In August 2009, the Palestinian Authority (PA) published an update on the fiscal performance for the second quarter of 2009 and also provided detailed information on its progress on implementing the policy reforms detailed in the PRDP-TF policy matrix. A close examination of the reports revealed that in the second quarter of 2009 the PA continued to make progress o implementing its reform agenda, though the pace of reform has slowed as the easiest actions are accomplished. Despite a small resurgence in growth in the West Bank, the PA faces a precarious fiscal situation. The recurrent deficit in the first half of the year was more than 12% higher than the budget target and for the PA to reach its deficit target it will have to substantially increase revenue and lower expenditures in the second half of 2009. Much of the difficulty can be traced to the situation in Gaza, which has reduced revenues while also requiring PA to make unexpected expenditures for emergency relief. However, excluding spending in Gaza, expenditures have still been running slightly ahead of budget. Despite the difficult fiscal position, in the second quarter of 2009 the PA carried on implementing structural reforms including holding the line on public employment ad improving public financial management. However, the PA has not yet passed the procurement law, taken steps to address the unsustainable pension liabilities or made significant progress on developing a rising block tariff for electricity as called for in the most recent Letter of Development Policy. The World Bank, after consulting with the IMF, has agreed to continue disbursements from the PRDP-TF to support the PA's reform program.

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