Managing Revenue at the Palestinian Authority 2002 - 2004

Background 
Abstract 

“Could the Palestinian Authority survive?” That was the question on many Palestinians’ minds when Salam Fayyad became finance minister in June 2002 and the cash-strapped government was struggling to pay its civil servants and suppliers. To avert a collapse, Fayyad quickly took steps to increase government revenue. He developed a system that would direct into a single, centralized treasury account all taxes, fees, and other income collected by government offices. He created a fund that consolidated the Palestinian Authority’s tangled and largely opaque commercial and investment assets and contracted with an outside firm to conduct a full audit of those holdings. He also took action to reduce smuggling and assert control over the tobacco authority and petroleum commission—two autonomous PA agencies plagued with management problems. The reforms required Fayyad to navigate political resistance and an entrenched administrative culture wary of financial transparency. Fayyad’s achievements enhanced efficiency, helped restart the flow of tax revenues withheld by Israel, and enabled the PA to attract external support and investment, quashing—at least temporarily—an existential financial crisis.

Tristan Dreisbach drafted this case study based on a series of interviews conducted with Salam Fayyad in Princeton, New Jersey, in 2019. The study also incorporates other interviews conducted in the Palestinian cities of Ramallah, Nablus, and Jericho in June and July 2019. The case is part of a series on state building in Palestine, 2002–05 and 2007–11. Case published March 2022.

Keywords 
revenue authority
Salam Fayyad
public financial management
PFM
Focus Area(s): 
Anti-Corruption
Financial Management
Critical Tasks: 
Auditing
Building capacity
Financial controls
Prevention
Public investment management
Revenue collection
Core Challenge: 
Capacity (capability traps)
Credibility (trust)
Institutional traps (spoilers)
Reducing capture
Transparency
Country of Reform: 
Palestine
Type: 
Strategy Notes
Author: 
Tristan Dreisbach