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DE RUEHJM #0259/01 0371547
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O 061547Z FEB 09
FM AMCONSUL JERUSALEM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4061
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 JERUSALEM 000259 
 
SIPDIS 
SENSITIVE 
 
NEA FOR FRONT OFFICE AND IPA; PRM FOR PRM/ANE; NSC FOR 
SHAPIRO/PASCUAL, TREASURY FOR PARODI/AHERN/VELTRI; 
PLEASE PASS TO USAID FOR BORODIN/NANDY/LAUDATO 
 
E.O. 12958: N/A 
TAGS: EFIN EAID ECON KWBG PGOV IS
SUBJECT: THE PA 2009 BUDGET, GAZA RECONSTRUCTION, AND CASH 
 
¶1. (U) Summary:  In a speech on February 4, Prime Minister 
Fayyad presented the 2009 budget and outlined the PA's plan 
for recovery and reconstruction in Gaza.  The PM also 
announced a two-week delay of salary payments, in order to 
get assistance projects in Gaza underway immediately.  The 
transport of NIS 175m from West Bank banks to Gaza branches 
scheduled for February 6 was delayed by a legal case filed in 
an Israeli court.  End summary. 
 
Budget highlights 
----------------- 
 
¶2. (U) Fayyad noted that the 2009 budget includes both 
recurrent and development expenditures.  He said that the 
budget was drafted with linkages to the Palestinian Reform 
and Development Plan and to the strategic objectives of the 
line ministries.  The overall deficit is estimated at USD 
1.65b, down from USD 1.89b in 2008.  The budget estimates a 
reduction of external financing, from USD 1.76b in 2008 to 
USD 1.15b in 2009, due to significant fiscal retrenchment and 
to the elimination of wage arrears in 2008.  Fayyad also 
noted that the budget was drafted before the war in Gaza, and 
therefore does not reflect relief or reconstruction costs. 
He said he will issue updates based on estimated losses as 
soon as the studies are completed. 
 
¶3. (U) The budget predicts a 5% growth rate for the 
Palestinian territory overall in 2009, with zero or negative 
growth in Gaza, and 8% growth in the West Bank.  Fayyad said 
these figures assume a substantial relaxation of movement and 
access restrictions in the West Bank, which will allow the 
private sector to "pick up the slack." 
 
¶4. (U) Fayyad said the PA would not raise taxes, but would 
increase collection efforts.  He stressed the need to reform 
the "culture of nonpayment," noting that income tax 
collection was only USD 84m in 2008, or 1.3% of GDP.  He also 
addressed the issue of net lending to municipalities, and 
said expanded use of pre-paid meters and a shift of 
collection of bills to commercial companies will help 
increase revenue. 
 
¶5. (U) Fayyad stressed that the PA cannot depend on the 
record level of budget support received in 2008. 
Consequently, he said, the international community should 
play a more effective role in convincing the GOI to lift 
economic restrictions in the West Bank and Gaza.  Without the 
resumption of normal movement of people and goods, he said, 
the private sector will not be able to fulfill its role in 
generating production and achieving sustainable growth. 
 
Reconstruction plans 
-------------------- 
 
¶6. (U) Fayyad also announced details of the PA's plan for 
immediate assistance to Gaza during his February 4 speech. 
He said the PA would provide USD 50m for temporary shelter 
and emergency needs.  Ministry of Planning contacts confirmed 
USD 30m would go through UNRWA and USD 20m through UNDP.  The 
transfer of USD 20m to UNDP is expected in the coming days. 
Fayyad also designated USD 11m to repair the electricity 
network, and USD 6m to repair water wells and wastewater 
treatment facilities.  He also pledged (unspecified) PA 
support for the revitalization of the economy, including the 
agricultural sector, and to the Ministry of Health.  (Note: 
The Ministry of Planning is finalizing details of a "Early 
Recovery and Reconstruction Plan," which will be circulated 
to the international community on or about February 12.) 
 
¶7. (SBU) In partnership with around five Palestinian and Arab 
banks, the PA plans to launch a USD 600m program to repair 
homes that were damaged or destroyed during IDF operations in 
Gaza.  Fayyad said implementation of the program will require 
donor funding.  Palestine Monetary Authority Governor Jihad 
al-Wazir said the PA will offer financial grants with a small 
loan component at a low rate.  Bank branches in Gaza would 
originate and service the loans.  Al-Wazir told Econoff 
February 5 these programs are essential, but will not work 
unless raw materials, cement, building supplies, and cash are 
allowed into Gaza. 
 
¶8. (U) Fayyad called for all Palestinians to address the 
"humanitarian catastrophe" in Gaza, and thanked the public 
sector for the donation of one workday's salary to Gaza in 
January.  He announced he will delay payment of January 
salaries, scheduled for February 5, for a maximum of 14 days, 
 
JERUSALEM 00000259  002 OF 002 
 
 
and explained this move will allow the PA to focus on "Gaza 
first, now." 
 
Cash transport delayed by court case 
------------------------------------- 
 
¶9. (SBU) The GOI agreed to allow transport of NIS 175m from 
West Bank banks to Gaza on February 4.  The transport was 
delayed on February 6 when the Legal Forum for the Land of 
Israel filed a petition with the High Court of Justice to 
stop the transfer on the grounds that Gaza is a hostile 
entity, according to the press.  PMA Governor al-Wazir said 
that, as of 1500 local, the court had not yet issued a 
decision, and the trucks left Erez crossing.  Shortly 
afterwards, however, al-Wazir received permission, and turned 
the trucks around.  At 1700 local, Bank of Palestine contacts 
confirmed receipt of NIS 108m in Gaza.  Transport of the 
remaining NIS 67m was reportedly underway, but receipt has 
not yet been confirmed. 
WALLES