The recurrent fiscal deficit in the Palestinian National Authority budget, in Q2 09
of $406 million, is lower than in Q1 09 ($ 431 million) but exceeded the quarterly
budget target of $ 287 million (Table 1). This $ 119 million gap is partly due to a
shortfall in net revenues ($ 47 million) and partly to excess spending ($ 72
million). These trends indicate that the 2009 Budget deficit projected at $ 1.15
billion is likely to be exceeded by about $ 200 million, mostly due to the impact of
the Israeli Gaza offensive on both revenues and expenditures. When the closure
of Gaza is lifted and the PNA mechanisms for housing reconstruction and the
rehabilitation of the economy are activated, the recurrent deficit will be even
larger. The PNA request for the financing of a supplementary line item for Gaza in
the 2009 budget of $ 300 million has been approved by the Council of Ministers
and should cover the higher deficit. However, it is essential that this
supplementary allocation is financed by donor countries. Otherwise,, payment
arrears are bound to accumulate. This would be detrimental to both the financial
management reforms which are ongoing in the Ministry of Finance (MoF) and to
private sector renewed confidence and investment plans.

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