program "will not be viable" if restrictions on 
access and movement in the West Bank are not relaxed and the 
donor community does not meet the needs of the PA's recurrent 
budget and public investment costs.  He thought the PA's 
development and investment projections (averaging 
approximately $500 million/year) were reasonable, though the 
IMF did not have as much clarity in the area of security 
sector reform as they did in other sectors. 
 
¶6. (SBU) The IMF team said that it had considered two other 
scenarios in addition to the "baseline" described above.  In 
their "optimistic scenario", rapid improvements in movement 
and access allow the private sector to drive economic growth 
and unemployment declines to 15% by 2010.  This improving 
economic situation is buttressed by substantial, flexible and 
timely donor support.  In their "pessimistic scenario", 
restrictions on access and movement are not relaxed and 
donors do not provide adequate or timely support to the PA 
budget.  As a result, the PA increasingly accumulates 
 
JERUSALEM 00002399  002 OF 002 
 
 
arrears, per capita GDP declines and the official 
unemployment increases to 28% by 2010, "with the real 
unemployment rate much higher."  When donor representatives 
asked the IMF team to detail further the ramifications of 
this latter scenario, the IMF responded that they did not 
spend much time on it, "because the political and security 
consequences are so significant." 
 
¶7. (U) The full IMF tables are available on ConGen 
Jerusalem's unclassified intelink site at: 
http://www.intelink.gov/communities/state/pal econ 
WALLES