Managing Spending at the Palestinian Authority, 2002 - 2005

Abstract

When Salam Fayyad became finance minister of the Palestinian Authority (PA) in June 2002, the government was struggling to manage expenditures effectively and to deliver the budget to the legislative council on time. Success in addressing those problems required winning acceptance from President Yasser Arafat and other top officials for new work processes, securing other ministries’ compliance with changes in operations, and instituting radical new levels of transparency. Fayyad focused on fixing the system instead of investigating past malfeasance. Under his watch, the finance ministry began engaging with the council’s budget and finance committee, instituting monthly financial reporting, introducing reliable internal control and audit procedures, and adopting internationally recognized transparency measures. Those reforms enhanced the credibility of the authority’s financial management internationally, restarted the flow of external aid and PA revenues withheld by Israel, and helped temporarily end a financial crisis.

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

Keywords
Ministry of Finance
Salam Fayyad
Focus Area(s)
Anti-Corruption
Financial Management
Critical Tasks
Accounting systems
Auditing
Budget laws & practices
Building capacity
Expenditure frameworks
Financial controls
Prevention
Core Challenge
Capacity (capability traps)
Credibility (trust)
Institutional traps (spoilers)
Principal-agent problem (delegation)
Reducing capture
Transparency
Country of Reform
Palestine
Type
Case Studies
Author
Tristan Dreisbach