June 2025




West Bank and Gaza


 Public Expenditure Review of the Palestinian Authority


         Policy Priorities Amid a Spiraling Fiscal Crisis




   P500604     Economic Policy
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West Bank and Gaza
Public Expenditure Review of the
Palestinian Authority


Policy Priorities Amid a Spiraling Fiscal Crisis



June 2025




Middle East and North Africa

Economic Policy




                                              1
Contents
   Acknowledgements ............................................................................................................................ 7
   Acronyms and Abbreviations.............................................................................................................. 8

EXECUTIVE SUMMARY ..................................................................................................................... 11

CHAPTER 1 RECENT MACROECONOMIC AND FISCAL TRENDS ............................................................ 26
  Macroeconomic Performance .......................................................................................................... 26
  Fiscal Developments, 2015-2023...................................................................................................... 32

CHAPTER 2 OVERVIEW OF THE PUBLIC-SECTOR WAGE BILL ............................................................... 53
  Key drivers of wage-bill growth ........................................................................................................ 54
  Overview of employment ................................................................................................................. 58
  Key drivers of employment growth .................................................................................................. 59
  Overview of salaries ......................................................................................................................... 63
  Public-sector management practices and outcomes ....................................................................... 67
  Reform priorities............................................................................................................................... 68
  Conclusions and recommendations ................................................................................................. 72

CHAPTER 3 THE PALESTINIAN PENSION SYSTEM ............................................................................... 75
  Overview of the pension system ...................................................................................................... 75
  Fiscal Simulations: status quo and parametric reforms ................................................................... 83
  Conclusions and recommendations ................................................................................................. 89

CHAPTER 4 THE PALESTINIAN HEALTH SYSTEM ................................................................................. 93
  Overview of the health system ......................................................................................................... 93
  Service delivery context.................................................................................................................... 95
  Financing flows in the Palestinian health system ............................................................................. 96
  Public health spending ..................................................................................................................... 98
  Conclusions and recommendations ............................................................................................... 106

CHAPTER 5 THE PALESTINIAN EDUCATION SYSTEM ......................................................................... 109
  Overview of the Education Sector .................................................................................................. 109
  Education Spending ........................................................................................................................ 115
  Analyzing the Performance of Education Expenditures ................................................................. 116
  Public Financial Management in Education ................................................................................... 124
  Recommendations .......................................................................................................................... 126

REFERENCES .................................................................................................................................. 130

ANNEXES ....................................................................................................................................... 132
  Annex I. List of public sector entities .............................................................................................. 132
  Annex II. Pay scales in the public sector ......................................................................................... 134
  Annex III. Wage premium tables .................................................................................................... 138
  Annex IV. Entry level salary benchmarking methodology .............................................................. 139
  Annex V. History of the PA’s policy initiatives and pension reforms ............................................. 142
  Annex VI. Pensions modeling methodology overview ................................................................... 145
  Annex VII. Administrative diagnostics of the PPA .......................................................................... 153
  Annex VIII: Education standardized assessments........................................................................... 168


                                                                                                                                                     2
Boxes

Box 1: Reforming fiscal subsidies in the West Bank and Gaza.................................................................... 40
Box 2: Understanding the net lending phenomenon in the Palestinian territories and recommendations
for reform.................................................................................................................................................... 41
Box 3: Entry level salary benchmarking for selected occupations in the public and private sectors in the
West Bank ................................................................................................................................................... 64


Figures

Figure 1: Real GDP growth .......................................................................................................................... 26
Figure 2: GDP growth decomposition ......................................................................................................... 27
Figure 3: Imports, exports and trade deficit, 2015-2023 ............................................................................ 28
Figure 4: Gross investment and foreign direct investment ........................................................................ 28
Figure 5: Inflation in the West Bank and Gaza............................................................................................ 29
Figure 6: Quartelry unemployment rates in the West Bank and Gaza ....................................................... 30
Figure 7: Real GDP and GDP per capita in the West Bank and Gaza .......................................................... 31
Figure 8: Fiscal revenues ............................................................................................................................. 32
Figure 9: Composition of fiscal revenue ..................................................................................................... 33
Figure 10: Corporate and personal income tax rates ................................................................................. 34
Figure 11: Selected indicators of private-sector perception of tax administration.................................... 34
Figure 12: Public expenditures in the West Bank and Gaza ....................................................................... 35
Figure 13: Decomposition of public spending ............................................................................................ 36
Figure 14: The distribution of public spending by functional classification ............................................... 37
Figure 15: Expenditure rigidity .................................................................................................................... 38
Figure 16: Adherence to the approved budget .......................................................................................... 39
Figure 17: Fiscal spending on fuel subsidies ............................................................................................... 40
Figure 18: Absolute incidence of fuel subsidies in the West Bank ............................................................. 40
Figure 19: Public spending and GDP ........................................................................................................... 44
Figure 20: The procyclicality of public spending across countries .............................................................. 45
Figure 21: General government balance (before aid and after Israeli deductions from clearance revenues)
.................................................................................................................................................................... 46
Figure 22: External budget support ............................................................................................................ 47
Figure 23: Public debt, 2007-2023 .............................................................................................................. 49
Figure 24: Wage bill spending in comparator economies .......................................................................... 54
Figure 25: Wage bill spending by category ................................................................................................. 55
Figure 26: Share of allowance spending by type ........................................................................................ 55
Figure 27: Wage bill by entity, 2023 ........................................................................................................... 56
Figure 28: Wage bill by occupation ............................................................................................................. 56
Figure 29: Wage bill by pay scale ................................................................................................................ 57
Figure 30: Wage bill by grade ..................................................................................................................... 57
Figure 31: Wage bill within the civilian pay scale ....................................................................................... 58
Figure 32: Wage bill within the security pay scale ...................................................................................... 58
Figure 33: Public employment as share of total employment, 2011-2021 average................................... 59
Figure 34: Public employment by gender ................................................................................................... 60
Figure 35: Public employment by contract type ......................................................................................... 61


                                                                                                                                                                    3
Figure 36: Changes in public employment by contract type* .................................................................... 61
Figure 37: Average annual change in public employment, 2011-2021 ...................................................... 61
Figure 38: Employment by job title, 2021 (top 10) ..................................................................................... 61
Figure 39: Public employment by grade ..................................................................................................... 62
Figure 40: Change in public employment by select grades ........................................................................ 62
Figure 41: Employment distribution by employee age ............................................................................... 63
Figure 42: Employment distribution by years of service ............................................................................ 63
Figure 43: Public-private wage gap in the West Bank, 2021 ...................................................................... 64
Figure 44: Public-private wage gap in Gaza, 2021 ...................................................................................... 64
Figure 45: Salaries of fixed-contract employees in the public and private sectors .................................... 65
Figure 46: Salaries of non-fixed-contract employees in the public and private sectors ............................ 66
Figure 47: Wage premiums in comparator economies .............................................................................. 67
Figure 48: Criteria for appointments in state administration, 2021 ........................................................... 67
Figure 49: Government effectiveness in the West Bank and Gaza, 2021................................................... 67
Figure 50: Wage bill and employment, baseline scenario .......................................................................... 70
Figure 51: Civil-service VRS ......................................................................................................................... 70
Figure 52: Security-sector VRS .................................................................................................................... 70
Figure 53: Combined VRS ............................................................................................................................ 70
Figure 54: Projected impact of wage freeze and indexation ...................................................................... 71
Figure 55: Projected impact of reduced allowances................................................................................... 71
Figure 56: Projected impact of wage reduction for grades ........................................................................ 71
Figure 57: Projected impact of employment freeze ................................................................................... 71
Figure 58: Projected impact of wage freeze and indexation, allowance reduction, and attrition targets . 72
Figure 59: Projected old-age dependency ratio in the pension system ..................................................... 77
Figure 60: Projected consolidated DB expenditures and accrued revenues of civil-service programs, % of
GDP ............................................................................................................................................................. 84
Figure 61: Projected consolidated DB expenditure and accrued revenues for security-sector programs,
%GDP........................................................................................................................................................... 85
Figure 62: Benefits for new old-age pensioners in the civil-service program as a % of the average civil-
service wage................................................................................................................................................ 85
Figure 63: Consolidated CS DB pension expenditures and replacement rates, under status quo and reforms
(Moderate and Significant Reform Scenarios) ............................................................................................ 86
Figure 64: Projected DC contributions and benefit expenditures: SC scheme, % GDP .............................. 88
Figure 65: Indicative supplementary replacement rates of DC annuity in CS scheme, % of average wage
 .................................................................................................................................................................... 88
Figure 66: Changes in the distribution of the burden of disease in West Bank and Gaza (left) and risk factors
(right), 2009-2019 ....................................................................................................................................... 94
Figure 67: Blood-pressure control among adults ages 18-69 by sex, 2022 ................................................ 94
Figure 68: Blood-sugar control among adults ages 40-69 by sex, 2022 ..................................................... 94
Figure 69: Financing flows in the West Bank .............................................................................................. 97
Figure 70: Financing flows in Gaza .............................................................................................................. 97
Figure 71: Evolution of per capita spending in West Bank and Gaza, 2000-2020 ...................................... 98
Figure 72: Per capita current health spending in West Bank and Gaza and comparator countries, 2020 . 98
Figure 73: Evolution of breakdown of government health spending in West Bank and Gaza, 2013-2021 99
Figure 74: Government spending on health as a share of general government expenditure, 2013-2021 99
Figure 75: The public health budget, expenditures, and execution rates, 2013-2021 ............................. 100
Figure 76: The public health budget, expenditures, and execution rates by economic classification, 2013-
2021 .......................................................................................................................................................... 100


                                                                                                                                                                     4
Figure 77: Distribution of public health spending in Gaza, 2019-2022..................................................... 101
Figure 78: Public health spending in Gaza by financing source and expenditure type, 2019-2022 ......... 101
Figure 79: Disaggregation of OOP and concentration curves of OOP spending and catastrophic health
expenditure ............................................................................................................................................... 104
Figure 80: OOP versus public expenditure on health in West Bank and Gaza and comparators ............. 104
Figure 81: Trends in OMR volumes ........................................................................................................... 105
Figure 82: Trends in OMR expenditures ................................................................................................... 105
Figure 83: Trends in OMR unit cost by condition ..................................................................................... 106
Figure 84: Variation in unit costs across referral-receiving hospitals for key diseases ............................ 106
Figure 85: GERs by Education Level .......................................................................................................... 112
Figure 86: Student-Teacher Ratios by School Type .................................................................................. 112
Figure 87: More Girls than Boys Pass the Tawjihi Examinations in the West Bank and Gaza .................. 114
Figure 88: Education Spending by Economic Classification ...................................................................... 115
Figure 89: Education as a Share of Total Public Spending ........................................................................ 117
Figure 90: Association between PISA Mathematics Mean Scores and GDP Per Capita ........................... 118
Figure 91: Association between PISA Mathematics Mean Scores and Expenditure on Education .......... 119
Figure 92: Average Real Wages for Teachers and Non-Teaching Staff ..................................................... 121
Figure 93: Tawjihi Pass Rates by Governorate .......................................................................................... 123
Figure 94: University Acceptance Rates by Governorate ......................................................................... 123
Figure 95: Annual Budget Execution Rates ............................................................................................... 125
Figure 96: Selected Annual Donor Contributions to the MOE .................................................................. 126
Figure 97 Association between Educational Outcomes and GDP Per Capita ........................................... 169
Figure 98 Association between Educational Outcomes and Expenditure on Education .......................... 170


Tables

Table 1: Key Macroeconomic Indicators, 2015-2023 ................................................................................. 31
Table 2: The allocation of the PA budget between the West Bank and Gaza (%) ...................................... 36
Table 3: Distribution of allowance recipients by employment type ........................................................... 55
Table 4 Wage spending by category for top four occupations, 2021 ......................................................... 57
Table 5: Wage bill reform toolkit ................................................................................................................ 69
Table 6: Contributors and beneficiaries of the schemes managed by PPA ................................................ 76
Table 7: Income standards of employees and Old Age pensioners in 2021, NIS........................................ 77
Table 8: Parameters of Scheme II, 2023 ..................................................................................................... 78
Table 9: Pension finances, 2021, NIS millions ............................................................................................. 80
Table 10: Funding responsibilities for different pension benefits .............................................................. 81
Table 11: Portfolio structure of the PPA’s reserves, US$............................................................................ 82
Table 12: Proposed new age-related eligibility rules for civil-service retirement benefits ........................ 90
Table 13: Snapshot of health insurance schemes in West Bank and Gaza ............................................... 101
Table 14: Summary Statistics for the Education Sector in the West Bank and Gaza, 2021-2022 ............ 110
Table 15: Responsibilities of the MOE in Schools in the West Bank and Gaza ......................................... 110
Table 16: Mean Scores in PISA 2022 ......................................................................................................... 113
Table 17: Results in NLSA 2022, PISA 2022, and TIMSS 2011 by School Type .......................................... 114
Table 18: ESSP 2017-2022 Targets and Achievements by Education Level .............................................. 120
Table 19: Annual Public Spending per Student in Public School by Education Level ............................... 120
Table 20: Average Pupil-Teacher Ratios for Grades 1-12 ......................................................................... 122
Table 21: NLSA Average Performance for Grade 5 and Grade 9 in Gaza than West Bank, 2022 ............. 122



                                                                                                                                                             5
Table 22: 2022 PISA Scores and Socioeconomic Status ............................................................................ 124
Table 23: Constraints on effective spending and recommendations ....................................................... 127




                                                                                                                                  6
Acknowledgements
This document has benefited from insights and inputs from various sources. The core PER team was led
by Nur Nasser Eddin (Senior Economist, TTL) and Luan Zhao (Senior Economist, Co-TTL). The chapter on
Recent Macroeconomic and Fiscal Trends was written by Nur Nasser Eddin and Luan Zhao while Yahui Zhao
(Consultant) and Joanne Matossian (Consultant) assisted in conducting the relevant research and analysis.
The chapter on the wage bill was prepared by Izzah Malik (Public Sector Specialist) with support from Sami
Miaari (Consultant). The salary benchmarking analysis was prepared by Turkan Mustafa Qizi Mukhtarova
(Consultant), Ayesha Khurshid (Consultant) with guidance from Zahid Hasnain (Lead Governance
Specialist) and Donna Andrews (Lead Governance Specialist). The pensions chapter was authored by
Oleksiy Sluchynsky (Senior Social Protection Economist), Lidiia Tkachenko (Consultant), and Eimar
Coleman (Consultant). The health chapter was drafted by Denizhan Duran (Senior Health Economist),
Manon Yvonne Haemmerli (Health Economist), and Amr Elshawarby (Economist), with inputs from Amer
Khader (Consultant) and Tihomir Strizrep (Consultant) and was furthered by contributions from Rekha
Menon (Practice Manager), Sherin Varkey (Program Leader), Reem Hafez (Senior Economist), Moritz Piatti
(Senior Economist) and Jakub Kakietek (Senior Economist). The final chapter on the public education
system was drafted by Samira Nikaein Towfighian (Senior Education Specialist) and Gabriella Kim Elte
(Consultant), with support from Suha Khalili (Consultant).

The report benefited considerably from overall guidance and comments provided by Stefan Emblad, the
World Bank Country Director for the West Bank and Gaza, Nadir Mohammed (Prosperity Regional Director)
and Eric Le Borgne (Economic Policy MENA Practice Manager). The report also benefitted from most
valuable comments received by Kevin Carey (Program Manager) and Fernando Blanco (Lead Economist).
Insights by Gianluca Mele (Lead economist) and Samira Hillis (People Program Leader) were appreciated.
Furthermore, much gratitude is owed to Massimiliano Cali (Senior Economist) for improving the quality of
the report and to Arden Finn (Program Leader, Lead Country Economist) and the CMU colleagues Maha
Bali and Johan Bergman for their valuable input. The team would also like to thank Zein Daqqaq for the
administrative support provided throughout the preparation process.

This report was prepared in close collaboration with and based on invaluable information and insights
shared by the Palestinian Authority. The task team is grateful to counterparts at the Ministry of Finance,
the Ministry of Planning and International Cooperation, the Ministry of Health, the Ministry of Education,
the Palestinian Pension Authority, and the General Personnel Council. Undoubtedly, the report could not
have been produced without data and support provided by the Palestinian Central Bureau of Statistics and
the Palestine Monetary Authority.




                                                                                                        7
Acronyms and Abbreviations
AGD                Assistant General-Directors
AWPB               Annual Work Plans and Budgets
BA                 Bachelor of Arts
BC                 Business Continuity
BoD                Board of Directors
BOOST              BOOST government expenditure database
BSc                Bachelor of Science
CERD               Center for Educational Research and Development
CPI                Consumer Price Inflation
CS                 Civil Service
DB                 Defined-Benefit
DC                 Defined-Contribution
DR                 Disaster Recovery
EDSP               Education Development Sector Plan
EGRA               Early Grade Reading Assessment
EJHN               East Jerusalem Hospital Network
EMs                Emerging Markets
ESCS               Economic, Social, and Cultural Status
ESSP               Education Sector Strategic Plan
FCV                Fragility, Conflict, and Violence
GDP                Gross Domestic Product
GER                Gross Enrollment Ratio
GFS                Government Finance Statistics
GHI                Government Health Insurance
GOI                Government of Israel
GPIC               General Pensions and Insurance Corporation
HCP                Human Capital Project
HR                 Human Resources
IBAN               International Bank Account Number
ICT                Information and Communication Technologies
ID                 Identity Document
IEC                Israeli Electricity Company
IHME               Institute for Health Metrics and Evaluation
ILO                International Labor Organization
ILSAs              International Large-Scale Assessments
IT                 Information Technology
JFA                Joint Financing Arrangement
JOD                Jordanian Dinar
KG                 Kindergarten
KPMG               Klynveld Peat Marwick Goerdeler
LaNA               Literacy and Numeracy Assessment
LAYS               Learning-Adjusted Years of Schooling


                                                                     8
LGUs     Local Government Units
LLCs     Limited Liability Companies
LMIC     Lower-Middle Income Country
M&E      Monitoring and Evaluation
MA       Master of Arts
MENA     Middle East and North Africa
MFMod    Macroeconomic and Fiscal Model
MIS      Management Information System
MOE      Ministry of Education
MOF      Ministry of Finance
MOH      Ministry of Health
MOHE     Ministry of Higher Education
MoLG     Ministry of Local Government
MOUs     Memorandums of Understanding
MSc      Master of Science
NCD      Non-Communicable Disease
NDC      Nationally Determined Contribution
NER      Net Enrolment Rate
NGOs     Non-Governmental Organizations
NIS      New Israeli Shekel
NLSA     National Learning Standardized Assessment
OECD     Organization for Economic Cooperation and Development
OMR      Outside Medical Referrals
OOP      Out-of-Pocket
PA       Palestinian Authority
PCBS     Palestinian Central Bureau of Statistics
PECS     Palestinian Expenditure and Consumption Survey
PEGASE   Palestinian-European, Socio-Economic Management and Assistance
         Mechanism
PER      Public Expenditure Review
PFM      Public Financial Management
PFR      Public Finance Review
PHC      Primary Healthcare Centers
PISA     Program for International Student Assessment
PMA      Palestine Monetary Authority
PMMS     Palestinian Medical Military Services
PMOH     Palestinian Ministry of Health
PPA      Palestinian Pension Authority
ppts     percentage points
PRDP     Palestinian Reform and Development Plan
PROST    Pension Reform Options Simulation Toolkit
Q4       Fourth Quarter
QA       Quality Assurance
SAACB    State Audit and Administrative Control Bureau



                                                                          9
SDG          Sustainable Development Goal
SERATAC      Supporting an Education Reform Agenda for Improved Teaching,
             Assessment and Career Pathways
SIAD         Social Insurance Administrative Diagnostic
SOPs         Standard Operating Procedures
SPU          Services Purchasing Unit
TFR          Total Fertility Rate
TIMSS        Trends in Mathematics and Science Study
TVET         Technical and Vocational Education and Training
UAE          United Arab Emirates
UN           United Nations
UNESCO UIS   United Nations Educational, Scientific and Cultural Organization Institute
             for Statistics
UNICEF       United Nations International Children's Emergency Fund
UNRWA        United Nations Relief and Works Agency
UPL          Unified Pension Law
US$          United States Dollar
USD          United States Dollar
V-Dem        Varieties of Democracy
VAR          Vector Auto Regression
VAT          Value-Added Tax
VRS          Voluntary Retirement Scheme
WDI          World Development Indicators
WGI          Worldwide Governance Indicators
WHO          World Health Organization
WHO-PEN      World Health Organization - Package of Essential Noncommunicable
y/y          Year-on-Year




                                                                                    10
EXECUTIVE SUMMARY1
1. The ongoing conflict in the Middle East, centered in Gaza, has turned the pre-existing economic and
   fiscal fragility of the West Bank and Gaza into a full-blown crisis

Just like every other socio-economic dimension, also the fiscal situation in West Bank and Gaza is
shaped by its fragility, conflict and violence (FCV) context. It is difficult to overstate the impact that the
Israeli occupation imposes on the economy of the West Bank and Gaza. Along with the recurrent violence,
the most important obstacles to Palestinian growth and private-sector development2 continue to be the
Israeli restrictions on movement, economic activity, and access to resources in the West Bank,3 and the
near-total blockade of Gaza since 2007. As such, these factors fundamentally undermine the
macroeconomic foundations needed to achieve fiscal sustainability. These constraints are amplified by
Israel’s control of the Palestinian borders and of vast swathes of its territory (Area C),4 which greatly limit
the Palestinian ability to collect taxes and conduct an independent and sound fiscal policy. These
limitations, in addition to the internal political divide between the West Bank and Gaza, cause the
Palestinian Authority (PA) to face a situation of permanent fiscal emergency. Fiscal revenues are
structurally unable to cover the large public expenditures needed to maintain the economy and the
society afloat. Hence the PA has to rely on foreign aid in order to bridge the financing gap.

The devastating impact of the ongoing conflict has transformed the fragile Palestinian economic
situation into a full-blown economic crisis. In Gaza, the mounting death toll, extensive damage to physical
assets, and severe disruption of public services and economic activity have caused an unprecedented
crisis. According to the Rapid Damage and Needs Assessment produced by the World Bank, EU and UN,5
damage to Gaza’s capital stock as a result of the conflict is estimated at US$29.9 billion, nearly twice the
pre-conflict real GDP of the West Bank and Gaza combined. The West Bank has experienced severe knock-
on effects due to new restrictions imposed by Israel as well as greater deductions from revenues Israel
collects on behalf of the PA, the so-called clearance revenues. The conflict pushed the Palestinian economy
to its deepest decline in over a generation with the economy contracting by 27 percent in 2024: -83
percent in Gaza and -17 percent in the West Bank. This contraction aggravates the ailments of an economy
that was already growing slowly and that witnessed high unemployment even before the current conflict,
especially in Gaza due to the near-total blockade since 2007. In 2024, unemployment may have soared to


1 Data used for the analysis was collected prior to the eruption of the ongoing conflict in the Middle East, so much of the PER
effectively provides a benchmark for the pre-conflict state of public expenditures against which the post-conflict state can
eventually be measured.
2 Laursen and Nasser Eddin, 2017. Prospects for growth and jobs in the Palestinian economy: a general equilibrium analysis.

Washington, D.C.: The World Bank Group. http://documents.worldbank.org/curated/en/952571511351839375/Prospects-for-
growth-and-jobs-in-the-Palestinian-economy-a-general-equilibrium-analysis
3 According to the Government of Israel, these restrictions are for the purpose of enhancing the security of Israel and Israeli

citizens.
4 Area C constitutes about 61 percent of the West Bank territory. It is defined by the 1995 Israeli-Palestinian Interim Agreement

on the West Bank and the Gaza Strip as “areas of the West Bank outside Areas A and B, which, except for the issues that will be
negotiated in the permanent status negotiations, will be gradually transferred to Palestinian jurisdiction in accordance with this
Agreement”. According to the Interim Agreement, the gradual transfer should have been completed by 1997. However, it has
not been implemented as envisaged in the Interim Agreement and in the meantime, access to this area for most kinds of economic
activity has been severely limited.
5     Gaza     and    West       Bank    Interim     Rapid    Damage        and     Needs      Assessment,       February    2025.
https://thedocs.worldbank.org/en/doc/133c3304e29086819c1119fe8e85366b-0280012025/original/Gaza-RDNA-final-med.pdf


                                                                                                                              11
as high as 80 percent in Gaza, while in the West Bank it rose to 33.5 percent6 (from 13 percent in the third
quarter of 2023), its highest level on record.7

The conflict is also fueling a fiscal crisis, reversing the reduction in the PA’s fiscal deficit registered in
recent years and exacerbating the challenges of declining foreign aid. Between 2006 and 2022, the PA
narrowed its total fiscal deficit (before international aid and after Israeli deductions from clearance
revenues) from 27 percent of GDP to about 3.7 percent. However, the conflict’s severe negative impact
on the PA’s finances widened the deficit to 6 percent of GDP in 2023 and to 15 percent in 2024. Financing
this deficit is particularly challenging in the context of declining external budget support and extremely
limited sources of domestic financing. Donor fatigue and competing priorities in the region caused aid to
drop from a peak of 27 percent of GDP in 2008 to 2 percent in 2023, with negative repercussions on
growth. Aid increased to 6 percent of GDP in 2024, but it is not guaranteed that this level will be
maintained in the coming years. Ensuring adequate and predictable budget support remains
indispensable to the reform agenda and fiscal sustainability, especially given the huge fiscal resources
needed to cope with the ongoing conflict and its aftermath.

2. Already before the conflict, the PA’s fiscal position was fragile as it increasingly relied on domestic
   public debt and arrears to finance the large public spending as revenues did not rise sufficiently to
   offset the decline in foreign aid

Over the years, the PA managed to increase overall public revenues to levels above the standards of
FCV economies, but revenues have been severely hit since October 2023. Public revenues (net of grants)
reached 27 percent of GDP in 2023, with a positive trend, which underscores the PA’s commitment to
revenue mobilization. Clearance revenues accounted for roughly 60 percent of total fiscal revenues. The
transfer of clearance revenues has been subject to Israeli political decisions, with significant deductions
made in defiance of the Paris Protocol. Initially, these deductions mainly covered unpaid utility bills to
Israeli suppliers and medical referrals to Israeli hospitals. A sharp increase in deductions since last October,
ostensibly to account for the PA’s spending in Gaza which remained unchanged following October 2023,
coupled with a decline in domestic revenue generation as a result of the economic contraction, has
created a burgeoning fiscal crisis.

Public expenditure in the West Bank and Gaza is relatively high by the Middle East and North Africa
(MENA) region and Low- and Middle-Income Countries (LMIC) standards and is also extremely rigid,
limiting the PA’s ability to adapt its spending under challenging conditions. Over the last decade, public
expenditures exceeded 30 percent of GDP as the PA has long relied on spending to drive economic activity.
But high expenditure levels have proven unable to offset the impact of the Government of Israel (GOI)-
imposed restrictions and have not translated into strong and sustained growth. Regional comparisons
suggest that other countries have been able to generate larger gains in average income with much lower
levels of public spending. Recurrent spending, namely the wage bill, dominates public expenditures,
whereas capital investment accounted for an average of about 2 percent of GDP in recent years, far below
the levels of peer countries, with negative implications for long term growth. The PA’s fiscal flexibility is
very limited. At close to 80 percent, the share of rigid expenditures in total spending in the West Bank and



6   Performance of the Palestinian Economy in 2024. PCBS, May 2025. https://www.pcbs.gov.ps/Downloads/book2723.pdf
7   That started in 1994.


                                                                                                                     12
Gaza is higher than the average for any comparator group. Expenditure rigidity has restricted the PA’s
ability to adapt fiscal spending under challenging conditions.

With rapidly declining foreign aid, the PA increasingly relied on domestic sources to bridge its financing
needs by accumulating public debt and arrears. The PA’s public debt reached 85.7 percent of GDP by
end-2024. At 55.0 percent of GDP, arrears represent the largest share of the Palestinian debt. The total
stock of arrears to the private sector stood at an estimated US$ 1.5 billion (9 percent of GDP) at end-2024,
mostly owed to pharmaceutical companies, private and non-governmental organization (NGO) hospitals,
and contractors. In addition to the private sector, the PA has also accumulated arrears to the public
pension fund, which are estimated at around US$ 3 billion (22 percent of GDP) for the civil-service
schemes, though no data are available on the security schemes. Finally, arrears to public employees are
estimated at US$ 1.47 billion (10.7 percent of GDP). The excessive accumulation of arrears is alarming as
it could stifle economic growth by draining the private sector’s working capital, deterring investors, and
reducing spending by public employees.

3. Stopping the ongoing hostilities in Gaza, strengthening the fiscal cooperation with the GOI while
   working to permanently resolve the Israeli-Palestinian conflict are key fiscal priorities across sectors

Against this fragile background, the Public Expenditure Review (PER) examines some of the key spending
areas in West Bank and Gaza, identifying specific and cross-cutting recommendations. The PER includes
an overview of the PA’s public spending, with a focus on the civil-service payroll, an analysis of the public
pension system, as well as the education and health sectors, two major spending areas. Together, these
account for 67.3 percent of total government spending, and 84.1 percent of non-discretionary spending.
Data used for the analysis was collected prior to the eruption of the conflict, so much of the PER effectively
provides a benchmark for the pre-conflict state of public expenditures against which the post-conflict state
can eventually be measured. While each chapter offers specific findings and recommendations, several
key cross-cutting challenges emerge from the analysis.

The first cross-cutting priority is the urgent need to stop the hostilities in Gaza and fund its
reconstruction. Besides the immense loss of lives and structures, ending the violence is crucial to allow
Gaza’s society and economy to resume some basic functioning including also rebuilding its public sector
system. The enormous social, humanitarian, and public investment needs arising from the conflict will
have large spillover effects on all sectors of the Palestinian economy, not only in Gaza. Once the violence
stops, efforts should focus on rebuilding Gaza’s physical and institutional infrastructure, remediating the
learning losses and direct and indirect effects on public health caused by the conflict, and sustaining the
PA’s core functions in a context of depressed economic activity. Given the heavily constrained ability of the
PA to raise revenue in light of the Israeli restrictions and withholding of clearance revenues, massive
inflows of donor support will be necessary to rebuild Gaza. Deep reforms and improvements to the PA’s
public financial management systems will be crucial to engage effectively with the donor community and
shore up the confidence of the development partners.

While a permanent resolution of the conflict may take time, enhancing cooperation between the GOI
and the PA is a crucial step to improve the PA’s fiscal situation. The initial focus should be on resolving
the ongoing clearance revenue impasse. Given that clearance revenues are the PA’s largest source of
income, resuming these transfers should be a priority. Addressing the increasing deductions imposed by
the GOI by establishing transparency and accountability criteria vis-à-vis the rules used by the GOI to apply
deductions and withholding of revenues is key. Second, fully implementing the e-VAT clearance system


                                                                                                           13
would reduce VAT leakages between the GOI and the PA. Third, transferring customs responsibilities to
the PA and establishing Palestinian bonded warehouses would increase the PA’s revenues and enable a
more independent trade policy. Fourth, remitting all VAT on Israel-Gaza trade to the PA would enhance
fiscal space and resume the arrangement in place prior to the near-total blockade which began in 2007.
Fifth, renegotiating the fee charged by the GOI for handling Palestinian imports would increase fairness
as the current fees far exceed cost-recovery. Finally, the parties should determine the exit fee collected
at the Allenby Bridge collaboratively and share it according to the Paris Protocol.

The third cross-cutting priority revolves around the ultimate governance structure in Gaza once the
conflict ends, including the eventual role of the PA. About one-third of the PA’s budget is spent in Gaza
even though the PA has not governed the Strip since 2006 and collects only about 3 percent of its revenues
from the territory. The largest component of these expenditures is compensation for public employees in
Gaza who still report to the PA, but the PA also pays pension benefits to retired employees in Gaza and
makes social transfers to poor households. Finally, the PA covers the cost of Gaza’s utility payments to
Israeli suppliers, which are deducted from clearance revenues. This fiscal gap in Gaza is a major contributor
to the PA’s strained finances, and it must be resolved once the conflict has subsided.

Efforts by the PA also remain key to push forward the reform agenda and improve the fiscal position.
Although central government revenues are relatively high by the standards of FCV countries, they still fall
short of the PA’s potential. Due to the political divide, revenue collection from Gaza was very low even
prior to the conflict, as mentioned above. In the West Bank, reforms are needed to broaden the tax base
to include high-earning professionals such as doctors, lawyers, and engineers. Administrative enforcement
powers should be strengthened and accompanied by penalties for tax evasion. Additional efforts should
be made to determine the appropriate framework for taxing small firms and Limited Liability Companies
(LLCs) under the new Companies Law. Nontax revenues could also be significantly augmented by revising
government fees and charges, most of which have not been adjusted in over two decades. Revenues
collected by local governments also remain minimal, and large intergovernmental transfers contribute to
the PA’s deficit. Access to Area C is also crucial to increase the PA’s revenue, but progress in this area hinges
on a successful political dialogue. On the expenditure side, the following discussion covers some of the
key spending areas to improve the fiscal position.

4. Accounting for almost half of public expenditures, the public wage bill appears fiscally
   unsustainable and could be reformed through control and structural measures

The PA’s wage bill has continued to grow in an environment where job generation by the private sector
is constrained, but the wage bill has become fiscally unaffordable. The difficulty of pursuing a
conventional market-oriented development strategy in the West Bank and Gaza since the early part of the
2000s, after the second Intifada and the associated heightened Israeli restrictions on movement and
access, led to a “second-best” reliance on public sector employment and wage bill expansion to boost
aggregate demand. Between 2011-2018 (a period for which data are available for all countries), the PA’s
wage bill averaged 14 percent of GDP and 46 percent of central government spending, far above the
averages of 11 and 30 percent, respectively, for the MENA region, as well as the averages of 8 and 29
percent, respectively, for countries affected by FCV. On average, the PA spends more on its wage bill both
as a share of GDP and total spending than do regional comparator countries such as Jordan, Egypt, and
Morocco. However, given the current fiscal crises, the PA has only been paying about 80-85 percent of the
wages of public employees since November 2021, and this rate has fallen to 50-70 percent since the start
of the conflict.


                                                                                                              14
The main driver of wage bill growth in the Palestinian context has been the increase in the salaries of
public employees. The latter was largely due to increases in allowances. On the other hand, growth in
employment has been relatively low. Between 2011 and 2021, spending on the wage bill grew at an
average annual rate of 2.3 percent, in nominal terms. Most of this surge came from spending on employee
salaries, which increased at an average rate of 2 percent per annum, while the residual 0.3 percent annual
increase is attributable to net additional employment/jobs created in the public sector. Notably, the
ministries of health and education represent the largest share of wage bill spending and they have also
seen the largest increases over time, mostly in the forms of allowances. The PA has gradually channeled
an increasing portion of its salary increases over the years into allowances, using them as a supplement to
base pay instead of as a reward for specific jobs or work performance. Specifically, two types of allowances,
‘job’ and ‘other’, have been used to channel most of the compensation increases that have taken place
over the years often because of salary bargaining.

The West Bank has been responsible for a larger share of wage bill growth compared to Gaza. Between
2011 and 2021, wage bill spending in the West Bank increased by 87 percent, whereas it declined in Gaza
by 27 percent, in nominal terms. Trends in public employment are similar. Between 2011 and 2021, public
employment in the West Bank increased by 32 percent, reaching 116,458 employees. During the same
period, PA employment in Gaza declined by 40 percent and reached 39,156 employees due to natural
attrition and PA policy to minimize hiring in the Strip.

Public sector salaries in the West Bank are misaligned with private sector benchmarks, creating negative
externalities. Wage premium analysis conducted using data from the 2021 Labor Force Survey shows that
public sector employees in the West Bank receiving an income at the 10th income percentile8 level earn
99 percent more than their private sector peers and that this gap cannot be explained by differences in
characteristics such as education and experience. Further, above the 20th income percentile, the effect is
opposite whereby the public sector is likely under-paying its employees, creating incentives for job seekers
to prefer private sector jobs, thereby potentially depriving the public sector of much needed skills. The
story in Gaza is different as, on average, the public sector pays more than the private sector across almost
all levels of income, except the senior most levels where the private sector pays more.

Continued growth in the PA’s wage bill over the years has not been reflected in improved government
effectiveness. In fact, between 2010 and 2020, the West Bank and Gaza’s performance on the Worldwide
Governance Indicators9 deteriorated overall. On the “government effectiveness” sub-indicator, which
captures “perceptions of the quality of public services, the quality of the civil service and the degree of its
independence from political pressures, the quality of policy formulation and implementation, and the
credibility of the government’s commitment to such policies,” the West Bank and Gaza’s score fell from
43 out of 100 in 2010 to just 29 in 2020. By comparison, in 2020 the average score for the MENA region
was 42, and the average for LMICs worldwide was 36. Further, survey data show that appointments in the
Palestinian public sector are often based on personal or political connections rather than merit. In 2021,
the Varieties of Democracy (V-Dem) research project10 found that the public sectors in the West Bank and
Gaza scored poorly (1.6 and 0.8 out of 4, respectively) on the question “To what extent are appointment
decisions in the state administration based on personal and political connections, as opposed to skills and

8 A value where 10 percent of the population earns at or below that amount.
9 https://info.worldbank.org/governance/wgi/Home/Reports
10 https://www.v-dem.net/vdemds.html




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merit?”. The question covered all major appointment decisions (i.e., recruitment, promotion, and
dismissal), and the results indicate that most appointments are not based on merit.

    Recommendations to reform the PA’s wage bill

In the short-term, the PA, like other governments, can make use of a variety of strategies to monitor
wage and employment trends. They may opt to freeze wages or link wage growth to a standard
percentage decided annually by a pay commission to rein in spending on the wage bill. Governments can
also use hiring freezes or attrition targets. World Bank simulations show that reforms that address both
employment and wage growth can result in better outcomes as they can deliver significant fiscal savings
for the PA. These reforms would include : (i) freezing wages for two years and then indexing them to a
standard rate of increase such as 1.5 percent, (ii) reducing spending on “job allowances” and “other
allowances” by 20 percent over several years, and (iii) putting in place an attrition target such as two
employees out for every one that enters (based on an assumption that 3,000 employees exit annually for
every 1,500 that enter). Such measures would be able to reduce the wage bill by 16 percent, in nominal
terms, to NIS 7 billion by 2026. A Voluntary Retirement Scheme (VRS) is an option considered by the
authorities, but it may not deliver the level of savings needed to stabilize wage bill spending as simulations
by the World Bank show that the VRS will only result in modest savings initially as the PA will be able to
realize the reduction in its wage bill due to the exit of the voluntary retirement employees. However,
thereafter, the wage bill will continue to grow as it has in the past.

Medium-to-long term structural reforms are country-specific and allow governments to improve overall
wage bill management and government performance. For example, modern civil services around the
world typically fold the majority of allowances into base pay in order to improve horizontal equity (equal
pay for equal work), while keeping certain special allowance categories in place to reward high
performance. Another best practice includes aligning public sector pay with private sector wages to
promote salary competitiveness in the labor market. Governments have also undertaken reforms in their
pay and grading structure to limit pay fragmentation and improve salary and career management. Last but
not least, governments may also choose to link human resource and compensation planning to the
medium-term budget to improve overall fiscal sustainability of the wage bill.

5. An important contributor to the public debt, the pension system could be improved through
   parametric adjustments and reforms to define contributions and benefits

In 2022, spending on the public pension system was equal to 3.5 percent of GDP or 13 percent of the
PA’s budget. Relative to GDP, spending on the pension system increased by 17 percent between 2013 and
2022. The system has gone through rounds of parametric and systemic reforms, but its financial
sustainability remains uncertain. The Palestinian Pension Authority (PPA) faces a high risk of default, and
it may be unable to implement the deep reforms necessary to stabilize the system. Consequently, pension
reform should be integrated into a broader agenda for reforming public expenditures.

The PA’s public sector pension system is in transition from a fragmented to a unified scheme. The new,
unified scheme (introduced in 2006), despite notable improvements, continues to confront major issues,
notably a dramatic worsening of the dependency ratio in the long run, which will require policy
adjustments. In addition, the main Defined Benefit (DB) component remains costly due to a combination
of a generous formula (2 percent for each year of service), relatively low age of retirement (60), and early
retirement privileges. The Defined Contribution (DC) component has never properly been implemented


                                                                                                           16
as the individual DC accounts held at the PPA are notional (i.e., there is no real money) and accrue no
interest.

The schemes’ financing mechanism is complex, lacks transparency and needs to be consistent with the
Unified Pension Law. The MOF Treasury is required to cover the costs of pensions under the old schemes
(I, III, and IV), and additionally, to pay contributions for all public sector employees that are part of the
new Scheme (II). Both contributions are of the same magnitude, financially. However, the Treasury is de
facto only financing the current pension payouts. The stock of contribution arrears is allegedly at over 15
percent of GDP (subject to reconciliation between the PPA and MOF), and on a growing trend.

    Recommendations to reform the public pension system

Reforming the pension system could involve four parallel tracks with the first being a series of
parametric adjustments to alleviate the costs of future pensions. This could include: a) gradually raising
the retirement age to 63, for women and men, by three months annually over a 12-year period, to keep
pace with the increasing life expectancy, b) restricting early retirement to 5 years under the retirement
age (initially 55) no matter what total service has been accumulated, c) gradually reducing the accrual rate
of pension benefits from the current 2 percent down to 1.75 percent, d) reducing the minimum service
from 15 to 10 years to enhance access to pensions, while the span of the pensionable wage at retirement
could expand to cover at least 5 years of wages, and e) reforming the benefit indexation policy, combining
wage growth and inflation.

The second track would involve systemic changes to split the DB benefit package into two . The DB
scheme could be made partially non-contributory, by splitting it into two components: (i) one that is linked
to regular contributions, while (ii) another component would be a non-contributory basic pension,
building on the precedent of the personal allowance (NIS 300) paid to all that have the right to the
contributory component. Such an approach would allow for a more transparent budgeting process, better
link to the wage bill policy, and would give more flexibility to the government in responding to various
policy challenges.

Transforming the DC benefit into an early-separation (indemnity) payment would be a third reform
track. The DC component de facto operates now as an end-of-service indemnity scheme with a lump sum
benefit linked to earnings. It is recommended to convert it into such de jure, so it becomes an
unemployment and early separation insurance. Removing the matching 3 percent contribution of the
government to that scheme – and possibly making the employee contributions to such scheme voluntary
– is also an option.

The final track would be financial restructuring for rationalizing the institutional and financial
responsibilities of the PPA and the MOF towards the pension system to improve its transparency . If the
MOF financially guarantees all future pension payments, it could legally assume the full financial
responsibility for all current and future pension obligations by financing any deficit of the consolidated
system, without differentiating between schemes. In exchange, all the DB contribution arrears that the
MOF has accumulated so far, along with interest and penalties, would be annulled. Among other things,
this would result in a reduction of the current explicit public debt.




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6. The ongoing conflict has nearly destroyed the entire health sector in Gaza, exacerbating the
   challenges that the system was facing prior to the eruption of the conflict, both in the West Bank
   and in Gaza

The conflict has nearly completely destroyed the health system in Gaza, which exacerbates the pre-
existing challenges in the overall Palestinian health system mostly caused by the context .11 Extensive
attacks have devastated Gaza’s health system, and almost 90 percent of health facilities have been
damaged or destroyed. The health sector has been struggling to manage a massive surge in conflict-
related injuries, the consequences resulting from the disruption of essential maternal and child health
services and non-communicable disease (NCD) treatment, and an unprecedented increase in infectious
diseases. According to the Interim Rapid Damage and Needs Assessment (IRDNA) produced by the World
Bank, EU and UN,12 short-term recovery and reconstruction needs for the health sector are at US$4.3
billion, the highest of any sector. Even before the ongoing conflict, the Palestinian health system faced
significant challenges partly due to spatial and political fragmentation that has created structural barriers
to equitable service provision. Movement restrictions, including an unpredictable Israeli permit system,
negatively impact access to essential health services. Between 2019 and 2021, only 65 percent of patient
permit applications from Gaza and 84 percent of applications from the West Bank were approved on time,
with delays resulting to increased mortality and morbidity. Shortages of medical equipment and essential
medicines, particularly in Gaza, represent a chronic constraint on effective service delivery. The near-total
blockade has severely delayed the entry of medicines to Gaza, as well as the procurement and
maintenance of medical equipment. Limited flows of medical equipment and resources between the West
Bank and Gaza exacerbated local shortages.

Life expectancy in the West Bank and Gaza remains lower than in peer countries and has fluctuated due
to the impact of violence. With a relatively young, rapidly growing population, the West Bank and Gaza
is still at the early stages of the demographic transition, and effective economic and social policies will be
vital to achieve a demographic dividend. Average life expectancy at birth is close to the regional average
and above the average for lower-middle-income countries, but it is well below the average for Israel.

Despite improvements in health outcomes before the conflict, the high and rising burden of
noncommunicable diseases (NCDs) is straining the health system. Before the conflict, NCDs accounted
for 72 percent of the disease burden, and in 2019 eight of the twelve main drivers of morbidity were NCDs.
Poor treatment indicators demonstrate the need to strengthen primary care focusing on diagnostics,
address frequent stockouts of essential medicines, increase treatment adherence by expanding access to
community-level primary healthcare facilities, and enhance follow-up care through family medicine.

Most NCDs are referred to private and NGO hospitals due to insufficient hospital capacity, and
reimbursement imposes a major financial burden on the Ministry of Health (MOH). NCDs often require
sustained treatment and continuous access to preventive, curative, and palliative care. Since 2015, almost
90,000 cases per year have been referred from public health facilities to private or Non-Governmental
Organizations (NGO)-run hospitals. These outside medical referrals (OMR) result in average annual


11 The health sector chapter assesses public health expenditures and the health system prior to October 2023, based on
quantitative and qualitative data collected between June 2022 and January 2023. A standalone companion piece to be published
in the coming months.
12    Gaza     and     West     Bank      Interim   Rapid    Damage      and     Needs     Assessment,    February    2025.
https://thedocs.worldbank.org/en/doc/133c3304e29086819c1119fe8e85366b-0280012025/original/Gaza-RDNA-final-med.pdf


                                                                                                                         18
financial expenditures of about US$ 250 million (1.3 percent of GDP), equivalent to one-third of total MOH
spending. Moreover, as of June 2025, the MOH owes US$ 623 million (4.5 percent of GDP) in cumulative
arrears to hospitals for OMRs.

The health sector’s human resources are insufficient. In 2021, there were 1.4 physicians, 1.76 nurses,
and 0.21 midwives per 1000 population, with slightly higher levels in Gaza than in the West Bank. The rate
of physicians per capita is low relative to regional comparator countries. The limited supply and
inequitable distribution of specialists pose substantial challenges for timely access to specialized health
services.

The budget-formulation process suffers from serious deficiencies, and governorates and health facilities
play a limited role in budget execution. The MOF’s funding for the health system comes from general
public revenue, including taxes and donor support, and from government health insurance (GHI)
contributions. GHI contributions are collected by the MOH but are transferred and pooled with other
revenues at the MOF level, in the absence of an autonomous health insurance agency. These funding
arrangements prevent the scheme from effectively distributing risk or manage providers and
beneficiaries. In 2020, total health spending per capita reached US$332, almost double the average for
peer countries, with out-of-pocket (OOP) expenditures constituting the majority of health spending. High
OOP expenditures indicate that health insurance offers limited financial risk protection.

The wage bill, costly referrals to hospitals outside the public sector, and high unit costs for
pharmaceuticals limit the resources available for investments and operational support . In 2021, health
spending by the PA reached 13 percent of total public spending. Wages and salaries and OMR represented
42 percent and 34 percent of public health spending, respectively. The purchase of goods and services
(including medicines) made up 20 percent of public health spending, while infrastructure investment
accounted for less than 1 percent. Since 2013, the combined share of expenditures allocated to salaries
and OMR has fluctuated between 70-86 percent of total public health spending and is currently at 75
percent, leaving little space to invest in strengthening service delivery at public health facilities.

Despite high levels of insurance coverage, 12.3 percent of the population incurred catastrophic health
spending in 2017, and insurance coverage is not associated with reduced OOP . A full 1.5 percent of the
population incurred impoverishing health spending in 2017, further underscoring the weak financial
protection offered by health insurance. Copayments, persistent shortages of medicines in public health
facilities, and a heavy reliance on hospital services are key drivers of OOP spending. Shortages of
medicines in public facilities often force patients to purchase medicines from private pharmacies,
especially essential NCD drugs, leading to high OOP payments and in some cases catastrophic spending.

The health-insurance fund does not act as the purchaser of services, and the only services actively
purchased by the MOH level are those referred to private and NGO hospitals. The MOH purchases OMR
services from referral-receiving hospitals based on memorandums of understanding that specify a mix of
fee-for-service and case-based payments. A declining but still significant share of these referrals are to
Israeli hospitals, and payments to these hospitals are deducted directly from the PA’s clearance revenues
with no price transparency, which further weakens the health-financing system.

Inequitable financial risk protection, inefficient purchasing arrangements, and shrinking fiscal space
pose critical financial challenges to the Palestinian health sector. The Palestinian health-financing system
is locked in a vicious cycle of elevated unit costs, mounting arrears, chronic medicine stockouts, and weak


                                                                                                         19
public investment. Due to substantial payment delays and the accumulation of arrears to pharmaceutical
wholesalers, unit costs remain high, and few pharmaceutical wholesalers remain active in the market,
which further increases prices while undermining MOH bargaining power. The limited availability of
pharmaceuticals in public facilities increases the frequency of referrals to non-MOH hospitals, which
further inflates OMR-related expenditures and arrears. The unit costs of pharmaceuticals remain
substantially elevated due to the limited use of reference pricing, the use of Israeli prices, high entry and
exit requirements, and a restrictive customs regime. The absence of an explicitly defined benefits package
weakens cost controls and further contributes to the unsustainability of pharmaceutical costs and other
health spending.

    Recommendations to reform the health system

Once a durable ceasefire in Gaza is implemented, several reform actions could increase the fiscal
sustainability of the Palestinian health system. In Gaza, as part of the reconstruction efforts, the initial
focus should be on rebuilding the system to ensure implementation of priority recovery interventions. As
the PA has little to no capacity to increase the fiscal space for health spending, at least in the medium
term, focusing on scaling up priority services in an equitable and efficient manner is essential. The
following four-step prioritized plan should be implemented as soon as a durable ceasefire has been
established.

The first step should be to strengthen MOH purchasing arrangements by defining an essential benefits
package, reference prices, and contracting rules. Due to the PA’s fiscal constraints and the unsustainable
nature of OMR expenditures, the health-financing system must redefine its purchasing arrangements. The
MOH is the sole public purchaser of health services, and it should continue strengthening the capacity of
the SPU by explicitly defining a benefits package and prioritizing the services covered within it.

The second step involves expanding equitable insurance coverage. Increasing coverage is essential given
high levels of OOP expenditures and the fact that over one-third of the population is not covered by GHI.
To expand equitable insurance coverage the PA should either strengthen the current GHI arrangements
to ensure the delivery of the essential benefits package and a prioritized list of OMR services; use general
tax revenue to finance the essential benefits package and use GHI contributions exclusively to finance
priority OMR services; or use tax revenue to finance both the essential benefits package and priority OMR
services. Whichever option is chosen, policymakers will need to mobilize sufficient resources, focus on
controlling prices, and define a prioritized essential benefits package focusing on cost-effective, equitable
services, as described above.

The third step should focus on creating additional fiscal space by raising and reallocating revenue,
especially for covering the poor and vulnerable to reduce OOP, and proactively manage arrears.
Rationalizing benefits and strengthening purchasing arrangements could ease pressure on the PA’s health
budget. In the West Bank and Gaza, relatively few households are able to contribute, and even if insurance
premiums were tripled, they would barely reach one-third of public health expenditures. As a result,
general tax revenue will continue to play a major role in financial risk protection. In addition to efficiency
gains, the PA can establish or increase taxes on unhealthy foods, tobacco, and alcohol; reallocate
budgetary funds to ensure the MOH has adequate resources to finance the essential benefits package;
and develop a comprehensive investment plan for the health sector and mobilize resources from external
partners to reduce the incidence of OMR. A targeted fiscal space assessment can provide additional
revenue sources for the health sector.


                                                                                                           20
The fourth step involves improving the legal and institutional framework for the health sector. To
achieve this, the PA will need to continually refine and enhance the organizational structures and
operational processes that underpin the health sector. Building purchasing capacity and integrated
information systems will be a necessary first step. GHI can be enhanced by creating arrangements for a
purchaser/provider split, establishing an autonomous insurance agency, and introducing key beneficiary,
provider, and claims-management functions.

7. The FCV context, under-payment of teachers’ salaries and unequal access to early childhood
   education are some of the factors that stifle the educational outcomes, despite the PA’s
   prioritization of education spending

The FCV situation has a pervasive impact on the entire education system in the West Bank and Gaza. As
a result of the conflict, the education system is Gaza has completely collapsed, with 100 percent of
students out of school, since last October, and damages estimated so far at US$ 341 million (2 percent of
GDP). Casualties among students and teachers continue to rise, emphasizing the profound human impact
of the crisis. In the West Bank the construction of new schools has been highly politicized and is severely
restricted by the GOI. This leads to limited access, particularly of pre-primary education, in more remote
areas. Mobility restrictions also lead to delays and increased transportation costs for both teachers and
students and sometimes result in an interrupted calendar.

Fiscal constraints along with other macro-economic challenges have been putting further strains on the
education system. Due to the highly constrained fiscal space in the West Bank and Gaza, civil servants –
including teachers – have been earning partial wages since late 2021. While the PA is committed to back-
paying full salaries, this is taking a toll on teacher morale. In addition, unpaid debts and overdue payments
have been a longstanding issue in the education sector in the West Bank and Gaza and they are worsening
over time. In 2018 the total arrears in the education sector came to just over NIS 6 million; over the next
five years they increased by 14 times reaching over NIS 89 million in 2022 (0.14 percent of GDP).

The decade prior to the ongoing conflict showed sustained improvements in access to education in both
the West Bank and Gaza. Between 2012 and 2021 the number of children enrolled in both basic and
secondary education increased by 20 percent, reaching a Gross Enrolment Rate (GER) of 98.6 in basic and
81.8 percent in secondary education, surpassing the Ministry of Education’s (MOE) own targets on access.
The sector has, however, seen slower gains in other education levels. Pre-primary education has recently
become a focus of the MOE, but the GER of 56.3 percent (across both KG1 – the year when children turn
four, and KG2 – the year when they turn five) in 2021 is lagging behind the MOE’s target of 70 percent.

The level of public education spending in the West Bank and Gaza is in line with international best
practice, but it may still fall short of what is needed in the sector . As a share of GDP, public education
spending in the West Bank and Gaza has been steady at 5 percent over the last decade, in line with the
international best practice of between 4 and 6 percent. In the MENA region, the average share of
education expenditure has been slightly below 4 percent, while the world average has been fractionally
above 4 percent. Similarly, expenditure on education as a share of total government spending is 16
percent, also reflecting that the PA is prioritizing the sector through financing. Despite the PA’s
commitment to the education sector, there remains a shortage of financing in the sector and development
partners can play a significant role in filling it.




                                                                                                          21
While results in international tests show learning gaps for Palestinian students, the gap could be
accounted for by West Bank and Gaza's difficult economic and political situation. After more than a
decade-long absence, West Bank and Gaza has started to participate in International Large-Scale
Assessments (ILSAs) which provide internationally comparable data on student learning outcomes – a
significant achievement for the sector. The results of the 2022 Program for International Student
Assessment (PISA) suggest that 80 percent of 15-year-old Palestinian students are below basic proficiency
in mathematics (the corresponding shares for reading and for science is 77 percent and 71 percent
respectively). These results are echoed in other standardized tests, including also the 2022 National Large-
Scale Assessment (NLSA). Yet, when accounting for the West Bank and Gaza's economic and political
situation, Palestinian students fare better than expected. The West Bank and Gaza has one of the lowest
levels of GDP per capita of all PISA 2022 participants and has been afflicted by ongoing waves of FCV.
Despite these circumstances, Palestinian students achieve learning outcomes that are above what would
be expected given their GDP per capita (i.e., above the trend line). One potential factor explaining West
Bank and Gaza’s better-than-expected learning outcomes is the relatively well-educated and well-
remunerated teaching force.

It is difficult to make short-run efficiency gains in the sector as most education expenditure in the West
Bank and Gaza, like in most countries, goes towards education staff salaries. While increasing teachers’
workloads may not be feasible as teachers in the West Bank and Gaza work more hours per week and per
year than their counterparts in other MENA countries, teacher retirement and turnover provide an
opportunity for efficiency gains in the sector, particularly since the student-teacher ratio is low in both the
West Bank and in Gaza.

Access to early childhood education is unequal, with direct implications on school-readiness and the
academic trajectories that students follow. While pre-primary enrolment has grown in recent years to
around 56 percent in 2021-2022, the vast majority of Kindergarten (KG) facilities are run by private
providers, making the OOP expense to households prohibitively expensive for many children from the
poorest households. This enrolment structure is likely to widen the school-readiness gap along socio-
economic lines for the first years of basic education. Inequities in education can also be observed in older
students based on the results from PISA 2022. Test scores in mathematics, reading, and science show that
there is a positive association between economic status of households and the educational achievements
of students who are 15 years of age. Also concerning equity in education, girls outperform boys in basic
and secondary education. The 2022 NLSA results show that girls score higher in mathematics, “science and
life”, and in Arabic in both grade 5 and grade 8. These results are echoed in the 2014 Early Grade Reading
Assessment (EGRA), when boys’ reading comprehension in grade 4 was shown to be particularly low.

Over the past three years, about 90 percent of the PA’s spending has been directed to the West Bank
where 68 percent of the children who attend public schools live. On average the MOE spends over three
times less to send a child to school in Gaza than it spends to send a child to school in the West Bank. This
is not a reflection of the true unit cost per child in the respective territories, but rather indicates that –
aside from the large role that the UN plays in Gaza with almost half of all children attending UNRWA
schools (compared to the 6 percent of children that attend UNRWA schools in the West Bank) – additional
funding from the de facto authority is coming into the Gaza education system that is unaccounted for by
the MOE.




                                                                                                            22
     The sector suffers from a number of issues in terms of financial planning . The education sector uses
     annual budgets, which tend to prioritize short-term needs at the expense of pursuing a long-term vision
     based on strategic goals. A lack of medium-term planning makes it difficult to secure financing for multi-
     year programs and projects. The budget cycle is not aligned with the academic cycle. As a result, the
     budget is often depleted before the large expenditures associated with the start of the school year have
     been executed. Donor contributions are unpredictable and erratic. There is no consistency in the scale of
     contributions made to the education sector, either between years or between donors. As the sector relies
     on donor funding, and rigid operational expenditures account for a large share of its budget, volatile
     contributions greatly complicate planning and budgeting.

         Recommendations to reform the education system

     A first area to reform spending on education is to address the under-payment of teachers’ salaries. The
     under-payment of teachers has often led to prolonged strikes that significantly disrupt education service
     delivery. Hence, payments to civil servants, including teachers, should be prioritized as this will promote
     stability in the education system and prevent school closures. Contributions from development partners
     are particularly necessary to achieve this at a time when fiscal space is so heavily constrained. Also, in
     terms of human resource management, teacher policy should be enhanced to include effective teacher
     professional development and sound performance management.

     To improve access, more resources are needed in pre-primary education. A potential source of the
     needed resources could be increasing class sizes in secondary education via natural attrition of teachers.
     Investing in education policies and programs for children from lower socio-economic families is also a
     priority.

     Further, it would be important to improve the equity of spending. This would involve spending more on
     pre-primary education where access is most unequal while returns are high. Targeted policies and
     programs are also needed to improve learning for boys, including by increasing boys’ enrolment in
     secondary education.

     Finally, reforms are needed to improve financial planning in the sector. A multi-year approach for
     financial planning should be adopted to improve budgeting. Budget processes should be reliant on lessons
     learned from previous years experiences and should reflect the strategic priorities of the sector. Donor
     coordination should be strengthened to optimize the resources they provide, promote coherence, and
     avoid duplication. A strategy to clear arrears should be developed by the MOE.

                         Summary of main PER recommendations which the PA can implement
Proposed reforms                                                Fiscal impact                         Timeline
Wage bill
1. Tie all hiring, wage, and promotion decisions to workforce
                                                                Fiscal savings                        Short term
needs, budgetary resources, and merit

2. Scale back spending on allowances and tighten eligibility    Fiscal savings                        Short term
criteria

3. Conduct a functional review to identify areas of over- and   Fiscally neutral                      Short term
under-staffing




                                                                                                             23
                                                                                                                    Medium to
4. Develop formal procedures for salary planning and                 Fiscally neutral
                                                                                                                    long-term
workforce management in the public sector

                                                                     Fiscal savings resulting from revising
                                                                     salaries of employees at the low end of the    Medium to
5. Revise the salary structure in line with relevant benchmarks      pay scale while additional cost may result     long term
                                                                     from revising the salary structure of higher
                                                                     paid employees

Public pension system
1. Parametric reforms to gradually raise the retirement age to
63, restrict early retirement to 5 years under the retirement
                                                                                                                    Short to
age, gradually reduce the accrual rate to 1.75 percent, reduce       Fiscal savings
                                                                                                                    medium-term
the minimum service to 10 years, and reform the benefit
indexation policy combining wage growth and inflation

2. split the DB benefit package into two components: one that                                                       Short to
                                                                     Fiscal savings
is linked to regular contributions, and another non-                                                                medium term
contributory basic pension
                                                                                                                    Short to
3. Transform the DC benefit into an early-separation                 Fiscal savings
                                                                                                                    medium term
(indemnity) payment

4. financial restructuring for rationalizing the institutional and   Fiscally neutral unless the MOF's debt to      Medium to
financial responsibilities of the PPA and the MOF towards the        the PPA is nulled                              long-term
pension system to improve its transparency

Health system
1. Strengthen MOH purchasing arrangements by defining a
cost-effective essential benefits package, reference prices, and                                                    Short to
                                                                     Fiscal savings
contracting rules, improving MOH negotiating power and                                                              medium term
strengthening institutional capacity

2. Expand equitable insurance coverage                               Fiscally neutral                               Medium to
                                                                                                                    long term
3. Create additional fiscal space by raising and reallocating
revenue, especially for covering the poor and vulnerable to          Fiscally neutral                               Medium term
reduce OOP, and proactively managing arrears
                                                                                                                    Medium to
4. Improve the legal and institution framework for the health        Fiscal savings
                                                                                                                    long term
sector

Education system
1. Address the under-payment of teachers’ salaries                   Additional cost                                Short term

                                                                     Fiscally neutral if the additional cost is
2. Improve access to education through allocating more
                                                                     mobilized by increasing class sizes in         Long term
resources in pre-primary education
                                                                     secondary education via the natural
                                                                     attrition of teachers




                                                                                                                          24
3. Improve the equity of spending through higher expenditure
on pre-primary education targeting children from poorer
                                                                Additional cost    Medium term
households and implement targeted policies and programs to
improve learning for boys
                                                                Fiscally neutral   Medium term
4. Improve financial planning and adopt a multi-year approach




                                                                                        25
CHAPTER 1 RECENT MACROECONOMIC AND FISCAL TRENDS
Macroeconomic Performance
The Palestinian economy grew at an average annual rate of 2.0 percent between 2015 and 2022, below
most of its compararors. Gross Domestic Product (GDP) growth was well below both the 4.0 percent
average for lower-middle-income countries (LMICs) and the 2.4 percent average for the Middle East and
North Africa (MENA) region and was very close to Jordan’s (Figure 1A). Economic potential has been
principally curtailed by the restrictions which, according to the Government of Israel (GOI) Israel, are in
place for security reasons. These restrictions impose severe constraints on the movement and access of
people and goods, which discourage investment and suppress growth. Volatile and declining levels of
external aid, the impact of the COVID-19 pandemic, persistently weak private capital inflows, incomplete
reform efforts by the Palestinian Authority (PA), and the internal divide between the West Bank and Gaza
further hinder economic growth (Figure 1B).

 Figure 1: Real GDP growth
 A. 2015-2022 average GDP growth                         B. Real GDP growth
 (%)                                                     (%)
                                                          15
                        Egypt

                         LMIC                             10

                        MENA
                                                           5
                     Morocco

  MENA (excluding high-income)                             0
                                                                2006
                                                                       2007
                                                                              2008
                                                                                     2009
                                                                                            2010
                                                                                                   2011
                                                                                                          2012
                                                                                                                 2013
                                                                                                                        2014
                                                                                                                               2015
                                                                                                                                      2016
                                                                                                                                             2017
                                                                                                                                                    2018
                                                                                                                                                           2019
                                                                                                                                                                  2020
                                                                                                                                                                         2021
                                                                                                                                                                                2022
                                                                                                                                                                                       2023
                   Arab World
                                                           -5
           West Bank and Gaza

                       Jordan                             -10
                          FCV
                                                          -15
                       Tunisia
                                                                       West Bank and Gaza                                      MENA                        LMIC                        FCV
                                 0   1   2   3   4   5

 Source: Palestinian Central Bureau of Statistics (PCBS); World Development Indicators (WDI) database; World
 Bank estimates.

Since the eruption of the Middle East conflict, centered in Gaza, in October 2023, the Palestinian
economy has experienced one of the largest shocks in recent economic history. In Gaza, the mounting
death toll, extensive damage to physical assets, and severe disruption of public services and economic
activity have caused an unprecedented crisis. According to the IRDNA, damage to Gaza’s capital stock as
a result of the conflict is estimated at US$29.9 billion, nearly twice the pre-conflict real GDP of the West
Bank and Gaza combined. In Gaza, economic activity has been in a virtual standstill since the eruption of
the conflict, with GDP plummeting by 83 percent in 2024. The West Bank has experienced severe knock-
on effects from the conflict due to newly imposed restrictions by Israel hampering movement within cities
and limiting access to the Israeli labor market. The GOI has also begun withholding a larger share of the
revenue it collects on behalf of the PA, pushing it into a fiscal crisis. As a result, the West Bank’s economy
contracted by 17 percent in 2024. The overall Palestinian economy is estimated to have contracted by 27
percent in 2024. The contraction already surpassed all previous downturns in the Palestinian territories


                                                                                                                                                                                              26
over the last two decades, including the Second Intifada in 2000, the 2006 internal divide, the 2014 Gaza
war, and even the effects of COVID-19.

Growth has sharply decelerated across all economic sectors. The services sector drove growth in
previous years, but its contribution fell from 3.1 percentage points (ppts) of GDP during 2006-2014 to 1.0
ppts during 2015-2022. Meanwhile, the contributions of agriculture and industry to growth broadly
stagnated between 2015 and 2022. The ongoing conflict has inflicted a massive shock on all economic
sectors, with services, industry, and agriculture all contributing negatively to growth in 2023 (Figure 2A).

 Figure 2: GDP growth decomposition
 A. Supply side                                                        B. Demand side
 (%)                                                                   (%)
   6%                                                                   6%

   4%                                                                   4%

                                                                        2%
   2%
                                                                        0%
   0%
                                                                        -2%
  -2%
                                                                        -4%
  -4%
                                                                        -6%
  -6%
                                                                        -8%
                                                                               2006-2014            2015-2022           2023
  -8%
             2006-2014           2015-2022              2023
                                                                              Net exports                Government consumption
        Agriculture   Industry   Services    Net taxes on production          Private consumption        Investment

 Source: Palestinian Central Bureau of Statistics; World Bank estimates.

Net exports have been negative since 2015, and imports rose by 12.2 ppts of GDP between 2015 and
2023. Persistently low and stagnant export levels, due to trade restrictions in the West Bank and the near-
total blockade of Gaza, have exacerbated the trade deficit, which surged from 38.7 percent of GDP in 2015
to 47.3 percent in 2023 (Figure 3A). Private consumption also weighed on growth in 2023, falling by 3.9
percent year-on-year (y/y), as Palestinian workers lost their jobs in Israel and PA employees struggled to
make ends meet with partial salaries amid a spiraling fiscal crisis (Figure 2B).




                                                                                                                                  27
 Figure 3: Imports, exports and trade deficit, 2015-2023
 A. Ratio of imports and exports to GDP                                              B. Imports and exports
 (%)                                                                                 (US$ millions)
  80%                                                                  0%             14,000                                                             0
  70%                                                                                                                                                    -1,000
                                                                       -10%           12,000
                                                                                                                                                         -2,000
  60%
                                                                                      10,000                                                             -3,000
                                                                       -20%
  50%                                                                                                                                                    -4,000
                                                                                       8,000
  40%                                                                  -30%                                                                              -5,000
                                                                                       6,000                                                             -6,000
  30%
                                                                       -40%
                                                                                       4,000                                                             -7,000
  20%
                                                                       -50%                                                                              -8,000
  10%                                                                                  2,000
                                                                                                                                                         -9,000
   0%                                                                  -60%                0                                                             -10,000
        2006

               2008

                      2010

                             2012

                                    2014

                                           2016

                                                  2018

                                                         2020

                                                                2022




                                                                                               2006
                                                                                               2007
                                                                                               2008
                                                                                               2009
                                                                                               2010
                                                                                               2011
                                                                                               2012
                                                                                               2013
                                                                                               2014
                                                                                               2015
                                                                                               2016
                                                                                               2017
                                                                                               2018
                                                                                               2019
                                                                                               2020
                                                                                               2021
                                                                                               2022
                                                                                               2023
                             Imports, % GDP                                                                    Imports: goods and services
                             Exports, % GDP                                                                    Exports: goods and services
                             Trade deficit, % GDP (RHS)                                                        Trade deficit (RHS)

 Source: Palestinian Central Bureau of Statistics; World Bank estimates.

Investment levels have been persistently low. Gross investment rose from an average of 20.1 percent of
GDP during 2006-2014 to about 26.2 percent during 2015-2023 but remains relatively low compared to
regional and income-group comparators (Figure 4A and Figure 4B). Moreover, most investment has been
channeled into non-tradable sectors offering low productivity, employment, and returns. Likewise, net
foreign direct investment, which averaged just 1.2 percent of GDP between 2015 and 2023, is very low
compared to peer countries (Figure 4C and Figure 4D). Movement and access restrictions, successive
conflicts, and a weak business environment have inhibited private investment both in the West Bank and
Gaza.

 Figure 4: Gross investment and foreign direct investment
 A. GCF (% of GDP)                                                                   B. GCF (% of GDP), 2015-2022 average
 (percentage)                                                                        (percentage)
  40
                                                                                                         Morocco
  35
                                                                                                             LMIC
  30
                                                                                                            MENA
  25
                                                                                      MENA (excluding high-income)
  20

  15                                                                                           West Bank and Gaza

  10                                                                                                   Arab World

   5                                                                                                       Jordan

   0                                                                                                       Tunisia
        2006
        2007
        2008
        2009
        2010
        2011
        2012
        2013
        2014
        2015
        2016
        2017
        2018
        2019
        2020
        2021
        2022
        2023




                                                                                                            Egypt

                West Bank and Gaza                        MENA                LMIC                                   0   5   10      15   20   25   30   35




                                                                                                                                                              28
 C. FDI, net inflows (% of GDP)                                                                                                         D. FDI, net inflows (% of GDP), 2015-2022 average
 (percentage)                                                                                                                           (percentage)
  6
                                                                                                                                                                          Jordan
  5
                                                                                                                                                                           Egypt

  4                                                                                                                                                                      Morocco

  3                                                                                                                                                                        MENA

                                                                                                                                                                            LMIC
  2
                                                                                                                                                                          Tunisia
  1
                                                                                                                                                                   Arab World
  0                                                                                                                                                                           FCV
           2006
                    2007
                           2008
                                  2009
                                         2010
                                                2011
                                                       2012
                                                                2013
                                                                       2014
                                                                               2015
                                                                                       2016
                                                                                              2017
                                                                                                     2018
                                                                                                            2019
                                                                                                                   2020
                                                                                                                          2021
                                                                                                                                 2022
                                                                                                                                                       West Bank and Gaza

                                  West Bank and Gaza                                    MENA                                             MENA (excluding high-income)

                                  LMIC                                                  FCV                                                                                           0      1      1      2      2     3       3

 Source: WDI database; World Bank estimates.

Consumer price inflation (CPI) was relatively stable over 2015-2022 but has risen sharply since October
2023, due largely to supply disruptions stemming from the conflict. Between 2015 and 2022, CPI
averaged 0.89 percent. Because the new Israeli shekel (NIS) is the main currency in circulation in the West
Bank and Gaza, stable consumer prices were due primarily to low inflation in Israel. After the start of the
conflict, however, CPI in the West Bank and Gaza sharply diverged from Israeli inflationary trends,
especially in Gaza. The monthly CPI in Gaza soared to an average of 77 percent from October 2023 to
March 2024 amid extreme shocks to the local supply chain (Figure 5A), with food prices in Gaza climbing
by an average of 102 percent over the period (Figure 5B). Meanwhile, the GOI cut off fuel supplies into
Gaza, contributing to a 226 percent increase in transportation prices. As a result, hundreds of thousands
of households face shortages of food and essential goods. By contrast, the CPI in the West Bank increased
modestly, rising by an average of 4.5 percent from October 2023 to March 2024.

 Figure 5: Inflation in the West Bank and Gaza
 A. Consumer price inflation                                                                                                            B. Food-price inflation
 (yoy growth, %)                                                                                                                        (yoy growth, %)
  40%                                                                                                                            200%     60%                                                                                 300%
  35%                                                                                                                            175%
                                                                                                                                          50%                                                                                 250%
  30%                                                                                                                            150%
                                                                                                                                          40%                                                                                 200%
  25%                                                                                                                            125%
  20%                                                                                                                            100%     30%                                                                                 150%

  15%                                                                                                                            75%      20%                                                                                 100%
  10%                                                                                                                            50%
                                                                                                                                          10%                                                                                 50%
      5%                                                                                                                         25%
                                                                                                                                           0%                                                                                 0%
      0%                                                                                                                         0%
   -5%                                                                                                                           -25%    -10%                                                                                 -50%
             2015

                           2016

                                     2017

                                                2018

                                                              2019

                                                                        2020

                                                                                      2021

                                                                                                2022

                                                                                                            2023

                                                                                                                      2024




                                                                                                                                                2015

                                                                                                                                                        2016

                                                                                                                                                                  2017

                                                                                                                                                                           2018

                                                                                                                                                                                    2019

                                                                                                                                                                                           2020

                                                                                                                                                                                                  2021

                                                                                                                                                                                                         2022

                                                                                                                                                                                                                2023

                                                                                                                                                                                                                       2024




                                  West Bank and Gaza                                    West Bank (RHS)                                                        West Bank and Gaza                  West Bank (RHS)

                                  Gaza Strip (RHS)                                                                                                             Gaza Strip (RHS)

 Source: Palestine Monetary Authority; Palestinian Central Bureau of Statistics; World Bank estimates.



                                                                                                                                                                                                                                     29
The ongoing conflict and the economic contraction in the West Bank have had a severe impact on an
already weak labor market. Even before the start of the current conflict, the near-total blockade of Gaza
had severely constrained the local labor market. Unemployment in Gaza stood at 45.1 percent in Q3 2023,
with youth unemployment at 59.5 percent. Based on a recent report by the Palestinian Central Bureau of
Statistics (PCBS),13 unemployment in Gaza may have soared to as high as 75 percent in Q4 2023 (Figure
6), and an estimated over 201,000 jobs were lost by the end of January 2024.14 Meanwhile, 148,000
workers from the West Bank who were previously employed in Israel and the settlements have lost their
jobs since the onset of the conflict, and only about 24,000 were still working in the Israeli economy in Q4
2023. Given that the average daily salary of these workers is more than twice the West Bank average,
these job losses have had a deeply negative impact on demand. In addition, 144,000 jobs were lost within
the West Bank due to escalating violence and its negative repercussions on supply chains, production
capacity, and the movement of workers. As a result, the unemployment rate in the West Bank rose from
12.9 percent in Q3 2023 to 32 percent in Q4 2023, its highest level on record. In total, the conflict has
reduced labor income in the Palestinian economy by an estimated US$21.7 million per day. When income
losses among public employees receiving partial salary payments are included, as well as reduced income
among workers still employed in the private sector, lost labor income rises to US$25.5 million per day.15

 Figure 6: Quartelry unemployment rates in the West Bank and Gaza
 (%)
                                 80%
                                                                                  75.0%
                                 70%

                                 60%

                                 50%

                                 40%
                                                                                  32.0%
                                 30%

                                 20%

                                 10%

                                  0%
                                       2006
                                       2007
                                       2008
                                       2009
                                       2010
                                       2011
                                       2012
                                       2013
                                       2014
                                       2015
                                       2016
                                       2017
                                       2018
                                       2019
                                       2020
                                       2021
                                       2022
                                       2023




                                                   West Bank       Gaza Strip


 Source: Palestine Monetary Authority; Palestinian Central Bureau of Statistics; World Bank.

The economies of the West Bank and Gaza continue to diverge. Growth has been stronger in the West
Bank and very volatile in Gaza due to recurrent hostilities and the ongoing near-total blockade (Figure 7A).
Real GDP per capita in Gaza has fallen by 90 percent between 2015 and 2024, from US$1,728 to US$168.
Consequently, while GDP per capita in the West Bank was only 147 percent higher than in Gaza in 2015,
this gap widened to 1914 percent in 2024 (Figure 7B). Poverty rates have followed a similar trend. Even
before the start of the current conflict, poverty levels in Gaza had risen steadily, from 39 percent in 2011
to 64 percent in 2023, representing more than 1.4 million people living below the national poverty line.

13 https://www.pcbs.gov.ps/portals/_pcbs/PressRelease/Press_En_InterWorkDay2024E.pdf
14 https://www.ilo.org/wcmsp5/groups/public/---arabstates/---ro-beirut/documents/publication/wcms_918919.pdf
15 Ibid.




                                                                                                               30
    By contrast, poverty rates in the West Bank decreased steadily over the same period, from 18 percent in
    2011 to 14 percent in 2017 and 12 percent in 2023. The most recent estimate of the combined poverty
    rate for both territories is 32.8 percent, but given the devastation of the past several months, almost the
    entire population of Gaza is now living in monetary and multidimensional poverty.

      Figure 7: Real GDP and GDP per capita in the West Bank and Gaza
      A. Real GDP growth rate                                                                         B. Real GDP per capita
      (%)                                                                                             (constant 2015 US$ )
          20%                                                                                          5000
                                                                                                       4500
           0%
                                                                                                       4000
                                                                                                       3500
         -20%
                                                                                                       3000
         -40%                                                                                          2500
                                                                                                       2000
         -60%
                                                                                                       1500
                                                                                                       1000
         -80%
                                                                                                        500
        -100%                                                                                             0
                 2015

                        2016

                               2017

                                      2018

                                              2019

                                                      2020

                                                                2021

                                                                       2022

                                                                                2023

                                                                                       2024




                                                                                                                 2015

                                                                                                                         2016

                                                                                                                                  2017

                                                                                                                                         2018

                                                                                                                                                2019

                                                                                                                                                        2020

                                                                                                                                                               2021

                                                                                                                                                                         2022

                                                                                                                                                                                2023

                                                                                                                                                                                         2024
                  West Bank                  Gaza               West Bank and Gaza                                      West Bank and Gaza             West Bank             Gaza


      Source: Palestinian Central Bureau of Statistics; World Bank estimates.



                                                     Table 1: Key Macroeconomic Indicators, 2015-2024
                               2015        2016         2017                                  2018            2019              2020            2021              2022                 2023     2024
Real economy, annual percent change, unless indicated otherwise
  Real GDP                      3.7          8.9         1.4                                   1.2            1.4               -11.3             7.0                 4.1               -4.6    -26.6
  Nominal GDP                   -0.1        10.3         4.7                                   0.9            5.3                -9.3            16.6                 5.8               -6.9    -23.2
  GDP per Capita (US$,
                                -2.4         7.8         2.4                                   -1.6           2.7               -11.6            13.8                 3.3               -9.1    -25.0
  nominal)

Real GDP growth, at constant market prices
  Private Consumption            3.5        9.9                                -1.1            1.1            4.1               -13.1            7.5              17.7                  -4.6    -32.5
  Government
                                 6.4        2.6                               -13.7            7.3            -3.5               0.3             10.3                 -9.3              -5.5    -25.0
  Consumption
  Gross Fixed Investment        14.3       10.9                                6.9             2.5            -2.6              -20.9            13.7             12.2                  -3.4    -30.7
  Exports, Goods and
                                -3.2       -1.6                                13.9            2.5            2.0               -11.2            17.3                 5.9               -6.0    -11.1
  Services
  Imports, Goods and
                                10.3        2.0                                1.3             4.5            1.4               -14.2            14.8             19.7                  -3.7    -31.1
  Services

Real GDP growth, at constant factor prices
  Agriculture                    -4.0                    10.4                  -6.0            1.6            0.9                -9.1            -0.7                 -5.6             -11.0    -21.0
  Industry                       -5.0                    13.7                  11.6            2.2            -0.5              -19.4            4.5                  3.5              -14.6    -32.2
  Services                       4.9                      7.8                  -2.2            1.8            2.0               -10.0            7.5                  1.6               -4.8    -25.7

Unemployment Rate (%)                  23.0              23.9                  25.7            26.2           25.3               25.9            26.4             24.4                  31.0     51.0
CPI (year-average)                      1.4              -0.2                   0.2            -0.2            1.6               -0.7             1.2              3.7                  5.9      53.7
General Government
                                       -4.7                  -2.2              -2.7            -2.4           -7.4               -7.5            -5.8                 -1.8              -3.8     -9.5
Balance
Current Account Balance               -13.9              -13.9                -13.2           -13.2           -10.4             -12.3            -9.8             -10.6                -16.2    -21.6

Memorandum items:
Nominal GDP (US$ million)             13,972           15,405                 16,128          16,277      17,134                15,532          18,109          19,166                 17,848   13,711




                                                                                                                                                                                                31
Source: PCBS, Palestine Monetary Authority (PMA), Ministry of Finance (MOF), World Bank staff estimates.
Note: the unemployment rate for 2023 is an estimate.




Fiscal Developments, 2015-2023
Revenue

Despite longstanding restrictions on economic activity and unresolved issues involving the transfer of
clearance revenues, revenue collection in the West Bank and Gaza is broadly in line with the levels of
its income group and regional peers. Between 2015 and 2022, total revenue (before grants) averaged
26.1 percent of GDP, very close to the LMIC average and just slightly below the MENA average (Figure 8A).
Tax revenue alone averaged 20.3 percent of GDP between 2015-2022, surpassing both the LMIC and
MENA averages (Figure 8B). Despite the negative impact of the conflict on revenue generation in the
fourth quarter (Q4), total public revenue (before grants) reached 27 percent of GDP in 2023, relatively
high by the standards of economies facing fragility, conflict, and violence (FCV). This positive trend
underscores the PA’s commitment to revenue mobilization, which has been a major objective of the
Ministry of Finance (MOF) for several years.

 Figure 8: Fiscal revenues
 A. Total revenues (% of GDP), 2015-2022                                  B.   Tax revenues (% of GDP), 2015-2022

                             FCV                                                                Tunisia

                           MENA                                                     West Bank and Gaza

                            LMIC                                                              Morocco

              West Bank and Gaza                                                                  LMIC

                        Morocco                                                                 Jordan

                          Tunisia                                                                  FCV

                          Jordan                                                                 Egypt

     MENA (excluding high-income)                                          MENA (excluding high-income)

                      Arab world                                                                 MENA

                           Egypt                                                            Arab world

                                    0   5   10   15   20   25   30   35                                   0   5   10   15   20   25

 Source: Macroeconomic and Fiscal Model (MFMod); Government Finance Statistics (GFS); World Bank
 estimates.

Clearance revenue accounts for the largest share of fiscal revenue and is highly vulnerable both to
external shocks and Israeli political decisions. Clearance revenue mainly consists of value-added tax (VAT)
and import duties collected by the GOI and remitted to the PA.16 Between 2015 and 2022, clearance
revenue accounted for roughly 60 percent of total fiscal revenue and rose from 14.6 percent of GDP in
2015 to 16.4 percent of GDP in 2022, far above the average level of trade taxes in comparator countries
(Figure 9A and Figure 9B). Rising imports, especially from Israel, bolstered VAT collection and drove the
increase in clearance revenue. However, its reliance on clearance revenue has made the PA’s fiscal stance
highly vulnerable to external shocks. The transfer of clearance revenue is also subject to Israeli political

16This arrangement was instituted by the Paris Protocol given that the PA does not have any presence on the border crossings.
According to the Protocol, Israel should remit these revenues to the PA monthly, after deducting a 3 percent handling fee.


                                                                                                                                      32
decisions, with significant deductions made in defiance of the Paris Protocol. Initially, these deductions
covered unpaid utility bills to Israeli suppliers and medical referrals to Israeli hospitals, averaging NIS 150
million per month. Since 2019, the GOI has also made deductions to offset payments by the PA to
Palestinian prisoners in Israeli prisons, ex-prisoners, and families of those deceased due to violence.17
These deductions typically amount to NIS 51 million per month. Since October 2023, the GOI has also
begun deducting NIS 275 million per month to account for the PA’s (unchanged) spending in Gaza. In 2023,
these deductions totaled almost NIS 4 billion, or 6.3 percent of GDP. The decline in clearance revenue
received by the PA in 2023 has created a burgeoning fiscal crisis.

 Figure 9: Composition of fiscal revenue
 A. Tax revenue by source                                                                                    B. Tax revenue in the West Bank and Gaza
 (2015-2022 average, % of GDP)                                                                               (2015-2023, % of GDP)
     25                                                                                                       25
     20
                                                                                                              20
     15
     10                                                                                                       15
     5
                                                                                                              10
     0
                             Egypt




                                                         MENA




                                                                                          FCV
                                                                                  LMIC
                                              Morocco
          West Bank and




                                     Jordan




                                                                                                Arab world
                                                                MENA (excluding




                                                                                                               5
                                                                 high-income)
              Gaza




                                                                                                               0
                                                                                                                   2015

                                                                                                                            2016

                                                                                                                                     2017

                                                                                                                                               2018

                                                                                                                                                         2019

                                                                                                                                                                2020

                                                                                                                                                                        2021

                                                                                                                                                                                    2022

                                                                                                                                                                                           2023
                          Taxes on good and services                    Direct taxes                                      Taxes on good and services              Direct taxes

                          Taxes on international trade                  Other taxes (*)                                   Taxes on international trade            Other taxes (*)

                     Total tax revenues                                                                                   Total tax revenues


 Source: MFMod; GFS; World Bank estimates.

Domestic revenue increased from 4.3 percent of GDP in 2015 to 6.0 percent in 2022, but its share in the
total revenue and in GDP is relatively low. Revenue from direct taxes amounts to just 1.3 percent of GDP,
below the MENA average of 5.1 percent and the LMIC average of 5.8 percent. Tax rates in the West Bank
and Gaza are relatively low. The corporate tax rate averaged 15 percent from 2015 to 2020, well below
the global average of 22.6 percent (Figure 10A). Meanwhile, the personal income tax rate for top earners
also averaged 15 percent, far below the global average of 28.5 percent (Figure 10B). Israeli restrictions on
economic activity by Palestinians in Area C of the West Bank and minimal transfers of tax revenue from
Gaza since the internal political divide in 2006 further reduce overall tax revenue.




17The GOI passed the “Palestinian Prisoners Law” in 2018 which mandates withholding from clearance revenues an amount
equivalent to the GOI’s estimate of PA payments to families of Palestinians imprisoned or killed for alleged offences under I sraeli
law.


                                                                                                                                                                                                  33
 Figure 10: Corporate and personal income tax rates
 A. Statutory corporate tax rates                                            B. Statutory personal income tax rates for top earners
 (%, 2015-2020 average)                                                      (%, 2015-2020 average)
  60                                                                           60


  50                                                                           50


  40                                                                           40


  30                                                                           30
                                                   West Bank                                                                               West Bank
                                                   and Gaza                                                                                and Gaza
  20                                                                           20
                                                     15.0                                                                                    15.0


  10                                                                           10


   0                                                                             0
                             Countries                                                                            Countries


 Source: Klynveld Peat Marwick Goerdeler (KPMG); World Bank estimates.

Firms in the West Bank and Gaza view tax administration as a significant obstacle to doing business. In
the World Bank’s 2023 Enterprise Survey, 30 percent of firms identified tax administration as a constraint
on their operations, above the averages for the MENA region and firms worldwide (Figure 11). As noted
above, tax rates in the West Bank and Gaza are low by international standards, yet 43.4 percent of firms
reported tax rates as a major constraint, likely due to the extremely challenging economic context. A large
share of respondents also cited the frequency of meetings with tax officials and the perceived necessity
of gift-giving during these interactions are important constraints, far above the MENA and global averages,
suggesting considerable scope for improvement in tax administration.

 Figure 11: Selected indicators of private-sector perception of tax administration
 (normalized to 0-100)

                                                        Percent of firms visited or required
                                                             to meet with tax officials
                                                                     70
                                                                     60
                                                                                             If there were visits, average number
                 Percent of firms choosing tax rates as              50
                                                                                              of visits or required meetings with
                        their biggest obstacle                       40                                     tax officials
                                                                     30
                                                                     20
                                                                     10
                                                                      0
                    Percent of firms choosing tax
                                                                                                  Percent of firms identifying tax rates
                   administration as their biggest
                                                                                                            as a major constraint
                               obstacle



                             Percent of firms expected to give                          Percent of firms identifying tax
                             gifts in meetings with tax officials                     administration as a major constraint




                                                  West Bank and Gaza                 MENA            Global




                                                                                                                                                       34
 Source: Enterprise Survey; World Bank estimates.
 Note: The data for the West Bank and Gaza is from 2023, while data from other countries varies by year, with
 Angola from 2010, Tunisia from 2020, and Ukraine from 2019, among others, representing the most recent
 available information.

Expenditures

Public spending in the West Bank and Gaza is relatively high by MENA and LMIC standards. From 2015
to 2022, expenditures averaged 30.4 percent of GDP, above the average for LMICs (27.3 percent), as well
as average expenditures in Morocco (29.9 percent), Jordan (29.4 percent), and Egypt (26.4 percent)
(Figure 12). The PA has long relied on public spending to drive economic activity, but high expenditure
levels have proven unable to offset the impact of GOI-imposed restrictions and have not translated into
strong and sustained growth. Regional comparisons suggest that other countries have been able to
generate larger gains in average income with much lower levels of public spending, further underscoring
the role of the Israeli restrictions in restraining economic growth.

 Figure 12: Public expenditures in the West Bank and Gaza
 A. Average public expenditures, 2015-2022                             B. Average public expenditures, 2015-2022
 (% of GDP)                                                            (% of GDP and Ln GDP per capita in constant 2015 US$)
                                                                                                            80
                        MENA
                                                                          Government expenditure % of GDP


                                                                                                            70
                       Tunisia
                                                                                                            60
           West Bank and Gaza
  MENA (excluding high-income)                                                                              50

                     Morocco                                                                                40                 West Bank and Gaza

                       Jordan                                                                               30

                         LMIC                                                                               20
                          FCV                                                                               10
                        Egypt                                                                               0
                   Arab world                                                                                    5         7                9                11
                                                                                                                     Ln GDP per capita (constant 2015 US$)
                                 0   5   10   15   20   25   30   35

 Source: MFMod; BOOST government expenditure database (BOOST); WDI database; World Bank estimates.

Recurrent spending dominates public expenditures, with more than half going to wages and
compensation. During 2015-2023, capital investment accounted for an average of about 2 percent of
GDP, far below the levels of peer countries. At 14 percent of GDP, the PA’s wage bill was among the
highest in the region over the period (Figure 13A). The large size of the wage bill reflects unsustainable
hiring and compensation policies in the civil service and security sectors. However, while the wage bill is
high on a commitment-basis, it is significantly lower on a cash basis, as the PA has only been paying about
80-85 percent of the wages of public employees since November 2021, and this rate has fallen to 50-70
percent since the start of the conflict. Between 2015 and 2023, total public spending as a share of GDP
remained relatively stable, though transfers have fallen substantially since 2021, as the PA has reduced
support to poor households due to fiscal constraints (Figure 13B).




                                                                                                                                                                  35
 Figure 13: Decomposition of public spending
 A. Expenditures by economic classification                                                                    B. Expenditures by economic classification
 (2015-2022 average, % of GDP)                                                                                 (% of GDP)
  35                                                                                                            35
  30
  25                                                                                                            30
  20                                                                                                            25
  15
  10                                                                                                            20
   5
   0                                                                                                            15
                              Egypt




                                                           MENA




                                                                                            FCV
                                                                                     LMIC
                                        Jordan

                                                 Morocco




                                                                                                  Arab world
       West Bank and Gaza




                                                                   MENA (excluding
                                                                                                                10
                                                                    high-income)                                 5

                                                                                                                 0




                                                                                                                      2015

                                                                                                                              2016

                                                                                                                                      2017

                                                                                                                                              2018

                                                                                                                                                     2019

                                                                                                                                                            2020

                                                                                                                                                                      2021

                                                                                                                                                                             2022

                                                                                                                                                                                    2023
                             Wages and compensation                        Goods and services                                Wages and Compensation           Goods and Services

                             Interest payments                             Current transfers                                 Interest Payments                Current Transfers

                             Capital expenditures                          Other                                             Capital Expenditures             Other

                            Expenditures                                                                                     Expenditures


 Source: MFMod; BOOST; World Bank estimates.

About one-third of the PA’s budget is spent in Gaza even though the PA has not governed Gaza since
2006 and collects very little revenue from the territory. Gaza accounts for just 3 percent of the PA’s total
fiscal revenue but 29 percent of its total spending. The largest component of these expenditures is
compensation for public employees in Gaza who still report to the PA, most of whom work in the health
and education sectors. The PA also pays pension benefits to retired employees in Gaza and makes social
transfers to poor households. Indeed, Gaza accounts for about two-thirds of the PA’s payments to poor
household through the National Cash Transfer Program. Finally, the PA covers the cost of utility payments
to Israeli suppliers, which are deducted from clearance revenues. The West Bank’s share of fiscal spending
is much higher at 71 percent, as its population is larger than Gaza’s and the PA is responsible for providing
a full range of public services in the territory.

                                      Table 2: The allocation of the PA budget between the West Bank and Gaza (%)
                                                                                                                West Bank               Gaza
                                                                  Total public spending                           71.1                  28.9
                                                                  Wages and salaries                              75.4                  24.6
                                                                  Gov.              social                        75.4                  24.6
                                                                  contributions
                                                                  Use of goods and                                   81.3                   18.7
                                                                  services
                                                                  Transfers                                          39.1                   60.9
                                                                  Fuel subsidy                                       100.0                   0.0
                                                                  Minor capital                                      100.0                   0.0
                                                                  Interest                                           100.0                   0.0
                                                                  Net lending                                        30.0                   70.0
                                                                                Source: PA MOF and World Bank estimates.




                                                                                                                                                                                           36
Between 2015 and 2023, the PA allocated the largest share of expenditures to public safety through the
Ministry of Interior, which is primarily responsible for these expenditures. Spending on public safety18
averaged 7.6 percent of GDP between 2015 and 2023, much higher than the MENA average of 2.2 percent.
Given the constraints facing the Palestinian private sector, the public security sector plays an unusually
important role in absorbing new labor-market entrants, which could explain its large share. The second
largest share of expenditures went to social protection at 6.4 percent, well above the MENA average of
4.9 percent. These expenditures reflect the large social needs of the West Bank and especially Gaza, where
poverty levels are high and rising. The health and education sectors accounted for 3.5 and 5.9 percent of
public spending, respectively, broadly in line with the MENA averages of 3.2 and 5 percent (Figure 14).

 Figure 14: The distribution of public spending by functional classification
 A. West Bank and Gaza and Comparators                                                        B. West Bank and Gaza, 2015-2023
 (2015-2022 average, % of GDP)                                                                (% of GDP)
     35                                                                                         35
     30
     25                                                                                         30
     20
     15                                                                                         25
     10
      5                                                                                         20
      0
                                                                    FCV
                             MENA




                                                             LMIC




                                                                                 Arab world
          West Bank and




                                           MENA (excluding




                                                                                                15
                                            high-income)
              Gaza




                                                                                                10

                                                                                                5

                           General services                         Defense                     0
                                                                                                     2015

                                                                                                            2016

                                                                                                                       2017

                                                                                                                                2018

                                                                                                                                         2019

                                                                                                                                                      2020

                                                                                                                                                             2021

                                                                                                                                                                      2022

                                                                                                                                                                                    2023
                           Public safety                            Economic affairs

                           Environment                              Housing
                                                                                                            General services           Defense                      Public safety
                           Health                                   Recreation
                                                                                                            Economic affairs           Environment                  Housing
                           Education                                Social protection                       Health                     Recreation                   Education

                          Expenditures                                                                      Social protection          Expenditures


 Source: MFMod; BOOST; World Bank estimates.

The PA’s fiscal flexibility is very limited. The share of rigid expenditures in total spending in the West
Bank and Gaza is higher than the average for any comparator group. Rigid expenditures are defined as
expenditure items that are difficult to reduce for political-economic or structural reasons, such as the
public-sector wage bill, social contributions, transfers, and interest payments.19 From 2015 to 2022, an
average of 79.8 percent of expenditures were classified as highly rigid, well above the averages for the
MENA region, LMICs, and FCV countries (Figure 15). Expenditure rigidity restricts the PA’s ability to adapt
fiscal spending under challenging conditions. The wage bill is largely responsible for the large share of rigid
expenditures, as the PA remains a critical source of employment given the constraints on private sector
activity. The PA is also subject to external factors that influence the level or share of certain expenditure
types, especially in Gaza. As a result, the PA has resorted to cutting more discretionary components of


18 Public safety includes Ministry of Interior and National Security, Judiciary and justice, Administrative Court and the Supreme
Judicial, Judge's office, Supreme Council for Public Procurement Policies, and The Supreme Constitutional Court.
19 Highly rigid expenditures include the public wage bill, spending on employment contracts, spending on basic services, interest

payments, social protections, pensions, non-pension social benefits, and transfers to subnational governments. Medium-rigidity
expenditures include capital expenditures on health and education, purchases of goods and services in health and education, and
subsidies. Less rigid expenditures include other capital investments and purchases of goods and services.


                                                                                                                                                                                           37
spending, such as public investment. As noted above, the investment budget has fallen to just 2 percent
of GDP in recent years, with deeply negative implications for long-term growth.

 Figure 15: Expenditure rigidity
 A. Highly rigid expenditures                                  B. Rigid expenditures
 (% of total spending, 2015-2022 average)                      (% of total spending, 2015-2022 average)
                                                                100
                                                                 90
           West Bank and Gaza                                    80
                                                                 70
                                                                 60
                                                                 50
  MENA (excluding high-income)                                   40
                                                                 30
                                                                 20
                                                                 10
                        MENA                                      0




                                                                                                                                             Arab world
                                                                                                                                  FCV
                                                                                                                        LMIC
                                                                                                   MENA (excluding
                                                                       West Bank and Gaza



                                                                                            MENA



                                                                                                    high-income)
                    Arab world


                          FCV


                         LMIC
                                                                      High rigidity expenditure                      Medium rigidity expenditure
                                 0   20   40   60   80   100          Low rigidity expenditure

 Source: MFMod; BOOST; World Bank estimates.

Prior to 2020, budget execution fluctuated significantly, but in recent years the PA has consistently
adhered to the budget, with only minor variances of 1-3 percent. On a commitment basis, the PA
overspent the approved budget in 2015 and 2016, then underspent it by 8 percent in 2018 (Figure 16A).
Overspending was driven by purchases of goods and services, which exceeded the budget by 14 percent
in 2015 and 24 percent in 2016 due to a sharp increase in outside medical referrals. Moreover, net lending
has consistently surpassed budget estimates since 2015, with an average yearly excess of 25 percent
placing a significant strain on the public budget. In 2022 and 2023, the PA maintained overall budget
adherence, but overspending persisted on purchases of goods and services, as well as fuel subsidies
(Figure 16B). However, on a cash basis, the PA’s actual expenditures consistently fall below the budget,
owing to the increased use of arrears (Figure 16C). While net lending and fuel subsidies mirror the trends
observed in the commitment basis, actual spending on goods and services consistently remains under
budget (Figure 16D).




                                                                                                                                                          38
 Figure 16: Adherence to the approved budget
 A. Expenditures, actual (commitment basis) and                             B. Government overspending (commitment basis)
 budgeted                                                                   (NIS millions)
 (NIS millions)
  20,000                                                                     4,000

                                                                             3,000
  17,500
                                                                             2,000

  15,000                                                                     1,000

                                                                                 0
  12,500




                                                                                     2015

                                                                                            2016

                                                                                                     2017

                                                                                                            2018

                                                                                                                   2019

                                                                                                                          2020

                                                                                                                                  2021

                                                                                                                                          2022

                                                                                                                                                  2023
                                                                                                   Use of goods and services (Budget)
  10,000                                                                                           Use of goods and services (Actual)
            2015




                                                             2022
                   2016
                          2017
                                 2018
                                        2019
                                               2020
                                                      2021


                                                                    2023
                                                                                                   Net lending (Budget)
                                                                                                   Net lending (Actual)
                                                                                                   Fuel subsidies (Budget)
           Actual expenditure                  Approved budget
                                                                                                   Fuel subsidies (Actual)

 C. Expenditures, actual (cash basis) and budgeted                          D. Government spending (cash basis)
 (NIS millions)                                                             (NIS millions)
  20,000                                                                     3,000


  17,500                                                                     2,000


  15,000                                                                     1,000


  12,500                                                                        0
                                                                                     2015

                                                                                            2016

                                                                                                     2017

                                                                                                            2018

                                                                                                                   2019

                                                                                                                          2020

                                                                                                                                 2021

                                                                                                                                         2022

                                                                                                                                                 2023
  10,000                                                                                       Use of goods and services (Budget)
                                                                                               Use of goods and services (Actual)
                                 2018
            2015
                   2016
                          2017


                                        2019
                                               2020
                                                      2021
                                                             2022
                                                                     2023




                                                                                               Net lending (Budget)
                                                                                               Net lending (Actual)
           Actual expenditure                  Approved budget                                 Fuel subsidies (Budget)
                                                                                               Fuel subsidies (Actual)
 Source: Palestinian Ministry of Finance.
 Note: In 2019, due to a clearance-revenue standoff over additional Israeli deductions, the PA adopted an
 emergency cash-management plan, resulting in the absence of an official budget for the year. The disparity in
 actual expenditures between commitment and cash basis reveals the accumulation of arrears.

Recurrent spending on regressive subsidies has put upward pressure on the budget. The PA spent an
average of 0.6 percent of GDP subsidizing fuel each year between 2015 and 2023. These subsidies are
contrary to the PA’s climate agenda, and they crowd out social spending in key areas such as education
and social transfers. In 2021, the MOF provided US$ 77 million fuel subsidies. In 2022, as global oil prices
soared, the cost of the fuel subsidy rose by 191 percent y/y, and it remained high at US$ 172 million (1
percent of GDP) in 2023 (Figure 17). Subsidy reform could free up scarce resources to invest in critical
development priorities (Box 1).




                                                                                                                                                         39
Figure 17: Fiscal spending on fuel subsidies
(% of GDP)
 1.2

 1.0

 0.8

 0.6

 0.4

 0.2

 0.0
         2015       2016       2017       2018       2019       2020       2021       2022       2023

Source: World Bank staff calculations based on MOF data


                      Box 1: Reforming fiscal subsidies in the West Bank and Gaza

Subsidies keep retail fuel prices in the West Bank and Gaza below the market price. Almost 100 percent
of fossil fuels are imported, mainly from Israel. Taxes on fuel products are passed along to Palestinian
consumers and represent an average of two-thirds of the pump price. Fuel subsidies are the least
progressive of all public transfers in the West Bank and Gaza, because richer households tend to
consume more fuel and therefore receive a larger share of the subsidy benefits. In the West Bank, the
richest 10 percent of the population receives almost four times the value of the fuel subsidies going to
the poorest 10 percent (Figure 18). While fuel subsidies do help reduce poverty, their regressivity makes
them very inefficient. By contrast, electricity subsidies are progressive, albeit less so than cash transfers
or spending on education and other social services.

  Figure 18: Absolute incidence of fuel subsidies in the West Bank—the perfect example of regressive
                                                subsidies




                                                                                                           40
 Reducing the fuel subsidy by 50 percent would have a substantial fiscal impact, and the savings could
 be redirected into important priorities, including social spending and climate action. The average
 annual amount spent on fuel subsidies over the last decade is NIS 410 million. Freeing just NIS 205
 million could finance 40 percent of the National Cash Transfer Program, providing support to over
 46,000 Palestinian households currently living in deep poverty, or cover 50 percent of the estimated
 annual capital investment necessary to address climate-related challenges in the water, energy,
 agricultural, urban development, and human capital sectors. However, any reduction of fuel subsidies
 would need to be carefully managed and implemented through a phased approach, with compensatory
 mechanisms to shield poor households from negative welfare effects.

Net lending is another spending area that has placed pressure on the PA finances in recent years. Net
lending, in the Palestinian context, refers to the amounts Israel deducts from clearance revenues to offset
bills owed by Palestinian local government units and utility companies to the Israeli suppliers of electricity,
water, and sewage services.20 Net lending averaged 2 percent of GDP between 2015 and 2023 and despite
multiple efforts by the PA, the issue continues to worsen. Net lending involves several actors, both on the
Israeli and Palestinian side – each with own incentives, practices, and behaviour - contributing to the
complexity of the phenomenon (Box 2).
             Box 2: Understanding the net lending phenomenon in the Palestinian territories and
                                       recommendations for reform

 Currently, 92 municipalities and 188 village councils operate as utility providers in the West Bank and
 Gaza. These local governments frequently fail to cover the cost of utility services purchased from Israeli
 suppliers due to limited own-source revenue capacity, high technical losses in their local utility
 networks, weak metering and billing practices, and/or inadequate transfers from the PA to supply
 utilities at subsidized rates to poor households and refugee camps.
 Electricity payments account for the largest share of deductions and reached NIS 1.1 billion in 2023,
 followed by water payments at NIS 393 million, and sewage payments at NIS 109 million. Electricity bills
 are mainly owed to the Israeli Electricity Company (IEC), and outstanding payments owed to IEC are
 either deducted from the PA clearance receipts or are accumulated as debt, which is subject to an
 interest rate.21 Palestinian electricity distributors cannot cross-check billed quantities since IEC delivers
 electricity to the West Bank through 220 connection points, corresponding to 220 monthly bills. Like
 electricity services, the water distribution is affected by uneven contractual terms with Israeli suppliers.
 80 percent of the water consumed in the Palestinian territories is imported from Israel via the Mekorot
 company. Mekorot issues two aggregate invoices each month, one for the West Bank and one for Gaza.
 In addition to the cost of water, Mekorot charges a monthly fee of NIS 850,000, ostensibly to cover the
 salaries of Israeli Civil Administration staff working in the water sector. The PA has no means to cross-
 check the accuracy and consistency of the volumes billed by Mekorot, because water is delivered to
 the West Bank and Gaza through several entry points that are not equipped with meters.
 In addition to disrupting financial relations between the PA and the Israeli authorities due to a dispute
 over the lack of transparency with respect to billed services and intercepted funds, net lending has
 negatively affected the domestic intergovernmental fiscal relations. The MOF collects property tax and
 transportation fees on behalf of municipalities and should then remit to the Local Government Units

20 The uncovered cost of medical referrals to Israeli hospitals is also deducted by Israel from clearance revenues but recorded by
the Palestinian MOF under goods and services.
21 This rate is applied to all delinquent payers and is not specifically applied to Palestinian debt. The rate depends on the market

interest rate and the debt period and it has mostly ranged between 10-11 percent, according to the PA.


                                                                                                                                41
(LGUs) their share, on a monthly basis. As a result of the net lending issue, the MOF has started
intercepting the LGUs’ revenues. Lack of undisputed, comprehensive data on the financial position of
each LGU, i.e., gross vs. net amount owed by MOF, combined with the irregular, unpredictable
disbursement of LGU shares in the property tax and transportation fees, have further complicated the
monitoring of net lending.
Addressing the net lending issue would help improve transparency, stability, and fairness in the fiscal
relations between the PA, local governments, the GOI, and utility providers. It would also improve
incentives and promote fiscal discipline and rules-based financial management at all governance levels,
easing the burden on the PA’s already fragile public finances.
One of the first priorities should be getting the numbers right. In fact, getting a clear, undisputed
picture of each party’s financial claims is a complex task for many reasons including the use of different
accounting rules by the different stakeholders, the absence of a regular, periodic reconciliation of
accounts across the board, and the lack of cooperation and diligence on the Israeli side due to
untransparent billing methods and receipts intercept practices. So far, the duty of account
reconciliation has been carried out by the Net Lending unit currently operating within the Ministry of
Local Government (MoLG) administration, and which has faced difficulties due to the lack of
cooperation. However, a better approach could be to assign the reconciliation task to an independent
body such as the State Audit and Administrative Control Bureau (SAACB) to be assisted by a private
accounting firm. The reconciliation process must be completed within the shortest time frame feasible,
and the reconciliation of accounts must be based on clear rules that should be agreed in prior and made
known to all parties to avoid potential misunderstanding or disagreement. Donor involvement to
encourage the Israeli side to be involved in this exercise is critical for its success.

After the reconciliation of the accounts, the second priority should be the clearance of the accounts.
Once the net financial position of each LGU is established showing either a claim on, or a debt owed to
the PA, a decision must be made by the highest national authorities (i.e., the Council of Ministers) on
how to deal with the clearance of all accounts. If the PA has a net claim on an LGU it could either forgive
all claims (setting accounts to zero), or freeze the net lending balance, and reschedule any LGU debt
over a reasonable period, commensurate with its financial capacity, on a case-by-case basis. Forgiving
claims could become a regressive policy, in case richer LGUs are the ones with larger outstanding bills.
Getting this right might need some analysis as policies should be geared towards efficacy, efficiency
and equity, while taking into account competing policies and the state of public finance of the PA.

The third priority should be about adopting new rules. New rules and practices should be developed
and applied as soon as possible to close the net lending chapter and put in place proper safeguards to
avoid its reoccurrence. At the MOF, the General Accounts Department should assign a separate account
for each LGU within the government accounting system. The account could be structured into sub-
accounts to reflect the different categories of financial transactions, including a) The amount accruing
(owed) to the LGU, b) The amount effectively disbursed to the LGU and, c) Any intercept (deduction)
made by the MOF to offset payables owed by the LGU. Best practice should involve reporting all
transactions on a gross basis so that cost and efficiency could be properly estimated. Proper billing and
accounting procedures must also be adopted by LGUs to enable those that are active in the distribution
of electricity and/or water to keep records of their claims on the PA. Hence, LGUs must issue invoices
and claim requests on time, for submission to the concerned agencies (with copy to the ministry of
finance) together with clear supporting documents. Invoices and claims on the PA must be posted to




                                                                                                         42
 the PA account in the LGU accounting system; such account could be structured into sub-accounts (one
 for each type of claim).

 The fourth priority should be improving LGU financial discipline. To ensure that LGUs do fulfil, on time,
 their financial obligations towards the Israeli suppliers, they should adopt sound commercial and good
 governance rules in the management of the electricity and water distribution. This can be achieved
 through the optimalization of revenues (improved collection rate of consumers’ bills) and the
 monitoring of costs (reduced technical and non-technical loss of electricity). This requires investing in
 the rehabilitation of the infrastructure (to minimize technical loss) and the billing-collection system (use
 of pre-paid meters). LGUs, however, currently lack the financial means to bear the cost of such
 investment effort. Hence, the segregation of utilities transactions accounts would be an essential
 alternative in the meantime. LGUs would post all the transactions to a general account, associated with
 a dedicated ring-fenced bank account to ensure that that use of receipts is restricted to the payment
 of utility purchase and other related expenses. The use of such modality can be instrumental in
 improving financial discipline and compliance, provided that strict rules are attached to its utilization
 to ensure that the account is not used to cross-subsidize other municipal services, and that unspent
 monies are carried over to the following fiscal years.

 The fifth priority should be reforming the LGUs’ financing system. Lack of adequate revenue
 assignment has so far undermined the capacity of LGUs to effectively assume their spending
 responsibilities and meet their financial obligations. There is therefore a need for revising the current
 LGU revenue assignment arrangements in regard to the own-source revenues structure, and the fiscal
 transfers system. To increase own-source revenue, the MOF could gradually assign full responsibility
 for the assessment and collection of the property tax to the municipalities. This was done on a pilot
 basis a few years ago and the delegation arrangement has led to substantial increase of collected tax
 receipts. This could also be done digitally with the MOF providing a central platform that each
 municipality must use. That way, not much capacity building (and hiring) is needed on the LGU side,
 and the MOF can track revenue collection.

 The sixth priority should be instituting a genuine intergovernmental fiscal transfer system. Such
 system, if well designed and adequately funded, is highly instrumental in tackling the net lending issue,
 by securing a steam of regular and buoyant financial resources to LGUs. In principle, the size of the
 fiscal transfers should be commensurate with the level of the vertical funding gap (the vertical gap is
 the difference between the cost of providing assigned service delivery responsibilities and the potential
 of LGU own-source revenues). However, in the absence of comprehensive, and reliable data, it is not
 easy to correctly measure such gap. Accordingly, a pragmatic approach could be adopted, building on
 the current arrangements of the transportation fees sharing scheme, to arrive gradually at a sizable
 annual volume of funds, stable and predictable. Ultimately, the funding of the fiscal transfers system
 should be aligned with the practices followed in many countries, that is, to commit a certain percentage
 of the total central government’s domestic revenues, often lagged one year to add predictability to the
 flow of funds. However, given the PA’s fiscal crises, donor contributions to this system would be crucial
 to enable it to achieve its objective.

 Source: Adapted from “Net Lending: Issues and Recommendations for Reform”, World Bank (forthcoming). 22




22   The report is still being finalized and is not publicly available yet.


                                                                                                           43
Public spending has a positive short-term impact on GDP in the West Bank and Gaza. Fiscal multipliers
measure the effect of changes in public spending on short-term output. A bivariate vector autoregression
(VAR) analysis using seasonally adjusted quarterly GDP and expenditure data from Q1 2015 to Q3 2023
suggests that public spending has a positive and statistically significant short-term effect on GDP.23 For
every additional US$ 1 in public spending, there is an estimated incremental gain of US$ 0.6 in GDP during
the contemporaneous quarter and US$ 0.4 in the subsequent quarter (Figure 19A). On an annual basis,
this implies a first-year fiscal multiplier of about 1, meaning one additional dollar of public spending
generates one additional dollar of output over the year. A comparative analysis indicates that the West
Bank and Gaza’s fiscal multiplier is close to the MENA average and above the level of other emerging
markets (EMs)24 (Figure 19B). These findings are supported by a separate VAR analysis that uses nighttime
illumination data as a proxy for aggregate economic activity (Figure 19C) and suggests that the positive
effects of public spending last for about 15 months. However, the response of other economic indicators,
such as the business conditions index, suggest that a positive fiscal spending shock generates a positive
yet statistically insignificant increase in output (Figure 19D).

 Figure 19: Public spending and GDP
 A. Multiplier of public spending on quarterly GDP               B. First-year fiscal multipliers and quarterly GDP

                     1.2                                                         1.2
                       1
                                                                                  1
                     0.8
     Effect on GDP




                                                                                 0.8
                                                                    Multiplier




                     0.6
                     0.4                                                         0.6
                     0.2                                                         0.4
                       0
                                                                                 0.2
                     -0.2
                           0 1 2 3 4 5 6 7 8                                      0
                       Quarter after government spending shock                         Palestine   MENA     Panel EMs

 C. Multiplier of government spending on monthly                 D. Multiplier of government spending on monthly Business
 nighttime lights (as a proxy for outputs)                       Condition Index (as a proxy for outputs)




 Source: Palestinian Central Bureau of Statistics; Palestine Monetary Authority; Table A.3.1 of Batani et al. (2014b);
 World Bank staff estimates.



23 A VAR with a deterministic linear trend is estimated. To identify government spending shocks, we follow Blanchard and Perotti
(2002) and assume that GDP has no contemporaneous effect on government spending.
24 Batani et al., 2014b.




                                                                                                                             44
 Note: (a) In Figure 1A, the solid line displays the estimated effect, and dashed lines display the 90 percent
 bootstrapped confidence interval. (b) In Figure 1B, Panel EMs represent 17 emerging markets specified by Ilzetzki
 (2011). (c) Figure 1C displays the effect of a one standard deviation shock in logged government spending on
 logged nighttime lights, with a sample period from January 2015 to October 2023. The solid lines display the
 estimated effects, while shaded areas denote the 90 percent bootstrapped confidence intervals. (d) Figure 1D
 displays the estimated effect of a one standard deviation shock in logged government spending on future business
 conditions in the Palestinian territories, with a sample period from January 2015 to September 2023.

The PA’s spending patterns are significantly procyclical, and adopting a countercyclical fiscal policy
could help accelerate and stabilize GDP growth.25 Public spending has been positively correlated with
GDP growth since 2015, and its procyclicality is high by the standards of FCV countries and LMICs (Figure
20). Procyclicality has been exacerbated by repeated standoffs over clearance revenue, which resulted in
monthslong delays in the transfer of these revenues.26 Because clearance revenues represent the PA’s
main source of income, these delays automatically translate into a strong reduction in West Bank and
Gaza’s government revenue, negatively affecting spending and ultimately growth given the large fiscal
multipliers.

 Figure 20: The procyclicality of public spending across countries
 A. Individual countries                                          B. Country groups




 Source: World Bank staff estimates based on data from the Palestine Monetary Authority
 Note: This figure plots the contemporaneous correlation coefficients between the cyclical component of public
 expenditures and the cyclical component of GDP for the West Bank and Gaza and comparison countries. In panel
 A, each bar represents a country; in panel B, each bar represents the average for a country group. Cyclical
 components are extracted via the Hodrick-Prescott filter, and correlation coefficients are calculated for the West
 Bank and Gaza. The correlations for other countries are derived from Public Finance Review (PFR) data-
 visualization tools.

Deficit financing and the public debt

Deficit

The PA has achieved an impressive degree of fiscal consolidation over the years, but the ongoing conflict
has reversed some of these gains. Between 2006 and 2022, the PA narrowed its total fiscal deficit (before
international aid and after Israeli deductions from clearance revenues) from 27 percent of GDP to about
3.7 percent. However, the conflict’s severe negative impact on the PA’s finances widened the deficit to 6

25 Fiscal policy is countercyclical when public expenditures increase during recessions and decline during expansions, which helps
mitigate downturns and stabilize the business cycle.
26 The most recent standoffs over clearance revenues took place in March-August 2019, May-November 2020 and October 2023.




                                                                                                                              45
percent of GDP in 2023, as a sharp economic contraction suppressed tax revenue while the GOI
unilaterally increased deductions from clearance revenues in late 2023 (Figure 21). Most of the deficit
emanates from Gaza, where the PA collects very little fiscal revenue, while the West Bank is close to a
fiscal balance. The structural gap in the PA’s finances caused by the wide gap between revenues and
expenditures in Gaza cannot be addressed in the short term, as it would require the cessation of hostilities,
meaningful progress on resolving the internal political divide, and the easing of the near-total blockade
on Gaza.


 Figure 21: General government balance (before aid and after Israeli deductions from clearance
 revenues)
 (% of GDP)
    0.0
          2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
   -5.0

  -10.0

  -15.0

  -20.0

  -25.0

  -30.0

 Source: MOF; World Bank estimates.

Financing

Aid has decreased significantly in recent years. Due to donor fatigue and competing priorities in the
region, aid dropped from a peak of US$ 2 billion in 2008 to US$ 357 million in 2023 or from 27 percent of
GDP to 2 percent, with contributions from all donors falling substantially (Figure 22). Aid from the
European Union via Palestinian-European, Socio-Economic Management and Assistance Mechanism
(PEGASE) and from the World Bank and its multi donor trust funds has declined over time but has
remained present in all years. Bilateral aid both from Arab and non-Arab donors has been extremely
irregular, especially in recent years. The reduction in donor aid has had a negative impact on growth, and
ensuring adequate and predictable budget support remains indispensable to the success of the reform
agenda.




                                                                                                          46
 Figure 22: External budget support
 A. Budget support and development financing                           B.     Budget support by donor
    (US$ millions LHS; % of GDP RHS)                                          (US$ millions)
  3000     27%                                                 30%          1800
                                                                            1600
  2500                                                         25%          1400
                                                                            1200
  2000                                                         20%          1000
                                                                             800
  1500                                                         15%           600
                                                                             400
  1000                                                         10%           200
                                                                               0
    500                                                        5%




                                                                                     2008




                                                                                                                                                            2019
                                                                                            2009
                                                                                                    2011
                                                                                                           2012
                                                                                                                  2013
                                                                                                                         2014
                                                                                                                                2015
                                                                                                                                       2016
                                                                                                                                              2017
                                                                                                                                                     2018


                                                                                                                                                                   2020
                                                                                                                                                                          2021
                                                                                                                                                                                 2022
                                                                                                                                                                                        2023
                                                         2%
      0                                                        0%
          2008
          2009
          2010
          2011
          2012
          2013
          2014
          2015
          2016
          2017
          2018
          2019
          2020
          2021
          2022
          2023
                                                                                                   World Bank
   -500                                                        -5%
                                                                                                   PEGASE
                          Development Financing                                                    Non-Arab Countries
                          Budget Support                                                           Arab Countries (excluding Saudi Arabia)
                          % GDP                                                                    Saudi Arabia

 Source: MOF; World Bank calculations.
 Note: The breakdown of aid inflows by donor is unavailable for the year 2010.

Aid has been insufficient to cover the PA’s overall financing needs, pushing it to resort to domestic
sources of financing. These include debt from the domestic banking sector and arrears to private suppliers
and to the public pension fund. The PA has also started paying partial salaries to public employees since
December 2021, and the payment share has declined from 80 percent to 50-70 percent since the start of
the conflict.

                                           Table 2: Key Fiscal Indicators, 2015-2024
                                        2015     2016     2017     2018        2019           2020                       2021                        2022                    2023                   2024
 Key Fiscal Indicators, Percent of GDP, unless indicated otherwise

 Total Revenues and Grants            26.7     28.4      27.2        25.9      22.4            25.7                      25.0                        27.2                    26.2                   28.7
     Tax Revenues                     19.2     19.5      20.4        19.1      17.5            20.1                      21.0                        23.0                    21.8                   20.3
         Taxes on Goods and            3.0      2.9       3.3         3.7       3.2             3.5                      4.22                         4.5                    4.3                     4.3
         Services
         Direct Revenues               1.3      1.1       1.4         1.5       1.2             1.2                       1.3                         1.5                    1.7                     2.1
         Taxes on International       14.6     15.1      15.4        13.9      12.8            15.1                      15.3                        16.4                    15.3                   13.5
         Trade
         Other Taxes                   0.2      0.3      0.2         0.0       0.2                 0.3                   0.2                          0.6                        0.5                0.4
     Non-Tax Revenues                  1.8      3.9      2.4         2.7       2.1                 2.4                   2.2                          2.4                        2.4                2.5
     Grants                            5.7      5.0      4.5         4.2       2.8                 3.1                   1.7                          1.8                        2.0                5.9
     Tax Refunds (-)                   0.2      0.2      0.2         0.4       0.3                 0.3                   0.6                          0.2                        0.2                0.3

 Total Expenditures                   31.4     30.6      30.0        28.4      29.9            33.2                      30.7                        29.1                    30.1                   38.2
     Current Expenditures             26.2     25.6      25.3        23.3      24.7            28.0                      26.0                        23.6                    24.1                   31.0
          Wages and Compensation      15.0     14.6      14.4        12.1      13.0            14.2                      14.6                        13.8                    14.0                   18.3
          Goods and Services           4.7      4.3       4.3         3.8       3.7             4.2                       4.4                         4.2                     4.8                    5.5
          Interest Payments            0.3      0.5       0.5         0.4       0.3             0.4                       0.7                         0.7                     0.6                    1.0
          Current Transfers            6.2      6.2       6.1         7.0       7.7             9.2                       6.3                         4.8                     4.6                    6.2
     Capital Expenditures              1.7      2.3       2.4         2.3       2.1             2.0                       1.5                         1.6                     2.2                    1.9
     Other Expenditures                3.5      2.7       2.3         2.8       3.1             3.2                       3.3                         3.9                     3.8                    5.3
 Overall Balance                      -4.7     -2.2      -2.7        -2.4      -7.4            -7.5                      -5.8                        -1.8                    -3.8                   -9.5




                                                                                                                                                                                               47
 Primary Balance                       -4.4     -1.7      -2.3     -2.0     -7.1      -7.1         -5.1            -1.1          -3.2           -8.5

 Financing Requirement                  4.7     2.2        2.7      2.4      7.4      7.5           5.8            1.8           3.8             9.5
     Government Financing               1.2     -0.8       0.5      1.0      4.7      3.6           0.5            -0.6          1.3
         External Financing (Net)      -0.1     -0.2       0.0     -0.1      1.1      0.7           0.0            -0.1          0.1             0.0
         Domestic Financing (Net)      -0.3     -2.6      -2.5     -1.1      1.2      0.0          -1.3            -2.5          0.1             5.4
     Financing Gap                      5.1     4.9        5.2      3.6      5.1      6.8           7.1            4.5           3.6             4.1

 General Government Debt27             37.5     35.4     35.8      34.4     39.2      55.1         56.0            53.1          59.0           85.7
      External Debt                     7.7      6.8      6.5       6.3      7.1       8.5          7.3             6.8          7.4             9.6
      Domestic Debt                    29.8     28.6     29.3      28.0     32.1      46.5         48.7            46.3          51.6           76.0
          Borrowing from Domestic      10.5      9.3      9.3       8.2      9.2      15.0         14.0            11.7          13.8           21.0
     Banks
          Stock of Arrears             19.3     19.2     20.0      19.8     22.9      31.6         34.8            34.6          37.8           55.0
            Of which: toward the       16.0     16.6     16.6      15.0     15.5      19.1         18.2            17.1          16.8           21.7
            pension fund
 Memorandum items:
 Clearance Revenue Deductions           3.0     2.6        2.1      2.5      3.7      2.8           3.1            3.6            2.9            6.0
 Overall Balance Before Grants and     -10.4    -7.1      -7.2     -6.6     -10.3    -10.6         -7.5            -3.7          -5.8           -15.4
 After CR Deductions


                                            Source: PCBS, PMA, MOF, World Bank staff estimates
   Note: The clearance revenue deductions presented as a memorandum item include deductions made by Israel to account for utility bills
recorded in the table under “other expenditures”, the cost of health referrals recorded under “G&S” and deductions for prisoners and martyrs’
               payments and Gaza spending recorded as a negative revenue item deducted from “taxes on international trade”



Public Debt

Large fiscal gaps increase reliance on domestic sources of financing and add to the public debt. The PA’s
public debt amounts to US$ 11.8 billion or 85.7 percent of GDP in 2024. The debt stock consists of foreign
debt (9.6 percent of GDP), borrowing from the domestic banking sector (21.0 percent), and domestic
arrears to the private sector, pension fund, public employees, and others (55.0 percent) (Figure 23). The
foreign debt was accumulated in the early years of the PA and has been relatively stable. The stock of debt
owed to the domestic banking sector, however, has fluctuated over the years, and although the PA had
succeeded in reducing it in recent years, the conflict has pushed it back to over its pandemic-era peak of
US$ 2.5 billion and it reached US$ 2.88 billion by end-2024. Arrears have been another major source of
financing for the PA. The total stock of arrears to the private sector stood at an estimated US$ 1.5 billion
at end-2024, mostly owed to pharmaceutical companies, hospitals, and contractors. In addition to the
private sector, the PA has also accumulated arrears to the public pension fund, which are estimated at
around US$ 3 billion for the civil-service schemes, though no data are available on the security schemes.
Finally, arrears to public employees are estimated at US$ 1.47 billion. The excessive accumulation of
arrears could stifle economic growth by draining the private sector’s working capital, deterring investors,
and reducing spending by public employees.




27   The PA’s debt figures include foreign debt, domestic debt, and arrears.


                                                                                                                                          48
 Figure 23: Public debt, 2007-2024
 (% of GDP)
                90
                80
                70
                60
                50
                40
                30
                20
                10
                 0



                       Borrowing from the domestic banking sector
                       Domestic arrears to the private sector, pension fund, public employes, and others
                       Foreign debt



                                      Source: PMA, MOF, World Bank staff estimates

Key Issues and policy ingredients for a successful deficit reduction

Fiscal sustainability requires a strong macroeconomic foundation, which the PA’s reform efforts are
necessary but not sufficient to establish, and additional actions by the GOI remain crucial to enable the
Palestinian economy to reach its potential. Reforms by the PA could significantly reduce the size of the
fiscal deficit, and additional measures to improve the business environment could accelerate private-
sector growth. However, previous World Bank analytical work28 has shown that GOI restrictions on
movement and economic activity in the West Bank and the near-total blockade of Gaza remain the most
important obstacles to growth and private-sector development. Until these challenges are addressed, the
Palestinian economy will continue to operate below its potential.

Urgent reforms are necessary to bolster the PA’s fiscal position and lay the groundwork for more robust
growth once a lasting political resolution has been achieved. The unreliable funding of essential public
services and the high level of payment arrears to the private sector and public employees are hindering
economic development and constricting liquidity. Efforts to enhance the equity, effectiveness, and
efficiency of public spending must address the wage bill, the generous public pension system, and the
allocation of transfers to ensure they reach the poorest and most vulnerable households. Improving the
management of referrals is a critical priority in the health sector. Reforms to reduce net lending are also
urgent, as the current system results in substantial unplanned subsidies to local governments. The
following chapters provide a detailed analysis and specific recommendations in some of these areas.



28Laursen and Nasser Eddin, 2017. Prospects for growth and jobs in the Palestinian economy: a general equilibrium analysis.
Washington, D.C.: The World Bank Group. http://documents.worldbank.org/curated/en/952571511351839375/Prospects-for-
growth-and-jobs-in-the-Palestinian-economy-a-general-equilibrium-analysis


                                                                                                                        49
On the revenue side, while the PA has made significant strides in mobilization, there is room for further
improvement. Although central government revenues are relatively high by the standards of FCV
countries, they still fall short of the PA’s potential. Due to the political divide, revenue collection from Gaza
was very low even prior to the conflict. In the West Bank, reforms are needed to broaden the tax base to
include high-earning professionals such as doctors, lawyers, and engineers. Administrative enforcement
powers should be strengthened and accompanied by penalties for tax evasion. Human resource skills at
the ministry of finance also need to be strengthened including for competitive data analysis and auditing,
amongst others. Additional efforts should be made to determine the appropriate framework for taxing
small firms and Limited Liability Companies (LLCs) under the new Companies Law. Nontax revenues could
also be significantly augmented by revising government fees and charges, most of which have not been
adjusted in over two decades. Revenues collected by local governments also remain minimal, and large
intergovernmental transfers contribute to the PA’s deficit. Access to Area C is also crucial to increase the
PA’s revenue, but progress in this area hinges on a successful political dialogue.

Further reducing the recurrent fiscal deficit is crucial to create fiscal space to increase public investment
and settle arrears. While reducing the overall deficit level may constrain short-term growth, trimming the
recurrent deficit would enable greater public investment and could stimulating long-term growth. Public
investment should be increased to about 5-6 percent of the budget over the medium term to begin
tackling the infrastructure gap, improving the quality of life for Palestinian citizens, and fostering private-
sector growth. These objectives are increasingly urgent given the vast development needs in Gaza as a
result of the conflict. Deficit reduction should ideally be augmented by increased donor support, which
would create fiscal space both for public investment and arrears clearance.

Increased donor support is crucial to the success of the PA’s reform agenda, but inflows have reached a
two-decade low. Reform efforts in revenue and expenditure management should proceed gradually to
avoid adverse social or economic consequences. Drastic cuts in public spending could negatively impact
economic activity due to large fiscal multipliers. Moreover, the fiscal consolidation effort is vulnerable to
external shocks, as economic growth and the fiscal balances are highly sensitive to the political context
and cooperation with Israel. Adequate and predictable budget support is essential to facilitate fiscal
consolidation and mitigate political and economic uncertainties. Increasing external budget support would
help the PA navigate its fiscal crisis and sustain service provision in the near term, while in the medium-
term donor support should be redirected towards development projects that bolster economic growth.
Additional public financial management reforms and governance measures could attract additional donor
resources.

The GOI’s cooperation is also necessary to improve the PA’s fiscal situation. The 1995 interim agreement
states that the Israeli civil administration is expected to collect revenues from Israeli businesses operating
in Area C and remit them to the PA.29 While these funds are collected by the GOI, they have yet to be
remitted. The GOI must also work with the PA to implement institutional measures to sustainably reduce
fiscal leakages from clearance revenues, which is vital to reinforce the PA’s finances. The following
recommendations could advance these objectives while yielding other mutually beneficial outcomes:

A.     Resolve the current dispute over clearance revenues by establishing transparency and
accountability regarding the GOI deductions. In October 2023, the GOI began imposing additional


29See Annex III, Appendix I, Article 8, Paragraph 2(a), 2(b) and Article 18, Paragraph (4) of the Interim Agreement on the West
Bank and the Gaza Strip, Washington, D.C., September 28, 1995 (the Interim Agreement) accessed here:
https://www.gov.il/en/Departments/General/the-israeli-palestinian-interim-agreement-annex-iii


                                                                                                                            50
deductions from clearance revenues to account for the PA’s unchanged spending in Gaza. While an
agreement was reached in early 2024 to place the additional Gaza-related deductions in a Norwegian
escrow account, enabling the PA to accept the remaining clearance revenues, the additional deductions
have resulted in a deep fiscal crisis. While such deductions are clearly barred by the Paris Protocol, they
continue to undermine the PA’s revenue position. The GOI reports exchanging information with the PA
on the monthly deductions from clearance revenues to cover utility costs, but the PA claims it has had
difficulty reconciling Israeli deductions with actual local government purchases from Israeli suppliers due
to the lack of detail provided by the GOI. These discrepancies have widened over the years, creating the
need for a mechanism that would reconcile local government data on service consumption with billing by
Israeli providers and enable independent verification on an ongoing basis. Aside from the disputed
deductions, Israel only provides an abbreviated breakdown of clearance revenues by source, giving the
PA a very limited understanding of a major revenue line item and the associated risks. The ex-post nature
of the deductions further reduces predictability. Urgent efforts should be conducted to resolve the current
dispute as soon as possible as the PA will not be able to survive much longer without larger clearance
revenue transfers. Going forward, an agreement should be reached to ensure that transfers of clearance
revenues are more regular and predictable and are not politically driven.

B.       Fully implement the e-VAT clearance system. The Palestinian and Israeli authorities both face
fiscal leakages from bilateral trade, but the relative size of the issue is more significant for the PA, since
around two-thirds of its trade is with Israel, while the share of Israeli exports to the Palestinian territories
is far smaller. The Paris Protocol allows the parties to implement an “interconnected computer system for
tax rebates to dealers and for VAT clearance between the two sides,”30 and in 2022 they launched a pilot
e-VAT system under which traders on both sides can voluntarily issue digital transaction receipts. The
challenge now is to bring all traders and transactions into the system. The PA has made encouraging
progress in updating digital systems and enrolling traders. However, the GOI has yet to legally mandate
that traders use the system, and progress on this point is urgent. The ultimate goal should be to fully link
the interfaces of both authorities, enabling them to reduce VAT leakage by exchanging real-time
information on all purchases being made.31

C.      Transfer customs responsibilities to the PA and establish Palestinian bonded warehouses.
Meetings between the previous Palestinian and Israeli Ministers of Finance produced a draft
memorandum of understanding on the transfer of customs responsibility from the GOI to the PA.
However, several contentious issues remain, including the type of goods that would be under the purview
of the PA—specifically high-value goods such as cigarettes, tobacco, and alcohol—as well as the scope of
the transfer of responsibilities and the number and location of the customs transfer points to be
established, as this would affect transportation costs. On the PA side, assessments of the existing legal
framework and customs capacity have shown that, despite recent improvements, additional efforts are
needed to successfully implement the transfer of responsibilities. The current Israeli Cabinet has yet to
agree on carrying out discussion with Palestinian counterparts on these issues.

D.       Remit all VAT on Israel-Gaza trade to the PA. PA tax officials ceased operating in Gaza after the
de facto authority came to power in 2007. Since then, the PA has rarely received information on purchases
of Israeli imports by businesses in Gaza, making it impossible to collect VAT from most of those imports.
As the GOI controls and approves the entry of all Israeli goods into Gaza via the sole commercial crossing


30See article VI paragraph 9 of the protocol on economic relations.
31According to the GOI, the Israeli and Palestinian tax authorities signed a memorandum of understanding in August 2023 to
settle the dispute over VAT payments since 2016.


                                                                                                                       51
at Karem Abu Salem, Israeli officials should be in a position to levy and transfer to the PA all VAT revenue
collected from bilateral trade with Gaza. It is encouraged that discussion regarding this issue is resumed
after the cessation of hostilities.

E.       Renegotiate the fee charged by the GOI for handling Palestinian imports. In 1995, the parties
agreed that the GOI would deduct 3 percent of the import taxes and VAT revenue it collects on Palestinian
trade to cover its administrative costs.32 Based on the size of Palestinian trade in 1995, the fee was
considered acceptable to both parties. However, Palestinian imports have significantly increased over the
last 30 years, and while the GOI’s administrative costs have also increased, the current fees significantly
exceed cost-recovery levels. Reducing the handling fee would result in additional revenues being remitted
to the PA.

F.        Exempt the PA’s fuel imports from taxes. Under the Paris Protocol, fuel imported by the PA
should meet specific standards that are not met by fuel produced by regional countries. As a result, the
PA purchases most of its fuel from Israeli companies, on which it pays all applicable taxes. These taxes are
then remitted to the PA after 45 days as part of the clearance process, minus the handling fee. In previous
meetings between the parties, the handling fee on fuel was reduced from 3 percent to 1.5 percent. While
this is a positive step, the resulting savings are limited to about US$ 1.7 million per month. Enabling the
PA to purchase fuel without the embedded taxes would help it maintain financial liquidity. The PA should
also consider eliminating the subsidy on retail fuel prices, as discussed above.

G.      Collaboratively determine the exit fee collected at the Allenby Bridge and allocate the resulting
revenue according to the shares specified in the Paris Protocol. Under the protocol, revenue from exit
fees shall be shared between the PA and the GOI on a 46/54 basis for the first 750,000 passengers and on
a 62/38 basis for each passenger thereafter. Over the years, the GOI has raised the exit fee multiple times
without consulting with the PA and has also not been transferring to the PA its share according to the
formula set by the Paris Protocol. The GOI should remit to the PA its full share of previously collected
funds according to this formula, and future transfers should be made on a regular basis.




32   Paragraph 4 of the supplement to the Protocol on Economic relations, Annex V of the Interim Agreement.


                                                                                                              52
CHAPTER 2 OVERVIEW OF THE PUBLIC-SECTOR WAGE BILL
Despite efforts to curb spending, the PA’s public-sector wage bill has steadily increased. Between 2011
and 2023, aggregate spending on the wage bill in nominal terms rose by 31 percent, from NIS 6.4 billion
to NIS 8.4 billion. Nonwage compensation, including social-assistance transfers and pensions paid by the
MOF,33 adds another NIS 4 billion to the PA’s public-sector wage bill. Taken together, wage and nonwage
compensation represent about 66 percent of total spending and 83 percent of revenue.

The growing wage bill, coupled with pandemic-related emergency spending and the economic
contraction driven by the conflict, has eroded recent gains in fiscal discipline. Between 2011 and
2018/19, the PA successfully reduced the size of the wage bill relative to GDP, revenue, and total spending.
The wage bill declined from 16 percent of GDP to 11 percent, from 59 percent of revenue to 44 percent,
and from 48 percent of total spending to 37 percent over the period. These trends were driven by lower
wage payments to public employees in Gaza employees and the implementation of the voluntary
retirement scheme (VRS). However, the negative economic impact of COVID-19 in 2020 drove the
renewed growth of the wage bill in 2021, and its share in the PA’s total budget has increased significantly.
By the end of the year, the wage bill had grown to 13 percent of GDP, 54 percent of revenue, and 44
percent of total spending. The economic shock caused by the conflict kept the wage bill steady at 13
percent of GDP. This situation is likely to worsen over the next few years as the government slowly clears
its arrears to public employees in the West Bank, who have been paid just 50-80 percent of their owed
wages since November 2021.

Overall spending on the wage bill is unsustainable. The recent increase in the PA’s wage bill has not been
driven by local inflation or by economic growth. Between 2011 and 2021, annual inflation in the West
Bank and Gaza hovered around 1 percent, but the nominal growth of the wage bill averaged 2 percent,
with considerable fluctuations. Trends in the wage bill are even more out of step with GDP. In 2020, real
GDP declined by 11 percent, while wage-bill spending rose by 4 percent. In 2021, the economy rebounded
and real GDP growth reached 7 percent, but wage-bill spending increased by 13 percent. Amid the PA’s
worsening fiscal position, the absence of a sustainable policy framework is increasing the budgetary
pressure imposed by the wage bill.

The PA spends more on its wage bill than do its regional comparators. Although there is no ideal size for
the wage bill, which varies based on the size and functions of each government, international comparisons
can serve as a useful point of reference. The PA’s wage bill is larger than those of all comparator countries.
Between 2011-2018 (a period for which data are available for all countries), the PA’s wage bill averaged
14 percent of GDP and 46 percent of central government spending, far above the averages of 11 and 30
percent, respectively, for the Middle East and North Africa (MENA) region, as well as the averages of 8
and 29 percent, respectively, for countries affected by fragility, conflict, and violence (FCV). On average,
the PA spends more on its wage bill both as a share of GDP and total spending than do regional comparator
countries such as Jordan, Egypt, and Morocco (Figure 24).




33Nonwage compensation includes social transfers (payments made to prisoners, ex-prisoners, and the families of those
deceased as a result of violence) and pension payments from the MOF (excluding those made by the Pension Authority).


                                                                                                                  53
                          Figure 24: Wage bill spending in comparator economies




 Source and Notes: Ministry of Finance, Worldwide Bureaucracy Indicators. Expenditure figures used are a mix of
                         central or general government, depending on data availability

The analysis presented in the following sections is based on human-resource and payroll data for 2011-
2021. These are the most recent years for which comprehensive figures are available for gross spending
on basic salaries for permanent and contract employees, as well as wage and nonwage compensation. All
data are from the MOF, and the analysis includes PA employees both in the West Bank and Gaza.

Key drivers of wage-bill growth
Spending across territories
Spending on the Gaza wage bill has declined over time, while spending on the West Bank wage bill has
increased significantly. In 2021, the latest year for which data are available by territory, the West Bank
accounted for 75 percent of the PA’s total wage bill. This share has increased over time, as the West Bank
wage bill grew by 87 percent between 2011-2021. Meanwhile, the Gaza wage bill declined by 27 percent,
with a sharp drop in 2017-2018, when Gaza salaries were reduced to 70 percent on a commitment basis
and a VRS was rolled out. These trends indicate that managing the wage bill in the West Bank poses the
most critical challenge. Even as the PA continues its efforts to address the issue of “ghost workers” in
Gaza, it should devote equal if not more attention to spending patterns in the West Bank.

Spending on basic salaries versus allowances
Allowances supplement basic pay in the West Bank and Gaza, with “job allowances” and “other
allowances” representing a combined 34 percent of the wage bill. Between 2011 and 2021, these and
other allowances accounted for 41 percent of the PA’s wage bill (Figure 25). Moreover, allowance
spending grew by 56 percent, while spending on basic salaries rose by just 23 percent. This is inconsistent
with global best practices, according to which base pay should be the main form of compensation and
allowances should be limited to a narrow range of special job requirements or performance incentives.
“Job allowances” and “other allowances” account for 79 percent of total allowance spending in the West
Bank and Gaza, followed by managerial, transportation, and social allowances. In 2021, “job allowances”
and “other allowances” represented 34 percent of the total wage bill. These high spending levels indicate
that allowances are being used to supplement basic pay and that the PA is using these two allowance
categories to channel most of the compensation increases that have been made in recent years, often as
a result of salary bargaining (Figure 26).


                                                                                                              54
Almost all types of PA employees receive almost all types of allowances, indicating that allowances are
not linked to professional roles and responsibilities. Further analysis is required to evaluate the eligibility
criteria that are used to award specific allowances under Civil Service Law no. 4 (1998) or as established
by the Council of Ministers. Such analysis should aim to verify whether the use of allowances is consistent
with their original intentions and to what degree allowance spending could be further rationalized.


 Figure 25: Wage bill spending by category                           Figure 26: Share of allowance spending
                                                                     by type
 2011-2021 average                                                   2021




 Source and Notes: Ministry of Finance                               Source and Notes: Ministry of Finance




 Table 3: Distribution of allowance recipients by employment type
                          Permanent workers Monthly workers      Daily workers     Reward workers     Emergency workers
 Basic salary                      ●                    ●                 ●                 ●                 ●
 Social allowance                  ●                    ●                 ●                 ●                 ●
 Job allowance                     ●                    ●                 ●                 ●                 ●
 Overtime allowance                ●                    ●                 ●                 ●
 Transport allowance               ●                    ●                 ●                 ●                 ●
 Managerial allowance              ●                    ●                 ●                 ●                 ●
 Other allowance                   ●                    ●                 ●                 ●                 ●
 Special allowance                 ●                                                        ●
 Reward                            ●                    ●                 ●                 ●
 Source: Staff compilation based on Ministry of Finance data
 Note: ● represents employees receiving respective allowance type


Spending by public-sector entities
The ministries of health and education represent the largest share of the wage bill and have also seen
the largest wage increases over time. In 2023, the Ministry of Education (MOE) accounted for 33 percent
of the PA’s wage bill, while the Ministry of Health (MOH) accounted for 11 percent. Together, the health
and education sectors represented 44 percent of the wage bill, followed by the security sector at 37
percent (Figure 27). The primacy of health and education spending is broadly consistent with global
benchmarks, as providing these services typically entails the largest personnel costs in the public sector.
However, the wage bill for the education and health sectors has surged over the last decade, rising by 7
percent per year in the MOE and by 6 percent per year in the MOH. By contrast, the security-sector wage


                                                                                                                          55
bill grew at an average annual rate of only 0.5 percent. Moreover, allowances have driven the increase in
education and health spending over the last decade, growing by 77 percent in the MOH and by 157
percent in the MOE.

 Figure         27:   Wage      bill    by     entity,     2023 Figure 28: Wage bill by occupation
                      44%3
  40%                                                    37%
  35%
  30%
  25%
                                         19%
  20%
  15%
  10%
   5%
   0%
          Ministry of   Ministry of      Others       Security
          Education      Health                        forces


                                                   Source: Ministry of Finance


Spending across occupations
Job titles in the Palestinian public sector need to be updated and potentially streamlined to reflect
international best practices. The PA has not yet fully updated its job-classification system for the public
sector to clarify professional competencies and employment grades. As a result, the jobs listed in the
public payroll sometimes overlap, are missing, or are redundant. For example, the job titles for contract
workers are sometimes coded as “not specified.” In addition, many job titles have had no associated wage
spending over the last decade, indicating that they are likely obsolete and should be dropped from the
list. These inactive titles include “head of the land authority,” “special assistant to the minister,” “washing
unit official,” “invention tester,” “controller.” and “youth affairs officer.” In total, more than 600 job titles
are listed in the PA’s payroll system, which is quite large for a public sector. For example, the British
government’s payroll system includes only about 400 unique job titles.

Four positions account for over 40 percent of the PA’s public-sector wage bill. Of the 600+ job titles in
the payroll system, 20 are responsible for 74 percent of the wage bill, and just four positions account for
41 percent (Figure 28). These positions include teachers (27 percent of the wage bill), managers (5
percent), and security-sector majors and warrant officers (4 percent each). Over the last decade, these
same four positions have consistently accounted for the largest shares of the wage bill.34 Allowances,
especially “job allowances” and “other allowances,” represent a large share of the total compensation for
these positions. In 2021, job and other allowances represented 35 percent of total compensation for
teachers, 40 percent for managers, 29 percent for majors, and 27 percent for warrant officers (Table 4).



34 Other jobs in the top 20 include (in order) first lieutenant, captain, lieutenant, lieutenant colonel, sergeant major, staff warrant
officer, colonel, specialist doctor, lance corporal, school manager, general doctor, registered nurse, muezzin, administrative
employee, school secretary, and educational guide.


                                                                                                                                   56
Allowances have grown to represent an especially large share of compensation for teachers. Between
2011 and 2021, spending on teachers’ allowances increased by 135 percent, from NIS 0.4 to 0.9 billion.

 Table 4 Wage spending by category for top four occupations, 2021
 Teachers                        Managers                     Majors                        Warrant officers
 Basic salaries           54%    Basic salaries         48%   Basic salaries         63%    Basic salaries     67%
 Total allowances         46%    Total allowances       52%   Total allowances       37%    Total allowances   33%
 Job allowance            26%    Job allowance          28%   Job allowance          19%    Other allowance    17%
 Other allowance           9%    Other allowance        12%   Other allowance        10%    Job allowance      10%
 Managerial allowance      5%    Transport allowance    6%    Managerial allowance   4%     Social allowance    6%
 Transport allowance       5%    Managerial allowance   5%    Social allowance       3%
 Social allowance          1%    Social allowance       1%
 Source: Ministry of Finance

Spending across grades
Public-sector employees are grouped into four pay scales. In 2003, a scale was established for judicial
staff. This scale includes eleven grades, and salaries are increased by a standard nominal amount each
year instead of a percentage. The increase depends on the employee’s grade and the nature of their work,
and they also receive a “representation allowance.” The civil-service pay scale, established under the 2005
Amendment to the Civil Service Law no. 4 of 1998, covers the largest number of public-sector workers
and is divided into five regular categories, one high-level category, and one special category. Employees
on this pay scale receive an automatic wage increase of 1.25 percent per year. Another scale for diplomatic
staff was established in 2007. This scale has seven grades, and each employee receives the same1.25
percent automatic annual wage increase. However, diplomatic staff receive an additional “nature of work
allowance” that can range from 43 percent of basic pay for an attaché to 85 percent of basic pay for
ambassadors. This allowance is received regardless of whether staff serve abroad or in the West Bank and
Gaza. A fourth scale established under the 2007 Security Forces Law covers security-sector staff. This scale
includes 15 grades (ranks), and staff receive an automatic annual pay increase of 1.25 percent (Figure 29).
See Annex II for a detailed list of all four pay and grading scales.

 Figure 29: Wage bill by pay scale                                   Figure 30: Wage bill by grade




 Source and Notes: Ministry of Finance                                Source and Notes: Ministry of Finance




                                                                                                                     57
 Figure 31: Wage bill within the civilian pay   Figure 32: Wage bill within the security
 scale                                          pay scale




 Source and Notes: Ministry of Finance          Source and Notes: Ministry of Finance



The civil-service pay scale accounts for most of the PA’s wage bill, and its cost has increased significantly
in recent years. In 2021, 66 percent of the wage bill went to civil-service workers, 32 percent went to
security-sector workers, and the remaining 2 percent went to staff on the diplomatic and judicial pay
scales. In 2011, the equivalent figures were 56 percent for the civil-service pay scale, 43 percent for the
security-sector pay scale, and 1 percent for the diplomatic and judicial pay scales (Figure 13).

Five civil-service grades represent half of the PA’s wage bill. In 2021, grades 1-5 of the civil-service pay
scale accounted for 49 percent of the wage bill (Figure 30). These grades fall under categories 2, 3 and 4
of the 2005 amended pay scale and include jobs requiring specialist/technical skills (category 2),
clerical/secretarial skills (category 3) or vocational skills (category 4). While further analysis would be
needed to determine whether this level of spending is appropriate in the context of the Palestinian public
sector, it is high by international standards. For example, governments around the world typically have a
normal bell-curve distribution of spending on the civil-service payroll. However, the PA’s curve has a sharp
slope in the middle, a steep drop towards the higher and lower ends, and a slight bulge in the middle of
each tail (Figure 31). These features may reflect a mismatch in how grades are distributed and could
indicate that some key employee groups are overrepresented while others are underrepresented. The
security sector also shows a significant bulge around the grades of lieutenant to lieutenant-colonel rather
than a normal bell-curve distribution (Figure 32).

Overview of employment
The size of public employment in the PA has fluctuated significantly over the years, posing a
challenge to reform efforts. Total public employment has increased only slightly over the last decade,
from 153,574 personnel in 2011 to 155,614 in 2021, which may indicate that the PA has been broadly
successful in limiting net employment growth. However, an examination of annual trends shows that
public employment has fluctuated significantly over the years. In 2014, for example, public
employment rose by 7 percent, when the PA added 10,657 staff to its payroll. The 2017 VRS and
subsequent efforts to manage the growth of the public sector were effective in managing public
employment, which fell to a decade low of 141,409 in 2020. In 2021, the hiring of 4,700 temporary
workers and 1,700 security-sector personnel boosted the size of the workforce. The PA also


                                                                                                          58
formalized the contracts of some 2,400 teachers who had been hired on an interim basis but whose
employment status was required by law to be made permanent after three years. Finally, the
government reinstated some 4,500 workers in the health and education sectors who had been
previously removed under the VRS.

The PA’s public-sector workforce is not unusually large by the standards of comparator countries.
Over the last decade, public employment has averaged 17 percent of total employment in the West
Bank and Gaza (Figure 33). This is on par with the global average of 18 percent during this period and
lower than the 25 percent average for MENA, though it does exceed the average of 14 percent both
for lower-middle income countries (LMICs) and for situations affected by fragility, conflict, and
violence (FCV). International comparisons should be approached with caution, and as with the wage
bill there is no “ideal” size for the public sector. However, these figures and the annual trends
described above highlight the need to closely monitor employment growth and align it both with
workforce needs and budgetary resources.

                           Figure 33: Public employment as share of total
                           employment, 2011-2021 average




                           Source and Notes: Ministry of Finance, International
                           Labor Organization (ILO) Stat




Key drivers of employment growth
Employment across the territories
In recent years, public-sector employment in the PA has been focused in the West Bank. The West Bank’s
share in total public employment rose from 57 percent in 2011 to 72 percent in 2021. Over the last decade,
the number of public employees in the West Bank increased by 32 percent, from 88,279 to 116,458.
Meanwhile, public employment in Gaza fell by 40 percent, from 65,295 employees to 39,156.

Public employment in the West Bank represents a larger share of the local labor market and has
increased faster than overall labor-market growth. According to latest available data, the PA employs 4
percent of the total West Bank population and 13 percent of the labor force. By contrast, the PA employs
just 2 percent of the population of Gaza and 8 percent of the labor force. Over the last decade, public


                                                                                                       59
employment in the West Bank grew at an average annual rate of 3 percent, exceeding the population
growth rate of 2 percent. By contrast, public employment in Gaza declined at an average annual rate of 4
percent, even though the total population and working-age population both grew at an annual rate of 3
percent during the period.35 These figures indicate that growth trends in public employment cannot be
explained by population growth or by shifts in the labor market.

Employment by gender and contract type
Most public employees are men, though the share of women has increased over time. The latest
available data indicate that 67 percent of public employees are men, though this share has fallen from 76
percent in 2011 (Figure 34). Over the past decade, the number of female public employees has increased
by 39 percent, while the number of male employees has declined by 10 percent. In 2018, male
employment decreased by 13 percent, while female employment fell by only 2 percent. This pattern likely
reflects the age structure of the public-sector workforce, which includes a large share of men close to
retirement age, as well as a dearth of employment opportunities for women outside the public sector. For
these reasons, male employees were probably more likely to view the VRS as an appealing option.

Permanent workers represent the largest share of Figure 34: Public employment by gender
public employment, but the employment of daily
workers and the special category of “reward workers”
has increased in recent years. According to latest
available data, permanent workers represented 89
percent of total PA employment, followed by daily
workers, reward workers, monthly workers, and
emergency workers (Figure 35). Data from the last
decade show an upward trend in the employment of
daily workers and reward workers (Figure 36). Between
2011 and 2021, the number of permanent workers                      Source and Notes: Ministry of Finance
declined by 2 percent (from 140,950 to 138,337), while
the number of daily workers increased steadily (from 6,980 to 10,430). The employment of reward
workers grew exponentially over the period, from 78 in 2017 to 3,264 in 2018. Interviews with officials
from the Ministry of Finance indicate that reward workers are essentially the same as permanent workers,
but their use increased after the VRS was introduced in 2017 to circumvent constraints on hiring
permanent employees.




35This analysis does not include any form of public employment outside the PA. In addition, death and displacement caused by
the ongoing conflict may have slightly altered some of the figures presented here, but updated data are not yet available.


                                                                                                                         60
 Figure 35: Public employment by contract      Figure 36: Changes in public employment by
 type                                          contract type*




 Source and Notes: Ministry of Finance         Source and Notes: Ministry of Finance,
                                               *permanent workers not shown



Employment by public-sector entities
Trends in entity-level employment mirror larger trends in the wage bill, although salary growth appears
to have contributed more to the increase in the wage bill than has employment growth. In 2021, the
education and health sectors represented the largest share of public employment, with the MOE
accounting for 29 percent the MOH for 10 percent, followed by the Ministry of Higher Education and the
Ministry of Education and Scientific Research. Together, the health and education sectors were
responsible for 44 percent of total employment, which was close to their share of the wage bill. These
ministries also saw the largest increases in employment. Between 2011 and 2021, annual employment
growth averaged 4 percent for the MOE and 2 percent for the MOH (Figure 37). By comparison, the civil-
service wage bill rose much faster, increasing at an average rate of 7 percent per year in the MOE and 6
percent in the MOH. These patterns indicate that salary growth contributed more to the growth of the
wage bill than did the hiring of new workers. This conclusion is reinforced by the fact that the security
sector’s wage bill decreased by an average of 0.5 percent per year during this period while employment
in the security sector fell by 2 percent per year.

 Figure 37: Average annual change in public          Figure 38: Employment by job title, 2021 (top 10)
 employment, 2011-2021




 Source: Ministry of Finance                         Source: Ministry of Finance



                                                                                                         61
Employment by occupation
Four positions account for a plurality of the PA’s workforce, and the employment and wage-bill numbers
show broadly similar trends. Much like the distribution of the wage bill, the top 20 positions account for
three-quarters of public employment, and the top four positions account for 40 percent of employment.
Over the years, teachers have consistently occupied the top spot (Figure 38). In 2021, teachers
represented 27 percent of total employment, the same as their wage bill share. However, warrant officers
represented 6 percent of employment but accounted for just 4 percent of the wage bill. By contrast,
security-sector majors and civil-service managers were 3rd in terms of the wage bill but 6th and 8th,
respectively, in terms of employment share. First lieutenants and sergeant majors were the 3rd and 4th
largest spending categories, respectively, and accounted for 4 percent of employment. Overall, the top
20 positions have broadly similar employment shares, but their shares in the wage bill vary.

Employment by grade
The distribution of employment across grades follows a similar pattern to the wage bill, and further
study may be necessary to assess its appropriateness to the functional needs of the PA. In 2011, the civil
service accounted for 57 percent of total employment, followed by the security sector at 42 percent and
the judicial and diplomatic sectors at 1 percent. By 2021, the civil service had grown to 65 percent of total
employment, while the security sector’s share had fallen to 34 percent. The first five civilian grades (1-5)
accounted for 46 percent of public employment in 2021 (Figure 39). Employment within these grades has
changed significantly over the last decade, with employment in grades 1-3 increasing while employment
in grades 4-5 declined (Figure 40). As with the wage-bill figures, further analysis would need to be
undertaken to contextualize these figures and determine whether they represent an appropriate staffing
level.

 Figure 39: Public employment by grade                 Figure 40: Change in public employment by select
                                                       grades




 Source: Ministry of Finance                           Source: Ministry of Finance


Employment by age and years of service
One-third of public employees have fewer than 10 years of service, an unusually large share for a
modern public sector. While the age distribution of public employees is a normal curve (Figure 41),
consistent with the pattern observed in comparator countries, an exceptionally large share of public
employees in the PA has fewer than 10 years of service (Figure 42). A full 32 percent of public employees
have fewer than 10 years of service, and 69 percent have fewer than 20 years. Both figures are high by
international standards. Multiple factors could explain this pattern, including high levels of recruitment in
the last 10 years, generous pensions that create an incentive for early retirement, or a wide salary gap


                                                                                                          62
between high-level positions in the public and private sectors. The PA is also a relatively new institution,
which may contribute to this trend, as some years of public-sector experience may not be defined as years
of service with the PA. Whatever the reasons, the trend has significant implications for the public sector,
as it represents a gap in the availability of seasoned staff with the requisite skills, knowledge, and
experience to improve performance outcomes. It may also indicate over-staffing and over-spending at the
junior levels, where public sector employment appears to be concentrated. Further analysis of staff
composition could help address these questions.

 Figure 41: Employment distribution by employee        Figure 42: Employment distribution by years of
 age                                                   service




 Source and Notes: Ministry of Finance                 Source and Notes: Ministry of Finance




Overview of salaries
Growth in average salaries
Average salaries for public employees have grown significantly over the years, exceeding the growth
rate of public employment. During the last decade, the wage bill grew at an average annual rate of 2.3
percent. Most of this increase came from salaries, which rose at an average annual rate of 2 percent during
the period, while public employment grew at an average annual rate of 0.3 percent. Average spending
per public employee rose by 21 percent over the last decade, from NIS 41,550 to NIS 50,097. Allowances
have accounted for much of this increase. Over the last decade, spending on basic salaries grew by an
average of 2 percent per year, while spending on allowances grew by 5 percent per year.

Salaries in the public and private sectors
On average, public employees in the West Bank earn less than their private-sector peers, except among
low-income workers, where the average compensation offered by the public sector is about twice what
the private sector pays. A wage-premium analysis based on data from the 2021 Labor Force Survey shows
that average public-sector compensation (basic salaries plus allowances) in the West Bank exceeds
average private-sector compensation by 24 percent (NIS 15.7/hour versus NIS 12.7/hour). However, once
characteristics such as education level, years of experience, occupation type, and location are taken into
account, public employees actually make 1 percent less than their private-sector counterparts, on
average. Moreover, the gap between the public and private sectors varies at different compensation



                                                                                                         63
levels. For example, public employees in the bottom 20 percent of the income distribution earn
significantly more than their private-sector peers, and this gap cannot be explained by education,
experience, or other individual characteristics. However, public employees in the top 80 percent earn less
than their private-sector peers, even when individual characteristics have been accounted for. This wage
gap widens at the highest income levels, where private-sector workers receive a 64 percent wage
premium over their public-sector counterparts (Figure 43).

Gaza’s public sector tends to pay more than the private sector, but the wage gap reverses at the highest
income levels, where the private sector pays more. Gaza’s public sector includes employees of the PA
and the de facto authority. On an average hourly basis, public employees receive 318 percent more than
private-sector workers (NIS 14.9/hour versus NIS 3.7/hour), and while this gap narrows significantly when
individual characteristics such as education level, years of experience, occupation type, and location have
been accounted for, it remains substantial. Among workers with the same characteristics, public
employees receive 164 percent more than do their private-sector peers. The wage gap favors the public
sector for workers in the bottom 80 percent of the income distribution, but in the top 20 percent the wage
gap reverses, and private-sector workers earn significantly more than their public-sector counterparts
(Figure 44).

 Figure 43: Public-private wage gap in the West Figure 44: Public-private wage gap in Gaza, 2021
 Bank, 2021




 Source: PCBS Labor Force Survey                      Source: PCBS Labor Force Survey
 Notes: Data include wage workers in both sectors     Notes: Data include wage workers in both sectors



 Box 3: Entry level salary benchmarking for selected occupations in the public and private sectors in the
                                               West Bank
 To complement the analysis presented above, which was based on data from the labor-force survey for
 the West Bank conducted by the Palestinian Central Bureau of Statistics (PCBS), the World Bank
 conducted two additional surveys at the employee and employer level. Also carried out in the West
 Bank, these surveys compared public- and private-sector compensation, at entry level, for selected
 occupations. The employer-level survey gathered information on salary scales and allowances for entry
 level employees in the private sector, while data for public employees was obtained directly from the
 Ministry of Finance. In the private sector, the survey was conducted with the voluntary participation of
 216 employers across various sectors. These employers were selected using a combination of purposive



                                                                                                         64
 and snowball sampling methods, ensuring a diverse representation of businesses and organizations.
 Data collection involved structured interviews with representatives from each participating employer
 and officials from the Ministry of Finance. These interviews provided comprehensive insights into the
 salary packages and benefits offered in both sectors, enabling a detailed comparison and analysis.

 The team supplemented the employer data with an employee survey that provided valuable insights
 into current practices and perceptions. Occupations surveyed included doctors, nurses, teachers, and
 engineers. These occupations were chosen due to the recent demands for salary increases from their
 respective public unions, which cited low wages compared to their private counterparts. Data collection
 began on October 29, 2023, and concluded on January 12, 2024.36

 The survey revealed that 59 percent of public employees are dissatisfied with their compensation
 despite recent salary increases. The results also showed that among workers with fixed contracts the
 average entry level gross salary in the public sector is significantly higher than in the private sector
 across almost all surveyed occupations.37 The only exception was advanced registered nurses, who earn
 the same amount in the public and private sectors. For most occupations, base salaries in the public
 sector are lower than in the private sector, with the exception of primary school teachers, whose base
 salaries are roughly the same in both sectors. Across occupations, allowances tend to push total
 compensation for public employees above the level of their private-sector peers.

 Figure 45: Salaries of fixed-contract employees in the public and private sectors




 Similarly, total compensation for non-fixed-contract employees tends to be higher in the public sector
 than in the private sector. As with employees on fixed-term contracts, public employees on non-fixed

36 The employer survey presents a snapshot of the private sector and its pay practices. While it is assumed that compensation
packages cannot vary significantly amongst other private employers, the findings may not be generalized to the entire private
sector.
37 Total gross renumeration is calculated excluding customized allowances. Certain allowances, such as managerial, transport,

overtime, social, and childcare, are tailored to individual circumstances, contingent upon factors such as marital status, distance
of residence, and commuting arrangements. Those allowances are not included in the calculations. All salary and allowance
figures displayed are in NIS. For those agencies where figures were provided in United States Dollar (USD) or Jordanian Dinar
(JOD), they were converted to NIS using 1 USD to 3.57 NIS, and 1 JOD to 5.04 NIS.


                                                                                                                               65
 contracts have lower base salaries across all occupations, but allowances push their total compensation
 above the level of their private-sector counterparts. The only exception is among advanced registered
 nurses, who earn slightly more in the private sector even after allowances have been accounted for.

 Figure 46: Salaries of non-fixed-contract employees in the public and private sectors




 Across both sectors, respondents acknowledged the need for extra income to sustain their households,
 and 80 percent of respondents reported having no additional source of income. When asked about
 their ability to sustain household consumption, 44 percent of public employees and 67 percent of
 private-sector employees reported needing supplementary income sources or financial assistance. In
 addition, every public employee surveyed reported receiving partial salary payments or delayed
 payments versus just 10 percent of employees in the private sector. This discrepancy may help explain
 public employees’ dissatisfaction with their salaries.
 Source: World Bank


The analysis presented above indicates that the public-sector salary structure is misaligned with the
labor market, both in the West Bank and Gaza, which may create negative externalities. Public sectors
around the world typically pay their employees less than the private sector would for a worker with the
same characteristics, as public employees tend to enjoy greater levels of job security and other benefits.
For example, the average public employee in Egypt earns 14 percent less than a private-sector worker
with the same characteristics. Similarly, public employees in the United States earn 4 percent less, on
average, than do their private-sector counterparts (Figure 47).




                                                                                                       66
                         Figure 47: Wage premiums in comparator economies




                         Source and Notes: Labor Force Survey 2021, Palestinian Central
                         Bureau of Statistics, Worldwide Bureaucracy Indicators 2011-2018
                         (data from latest year available used for countries)




Public-sector management practices and outcomes
Analyzing government performance can offer useful insights into public-sector wages and employment
dynamics. The public-sector workforce and the wage bill are often analyzed in terms of their fiscal
affordability, but their appropriateness to the government’s needs and objectives is equally important.
The following section evaluates the size of the PA’s public-sector workforce and wage bill relative to its
performance, with reference to international indices and benchmarks. While various exogenous factors
influence the performance of the public sector—especially in the West Bank and Gaza—international
indicators can offer a useful point of comparison to guide policy decisions regarding how public
employment and the wage bill are structured and managed.

 Figure 48: Criteria for appointments in state Figure 49: Government effectiveness in the West
 administration, 2021                          Bank and Gaza, 2021




 Source: Varieties of Democracy (V-Dem), 0 (low) to 4       Source: Worldwide Governance Indicators (WGI), 0
 (high), Score reflects both PA and de facto Authority      (low) to 100 (high), Score reflects both PA and de facto
                                                            authority in Gaza




                                                                                                                  67
Survey data show that appointments in the Palestinian public sector are often based on personal or
political connections rather than merit. In 2021, the Varieties of Democracy (V-Dem) research project38
found that the public sectors in the West Bank and Gaza scored poorly (1.6 and 0.8 out of 4, respectively)
on the question “To what extent are appointment decisions in the state administration based on personal
and political connections, as opposed to skills and merit?”. The question covered all major appointment
decisions (i.e., recruitment, promotion, and dismissal), and the results indicate that most appointments
are not based on merit. Among MENA countries, Gaza scored close to the bottom on this question, while
the score for the West Bank was closer to the middle of the distribution—better than Egypt and Iraq but
worse than Jordan, Morocco, and Tunisia (Figure 48).

Government effectiveness has declined over time both in the West Bank and Gaza. Between 2010 and
2020, the West Bank and Gaza’s performance on the Worldwide Governance Indicators39 deteriorated
overall. On the “government effectiveness” sub-indicator, which captures “perceptions of the quality of
public services, the quality of the civil service and the degree of its independence from political pressures,
the quality of policy formulation and implementation, and the credibility of the government’s
commitment to such policies,” the West Bank and Gaza’s score fell from 43 out of 100 in 2010 to just 29
in 2020 (Figure 49). By comparison, in 2020 the average score for the MENA region was 42, and the
average for LMICs worldwide was 36.

Reform priorities
The PA’s efforts to reform public employment and strengthen the management of the wage bill have
had limited success. Over the last decade, the PA has made a concerted attempt to control the growth of
the wage bill and public employment. However, the progress achieved was later reversed. For example,
the 2018/19 VRS succeeded in trimming employment numbers and limiting the growth of wage bill, but
after its initial impact faded, the expansion of public employment and the wage bill resumed. The 2017
policy decision to withhold a share of wages from employees in Gaza was reversed in 2021, and the PA’s
decision to pay 50-80 percent of salaries to its staff beginning in November 2021 only pushed personnel
spending into the future, as it must ultimately clear these wage arrears.

Given current fiscal constraints, the PA is considering options to cap wage-bill spending. The PA has
discussed the possibility of a second round of the VRS. This program would target civil-service employees
over age 55 and security-sector employees over age 45, both with at least 15 years of service. An
anticipated 60 percent of staff exiting the public sector through the VRS would come from the MOE or
MOH. The proposed benefit package would be equal to 50-70 percent of an employee’s salary, and the
MOF would be responsible for bearing the entire cost of the scheme and the resulting pensions. The
program would help offset the existing debt owed by the MOF to the pension agency, which has already
incurred significant arrears and is likely to default within the next few years.

The PA is aware of the need for reform but faces a variety of fiscal and policy pressures . For example,
collective bargaining has resulted in significant salary and allowance hikes, and the PA continues to face
pressure from labor groups, especially unions representing teachers and medical workers. Prior to the

38   https://www.v-dem.net/vdemds.html
39   https://info.worldbank.org/governance/wgi/Home/Reports


                                                                                                           68
ongoing conflict, Palestinian workers were able to access the Israeli labor market, where average wages
are far higher. As a result, the government faced intense wage pressures and issues with employee
retention. Macroeconomic constraints also hinder fiscal reform in the public sector. For example, donor
assistance and grants, which were used to shore up expenditures in the past, have declined significantly
in recent years, and the PA’s ability to autonomously manage its own revenue is significantly constrained.
These challenges have become even more severe due to the ongoing conflict. In this context, the wage
bill as an expenditure line item has become further magnified, leaving the PA with little room to invest in
infrastructure or promote economic diversification. Finally, the issue of furloughed workers in Gaza who
are on the PA’s payroll but unable to work continues to pose a challenge.

The PA has a range of options for curtailing wage and employment growth. Policymakers could freeze
wages across the board or in selected sectors and grades, or they could fix wage growth to a standard
percentage determined annually by a dedicated commission. Hiring freezes, either across the board or in
selected sectors and grades, or attrition targets based on hiring and retirement rates, could curb the
growth of public employment. As noted above, a renewed VRS program could encourage employees to
exit, but this option requires careful design and management due to its effects on pension liabilities and
its net impact on government spending, as well as its implications for the performance of the public sector.

Medium-to-long-term structural reforms could enable the PA to improve overall wage-bill management
and performance. For example, governments around the world typically fold most allowances into base
pay to improve the equity of compensation while keeping certain special allowances in place to reward
high performance. Aligning public-sector pay with private-sector wages can promote competitiveness in
the labor market. Additional reforms to the pay scale and grading structure can limit pay fragmentation
and improve salary and career management. The PA could also link human-resource and compensation
planning to the medium-term budget to improve the fiscal sustainability of the wage bill.

                                           Table 5: Wage bill reform toolkit
                    Short-term reforms to rein in spending and   Medium-to-long term reforms to improve
                    employment growth                            wage bill and workforce management
                    ·   Freeze nominal or real wage growth       ·   Fold the majority of allowances into base
                    across the board or in particular            pay leaving only some special categories
                    sectors/grades
                    ·   Link wage growth to a standard measure   ·   Bring public and private sector wages
                                                                 closer in line
                    ·   Freeze hiring across the board or in     ·   Revise the pay and grading structure
                    particular sectors/grades
                    ·   Set up attrition targets such as filling ·   Set up a pay commission to determine
                    only 3 out of 5 positions that become vacant future wage increases

                    ·   Conduct functional reviews in key        ·   Eliminate automatic promotions by setting
                    sectors to identify redundancies and         up a robust performance management
                    opportunities for cost savings               framework
                    ·   Eliminate ghost workers or large-scale   ·   Link compensation and workforce
                    vacancies in the public sector               planning to medium-term budgeting
                    ·   Introduce a Voluntary Retirement
                    Scheme (VRS)

                                          Source: World Bank staff compilation




                                                                                                                 69
Modelling the Fiscal Impact of Policy Reforms
If public-sector employment and wages increase in line with historical trends, by 2026 the PA’s wage
bill will likely reach NIS 8.8 billion in nominal terms. Forecasts generated by the World Bank team indicate
that the number of public employees will rise to 156,194, and the wage bill will grow to NIS 8.8 billion by
2026 if current policies remain in place and
                                                          Figure 50: Wage bill and employment, baseline
employment and wage growth remain consistent
                                                          scenario
with previous averages (Figure 50).

Reintroducing the VRS for the civil service and
security sectors would not yield substantial
savings for the PA or address the long-term
growth of the wage bill. Based on projections by
the World Bank team, a renewed VRS based on the
parameters described above would reduce the size
of the public-sector workforce but is unlikely to
generate significant fiscal savings. For example, if
50 percent of the target group in the civil service
and security sectors accepts retirement under the
proposed scheme, with pension payments equal                      Source: World Bank staff calculations
to 70 percent of each retiring individual’s total
annual compensation, the VRS would initially generate some modest savings, with a slightly larger
reduction in spending in the security sector due to the lower age threshold. However, without measures
to address the underlying drivers of wage growth, the wage bill would continue to grow broadly in line
with its historical trajectory. The wage bill would reach NIS 8.4 billion by 2026 if the VRS were
implemented in the civil-service sector (Figure 51), NIS 8.2 billion if it were implemented in the security
sector (Figure 52), or NIS 7.8 billion if it were implemented in both sectors (Figure 53). Furthermore, the
VRS could negatively impact the overall performance of the public sector. As described above, the PA’s
employees have fewer average years of service than their counterparts in comparable public sectors. A
VRS could drive the exit of relatively experienced employees, which could weaken the performance of the
public sector. Finally, any early retirement scheme must be considered within the context of its pension
liabilities. Given the fiscal burden posed by existing pension liabilities on both the MOF and the Palestinian
Pension Authority (PPA), the long-term fiscal impact of the VRS would need to be carefully evaluated.

 Figure 51: Civil-service VRS        Figure 52: Security-sector VRS        Figure 53: Combined VRS




                                Source and Notes: World Bank staff calculations

Wage controls and the reform of allowances could yield greater gains. If the PA were to implement a
wage freeze for two years and then index annual wage growth to 1.5 percent, it could limit the nominal


                                                                                                           70
wage bill to NIS 8.1 billion by 2026 even if public employment continued to grow at historical rates (Figure
54). Gradually reducing spending on “job allowances” and “other allowances” by 20 percent over several
years could keep the wage bill to just NIS 7.9 billion by 2026 (Figure 55). Similarly, a 10 percent reduction
in compensation for grades 1-5 over the same period would result in a wage bill of NIS 7.9 billion by 2026
(Figure 56). Both scenarios assume that employment and wages would continue to grow at historical
rates.

 Figure 54: Projected impact of wage freeze and Figure 55: Projected impact of reduced allowances
 indexation




 Source: World Bank staff calculations                          Source: World Bank staff calculations

Freezing net employment levels without addressing wage growth will not help curb the wage bill. In this
scenario, employment levels are frozen at 2021 levels for the next several years while wages continue to
grow at their historical rate. By 2026, the wage bill would reach NIS 8.7 billion (Figure 57), very close to
the NIS 8.8 billion in the baseline projection.

 Figure 56: Projected impact of wage reduction for Figure 57: Projected impact of employment
 grades                                            freeze




 Source: World Bank staff calculations                       Source: World Bank staff calculations




                                                                                                          71
 Figure 58: Projected impact of wage freeze and
 indexation, allowance reduction, and attrition targets




 Source: World Bank staff calculations

Reforms that address both employment and wage growth could help reduce the wage bill to NIS 7
billion by 2026 and generate substantial fiscal savings. According to forecasts generated by the World
Bank team, if the PA were to (i) freeze wages for two years and then index them to a standard rate of
increase such as 1.5 percent, (ii) reduce spending on “job allowances” and “other allowances” by 20
percent over several years, and (iii) put in place an attrition target of two departures for every new
entrant,40 public employment would fall to 148,114 and the wage bill would reach NIS 7 billion by 2026
(Figure 58).

The specifics of any reform program should reflect the policy priorities of the PA as well as its fiscal
targets. Policymakers considering wage-bill reforms often begin by identifying what level of savings is
needed to make the wage bill fiscally sustainable and then design a reform agenda around that objective.
Indeed, the international experience suggests that a government can typically generate 1-1.5 percent of
GDP in savings by rationalizing the wage bill. While the reform options discussed above are consistent
with this level of fiscal savings, the ultimate choice of policy tools will depend on what the PA considers
to be politically and administratively feasible as well as fiscally necessary.

Conclusions and recommendations
Public employment and the wage bill have grown significantly over the years, fueled by rising salaries,
increased spending on allowances, and the hiring of certain categories of employees. The PA has made
efforts to control the growth of public employment and the wage bill, but these measures have failed to
address the drivers of that growth. As a result, gains in both areas have proven temporary.

Implementing a renewed VRS in the absence of broader wage-bill reforms is unlikely to generate the
desired impact. Instead, the PA should focus on a targeted set of reforms that address the underlying
causes of wage-bill and employment growth in the public sector. Based on the findings of this report, the
PA could consider adopting the following measures:



40This element of the projection assumes that 3,000 employees would exit the public sector each year, while 1,500 new
employees would enter.


                                                                                                                  72
Short-term priorities (years 1 and 2)

    •   Tie all hiring, wage, and promotion decisions to workforce needs, budgetary resources, and
        merit. A short-term freeze on net employment levels, an attrition target, and/or a ceiling on wage-
        bill spending could establish a foundation for aligning future personnel policies with workforce
        needs and budgetary resources. Developing standard competency requirements for positions
        across the public sector could help ensure that hiring and promotion decisions are based on merit.

    •   Scale back spending on allowances and tighten eligibility criteria. Allowance spending under the
        PA has increased significantly and is inconsistent with international best practices. An audit of
        allowance spending at the employee level could inform efforts to tighten eligibility criteria and
        create a plan to gradually reduce allowance spending. Rationalizing allowances would help control
        the growth of the wage bill while also promoting compensation equity across employee groups.
        Reforming allowances would also help generate the fiscal space needed to engage in more
        concrete salary restructuring over the medium-term. Over time, the PA may also consider folding
        most allowances into base pay.

    •   Conduct a functional review to identify areas of over- and under-staffing and create a plan to
        transition employees accordingly. Public employment and the wage bill are concentrated in
        certain entities, grades, and occupations. A targeted functional review could assess whether these
        staffing levels are appropriate to the needs of the public sector and inform the PA’s ongoing
        workforce-planning agenda. A functional review can help generate fiscal savings by identifying
        areas of excessive or redundant staffing, enabling policymakers to develop a plan to address them
        through attrition or the redeployment of existing staff.

Short- and medium-term priorities (years 1 to 5)

    •   Develop formal procedures for salary planning and workforce management in the public sector.
        Ad hoc increases in salaries and employment are a core driver of the public-sector wage bill. The
        PA could address this challenge by adopting formal institutional bodies and procedures to
        regularize salary planning and workforce management, such as a salary commission to determine
        annual pay increases based on transparent criteria, a regulatory framework approved by the
        Council of Ministers that establishes rules for collective bargaining with employee groups, and
        annual workforce plans produced by public agencies and verified by the General Personnel
        Council and Ministry of Finance to ensure their consistency with functional needs and fiscal
        resources. Over time, the PA could transition from annual cycles to medium-term cycles for some
        of these institutional processes to further improve the predictability and sustainability of
        employment growth and wage-bill spending.

    •   Revise the salary structure in line with relevant benchmarks. The current salary structure was
        developed in 2005 and is in urgent need of revision. The PA should consider updating it based on
        conditions in the local labor market to ensure that salaries are equitable, progress appropriately
        across grade levels, and are competitive with the private sector. Revising the salary structure will
        also offer an opportunity to reform allowances in line with international best practices. While


                                                                                                         73
        salary restructuring typically entails upfront, over the long term it can greatly improve the
        sustainability of the wage bill.

    •   Review the public-sector pension scheme to ensure that reforms to public employment and the
        wage bill create the desired impact. The generous benefits and pay-as-you-go structure of the
        public pension scheme have driven the accumulation of arrears by the Public Pension Authority,
        which now faces a high risk of default. The pension scheme also has important implications for
        the wage bill and employment reforms described above, especially the prospect of a renewed VRS
        or other mechanisms that seeks to increase attrition through retirement. In the absence of
        reform, unsustainable wage spending may become unsustainable pension spending.

In addition to addressing the issues described above, the PA must develop a plan for its furloughed
employees in Gaza. While this chapter has focused on the structural drivers of wage bill and employment
growth in the public sector, the team recognizes the dynamic challenge of managing the public-sector
workforce in Gaza during and after the ongoing conflict. However, as the situation is highly uncertain and
rapidly evolving, further analysis will be necessary to devise an appropriate strategy for the PA’s personnel
in Gaza.




                                                                                                          74
CHAPTER 3 THE PALESTINIAN PENSION SYSTEM
Overview of the pension system
In 2022, spending on the public pension system41 was equal to 3.5 percent of GDP or 13 percent of the
PA’s budget. Relative to GDP, spending on the pension system increased by 17 percent between 2013 and
2022.42 The system has gone through rounds of parametric and systemic reforms,43 but its financial
sustainability remains uncertain. As noted in the previous chapter, the PA faces a high risk of default, and
it may be unable to implement the deep reforms necessary to stabilize the system. Consequently, pension
reform should be integrated into a broader agenda for reforming public expenditures.
The transition from a highly fragmented system to a unified pension scheme began in 2006 and
concluded in 2021, when the last contributors to the legacy schemes retired. Prior to 2006, the
Palestinian Pensions Authority (PPA) operated three different schemes with different parameters. A
scheme inherited from Egypt covered civil servants in Gaza (hereafter referred to as Scheme I), and a
scheme inherited from Jordan covered civil servants in the West Bank (Scheme IV).44 In 2004, a new
scheme was created to provide pensions for security personnel ages 46 and above (Scheme III). In
September 2006, all government employees, including security staff under the age of 46, became
members of a new scheme (Scheme II) established under the Unified Pension Law (UPL), while older
employees remained beneficiaries of their original pension schemes. The three legacy schemes (Schemes
I, III, and IV) were defined-benefit (DB) systems, but Scheme II included both a reduced DB component
and a new defined-contribution (DC) component, though the latter was never fully implemented.45 Today,
all participating employees are covered under Scheme II, while Schemes I, III, and IV continue to pay
benefits to retirees and will do so until no eligible beneficiaries or survivors remain.46




41 Total benefit and administrative expenditures, including all schemes and benefits. Estimated at the total of NIS 2.3 billion, on
the basis of data from PPA.
42 The pension expenditures in 2013 were reported as NIS 1,089 million, or around 3% of GDP.
43 The pension system is governed by the Palestinian Pension Law 7 of 2005 – incorporating previous retirement regulations or

laws (Civil Retirement Law No 34 of 1959 and its’ amendments, Insurance and Pensions Law No. 8 of 1964 and its’ amendments,
and Insurance and Pensions Law of the Palestinian Security Forces No. 16 of 2004 and its’ amendments), and by the subsequent
Presidential Decree 29/2018.
44 The PA has been conducting efforts to integrate the two civil service schemes since 1998, which is why in 2000 the West Bank

civil servants’ scheme (Scheme IV) was closed off and new entrants were enrolled into the Gaza scheme (Scheme I).
45 By design, DC schemes are fully funded and provide for self-financing of future pensions, reducing reliance on the public

finances. However, the UPL did not provide explicit requirements regarding investment of pension assets or any particular form
of income accounting in individual accounts, leaving significant ambiguity on how those contributions and accounts could be
used.
46 The pension system covers disability as well as old age, and it provides survivor benefits, but it is not a workplace insurance

system and does not protect against the temporary loss of income due to illness, injury, or maternity. However, these situations
may be covered by other public-sector employee compensation policies.


                                                                                                                               75
                      Table 6: Contributors and beneficiaries of the schemes managed by PPA
                                    Civil Service                        Security Sector      Non-Gov Sector
                           New Scheme     Legacy Schemes          New Scheme Legacy Scheme New Scheme              Total
                               II           I        IV               II               III         II
                                                                2021
       Insured                    82,069          84          -          52,479            24          13,049      147,705
       Pensioners
         Old Age                  3,536      10,821     18,452         18,057           5,271               267     56,404
         Disability               1,277         286           -            25               -                31      1,619
         Survivors                1,637       4,924       incl.         2,088           2,817               125     11,591
                                                              2013
       Insured                    74,438       6,455      4,670         63,724           1,202             3,054   153,543
       Pensioners
         Old Age                       6       4,954                       771           5,561         -            21,433
                                                         10,141
         Disability                  159         347                         8               -         -               514
         Survivors                 1,777       6,951      4,863          2,976           3,264                 4    19,835

                                  Source: Authors’ compilation based on data from PPA.
                                       Note: Survivors are individual beneficiaries.


The Palestinian private sector has no state-mandated pension program, but the UPL allows non-
governmental organizations (NGOs) to participate voluntarily in Scheme II. About 14,000 current
employees and 500 retirees from 100 NGOs are covered under Scheme II. While an analysis of this aspect
of Scheme II is outside the scope of the present report, its conclusions will likely have similar implications
for NGOs covered under the program.
All four pension schemes are administered by the PPA, an independent public legal entity that reports
directly to the President of the PA. The PPA was established in 2005 under Palestinian Pension Law 7 to
succeed the General Pensions and Insurance Corporation (GPIC). A rapid administrative diagnostic47 of the
PPA (see Annex VII) indicates that it is a well-structured organization with sophisticated technical
capabilities, though it suffers from several key weaknesses. For example, information on the beneficiaries
of Schemes III and IV is limited, due in part to inadequate data-sharing between the PA and the PPA, which
reduces the transparency of the budget process and weakens financial controls.


Socioeconomic Impact and Policy Challenges
The pension system provides a reasonable rate of income replacement for those who retire under one
of the four abovementioned schemes. A civil servant or NGO employee who retires today would receive
a pension that represents, on average, about 60 percent of the average wage for those sectors, which is
well above the minimum 40 percent recommended by the International Labor Organization (ILO) for a full-
career worker. Pensions for security-sector personnel exceed the average wage in the security sector, likely
reflecting significant pre-retirement wage hikes—perhaps associated with late-career promotions—and
the main benefit is universally supplemented by a monthly “family and personal allowance.”48 This is
referred to below as a “personal allowance,” as the analysis only assesses the impact of the personal


47 The World Bank team used the Social Insurance Administrative Diagnostic (SIAD) to assess various aspects of the PPA’s
governance, institutional, and operational setup.
48 This benefit was inherited from the legacy Scheme I. The amount of the payment is set by the President, but its value has been

fixed at the level of NIS 300 since 1995. The family top-up includes a NIS 60 per spouse and NIS 20 per child. This payment is
assigned to all pensioners, regardless of the type or rate of the pension, and also regardless of other sources of income. For the
survivors, that amount is split in accordance with the rules of inheriting the shares of the main pension.


                                                                                                                              76
benefit of NIS 300. This supplemental benefit is reflected in all the reported and projected pension benefit
figures and is procedurally funded by the MOF.
                 Table 7: Income standards of employees and Old Age pensioners in 2021, NIS
                                         Average           Average of new        Average of all    Pension-to-wage
                                    contributory wage      old age pensions     old age pensions ratios (all pensions)
         Civil Service (II+I)*             3,850                2,413                 2,453               64%
                                *
        Security Sector (II+III)           3,615                4,329                 3,241               90%
         Non-Gov Sector (II)               3,857                2,302                 2,310               60%
                                    Source: Authors’ compilation based on data from PPA
                                       Notes: * - average for all schemes in the sector


Scheme II is still transitioning to its demographic steady state, and system dependency is projected to
worsen over the next few decades. Demographic trends affect the entire pension system, not just Scheme
II. Driven by projected improvements in life expectancy, the old-age dependency ratio (i.e., the number of
old-age beneficiaries versus active contributors) in both the civil and security sectors is projected to
increase from about 40 percent in 2021 to about 70 percent by 2080.49 The dependency ratio for Scheme
III is rising especially rapidly and is projected to increase from 40 percent in 2030 to 60 percent by 2045.
However, changes in the overall dependency ratio are expected to be relatively moderate during the next
10 years, which creates an opportunity to implement much-needed reforms.


                       Figure 59: Projected old-age dependency ratio in the pension system
                         80%
                         70%
                         60%
                         50%
                         40%
                         30%
                         20%
                         10%
                          0%



                                                   Civil Service         Security Sector


Source: Authors’ calculations.
Notes: Civil Service - Schemes I, II (civil), and IV; Security Sector - Schemes II (security) and III.


While significant public resources are dedicated to the pension system, its coverage is narrow by design.
The system covers just over 5 percent of the working-age population, about 10 percent of the employed

49The United Nations (UN) population projections, which we used in our analysis, suggest the expansion of life expectancy at the
age of 60 from around 16 to 25 years for men and from around 20 to 27 for women. This will be approaching the average span
of years of service in the public sector scheme. In other words, unless things change, the beneficiary on average would be
receiving pension for the same period of time that she or he had worked prior to separation from service. With all other
parameters, this is typically a clear indication that system will not be fiscally sustainable (with such a demographic transition, a
contribution of around 20% of wage can no longer support a pension of over 60% of wage for the same periods of time on both
ends).


                                                                                                                                77
population, and about 20 percent of the population over age 60. The projections presented in this analysis
assume that the public sector’s employment share in the total labor force will remain fixed as the
population undergoes demographic changes. The model does not anticipate that the pension system
would be expanded to cover the private sector, and such an expansion would not be advisable unless the
system is first made parametrically sustainable.
The legacy schemes offered a relatively generous benefit, and the 2006 reform attempted to address
that concern50 while providing more flexible options for financing the public pension system. The key
parametric change was the reduction of the “pension accrual” factor51 in the benefit calculation formula
from 2.5 to 2 percent. The benefit reduction was offset by the launch of a new complementary DC
component to be financed by a share of the contributions from the previous system. Notably, the
reduction in DB contributions was larger than the reduction in DB benefits,52 which negated any potential
fiscal gain from the transition. Instead, the reform appears to have aimed to reduce dependency on budget
subsidies in the long run by shrinking the DB component in the new scheme on both the contribution and
benefit sides, but it did little to strengthen the fundamental sustainability of the DB scheme.
                                       Table 8: Parameters of Scheme II, 2023
                                                                    DB: 9% Employer and 7% Employee
            Contribution rate
                                                                    DC: 3% Employer and 3% Employee
            Retirement age                                                      60 years
            Required minimum service (vesting)                                  15 years
            Basic replacement with minimum service                                30%
            Incremental replacement (accrual rate)                                 2%
            Maximum replacement                                                   80%
            Number of Years for Wage base                                           3
            Wage valorization                                                Not provided
            Benefit indexation                                                 Inflation*
Source: Authors’ compilation.
Notes: * The law requires pensions to be indexed to inflation, subject to government approval. For our long-term
assumptions about indexation, see Annex VI.

While the legacy schemes will no longer produce new pensioners, their impact will persist in the benefit
calculations of those that retire under the new scheme. Newly retired pensioners under Scheme II have
pensions composed of two parts: one is calculated under the new rules and is based on service rendered
under the UPL post-2006 (Table 8), while the other is based on the individual’s service pre-2006 and is
calculated under the rules of one of the legacy schemes (see Annex V). In addition, under an interim
agreement with the MOF any employee who participated in the pre-reform system, even for only a year,
then retired under the new system will remain a financial responsibility of the MOF pending the
reconciliation of contributions and arrears.
The UPL requires that pension benefits be indexed to consumer-price inflation at least once every three
years, yet pensions have remained unadjusted since 2014. As described in Chapter 1, the combination of

50 See Annex V for history of the reforms as well as historic parameters of the legacy schemes.
51 This parameter links pensionable wage to the calculated pension. It shows how each year of service adds to pension benefit.
In the new scheme, each additional year worked adds 2% of the final pensionable wage to individual’s monthly pension level.
52 Under schemes I and III before the reform, someone retiring with 25 years of service would be eligible for a pension with a

replacement rate of 62.5%, while after reform the same service provided for a 50% replacement rate, which is a 20% reduction
in the benefit due to the reform. At the same time, the contribution rate to the DB component was reduced from 22.5% to 16%,
which is equivalent to a 29% reduction.


                                                                                                                           78
annual wage adjustments and promotion-related wage increases has driven the continuous growth of
average public-sector wages. Pensions, however, have not been adjusted to reflect changes in purchasing
power. Ultimately, policymakers will likely need to address the issue of pension indexation, especially if
real wages rise significantly. Drawing on the international experience, the PA could consider using a hybrid
approach that indexes pensions to a combination of wage growth and price inflation.53
Retirement under the statutory retirement age remains very common. Almost one-quarter of regular
retirees from the civil service and 80 percent of retirees in the security sector are under the statutory
retirement age of 60. A civil servant may be eligible for early retirement after completing 15 years of
contributory service and reaching the age of 55. A full pension is granted if the separation is a decision of
the employer (government), or if the employee earned 25 years of service at the age of 50 or 20 years of
service at the age of 55 (in the civil sector). Otherwise, the benefit is reduced.54 However, almost all
individuals who retire early do so under an official decree that exempts them from paying such a penalty.
Other separation conditions are also suboptimal from a policy perspective. For example, an individual
who has not accumulated the statutory minimum of 15 years of service to qualify for a pension may
reclaim their contributions as a lump sum. If this same individual decides to rejoin the service later, or if
they join an NGO that participates in the same pension system, they will have to begin accumulating years
of service anew. This type of benefit fragmentation does not align with international best practices. Most
pension programs globally keep all contributions and benefits until the contributor reaches retirement
age, at which point benefits are disbursed based on eligibility criteria.55
The system penalizes the small number of contributors who leave public employment with too few years
of service to receive a retirement benefit, but an assistance benefit is made available to them.
Individuals who served for less than 15 years do not qualify for a regular pension,56 but they may be eligible
for a “basic pension” of NIS 700. This benefit is funded by the MOF and, in theory, is means-tested. This
approach is not equitable, as the amount of the basic pension is the same for all former public employees
regardless of their years of service or employment grade.
Disability and survivorship account for a large share of pension benefits. About one-third of all PPA
beneficiaries receive either disability or survivorship benefits. While this share is not uncommon for the
region, disability and survivorship impose high costs to the budget.57 Most current survivors are
beneficiaries of the legacy Schemes I, III, and IV and will not be integrated into Scheme II. Since the system’s
rules cover a broad range of surviving dependents, and strong social and cultural norms prevent their
adjustment, these pensions will continue to impose a significant financial and administrative burden on


53 Given the operational uncertainty with the current setup and assuming that the wage growth will slightly accelerate in the
future, in our analysis, we assumed a more conventional mechanism of pension indexation of 50% inflation and 50% wages, to
balance the social and fiscal considerations.
54 The UPL provided for a 4% reduction for each year under the statutory retirement age, but that was subsequently changed, by

a President’s decree in 2007, to a flat 5% reduction until the retirement age.
55 However, there are provisions allowing such individuals to pay all such contributions back to PPA and to reestablish a service

record that could produce regular benefits after rejoining the system.
56 Those who have too few years of service when they reach retirement age may purchase the equivalent of up to six years of

service to earn the right to a regular pension.
57 A wide range of individuals may receive benefits from the survivorship program, including: (i) the widow or widows of a

participant; (ii) children and brothers younger than 21 who were dependent on the participant at the time of death; (iii) any
children and brothers between the ages of 22 and 25 years old who were dependent on the participant at the time of death and
who are continuing their university or higher education; (iv) any children and brothers who were dependent on the participant
at the time of death and are incapable of earning a living due to health issues; (v) any daughters and sisters who are unmarried,
widowed, or divorced; (vi) parents of the participant; and (vii) husband of the participant if, at the time of her death, he was
medically unfit to support himself.


                                                                                                                             79
the system. Receiving survivor benefits may also disincentivize participation in productive employment,
particularly among young people and women. This issue is a priority for future policy deliberations.


System Finances
The financing arrangements for the various pension schemes and benefit are not transparent. The PPA’s
financing mechanism involves multiple schemes in different territories, funded from multiple sources in
different currencies, with some components operating only on accrual basis. The complexity of the
financing mechanism presents a serious analytical challenge while also increasing the costs of pension
administration (Table 9).
The 2006 reform agenda called for the PA to assume most of the transition cost of the reform, but that
approach proved infeasible. Transition costs arise when an old scheme closes and all contributions are
channeled into a new scheme, typically with a different design, which leaves the old scheme without a
stable source of financing. For example, when the government introduced a DC component into the new
pension schemes, a 6 percent contribution that had previously funded the DB component of the legacy
schemes was redirected to finance it. However, the DB component of the legacy schemes still needed
funding, and the absence of that funding created a transition cost. Following the 2006 reforms, both the
DB and DC components of the new scheme were largely seen as self-financed and pre-funded, while the
legacy DB schemes (except Scheme I) became the financial responsibility of the government.
                                    Table 9: Pension finances, 2021, NIS millions
            NIS                          Civil Service                   Security Sector   Non-Gov Sector
                              New Scheme       Legacy Schemes    New Scheme Legacy Scheme   New Scheme
                                   II            I        IV          II              III        II
                                            MOFl Acrued Contributions
    DB                           633.0                              358.0                         -
                                                       -                               -
    DC                           237.3                              134.2                         -
                                               PPA Actual Revenues
    ER and EE contributions                                    -                                65.9
    Transfers from MOF            40.0                              712.5            412.2        -
    Other revenues                13.5                                                            -
    Investment income                                               33.3
                                                   Expenditures
      Regular Pensions                                                                          incl
                                                         507.6                       412.2
      All Supplements                  620.8                        712.5                         -
      DC payouts                                           -                           -          -
      Admin expenditures                                            13.6
Source: Authors’ compilation based on data from the PPA.
Notes: In 2021, PPA claims that financing of the civil service pensions was largely conducted at the expense of PPA’s
reserves.


In a context of tight fiscal constraints, the pension system compels the PA to cover two different types
of expenditures. The PA is legally required to finance: (i) current pensions that were not adequately funded
in the past (Schemes I, III, and IV) and (ii) future pension liabilities created by the current system (Scheme
II). Almost 70 percent of all current pension payouts are a direct or indirect legal responsibility of the MOF,
compounding the MOF’s equally large statutory contribution obligations to Scheme II (Table 9). In practice,
the PA is only able to cover the cost of current pension payouts, and its large and growing contribution
arrears call for deep reforms to pension-financing policies. Contribution arrears now stand at about NIS 11



                                                                                                                  80
billion, of which about NIS 3.7 billon is accrued contributions to the DC component of Scheme IV.58 In the
near term, restructuring may be necessary to enable the PA to clear its stock of arrears.
                         Table 10: Funding responsibilities for different pension benefits
                                     Pension Benefit                         Funding Responsibility
                    Scheme I                                                          PPA
                    Scheme II civil service and NGOs                                  PPA
                    Scheme II security sector                                       MOF (*)
                    Scheme II (those with any pre-2006 service
                    in Schemes III or IV)                                           MOF (*)
                    Scheme III                                                       MOF
                    Scheme IV                                                        MOF
                    Family and Personal Allowance,                                 MOF/PPA(**)
         Source: Authors’ compilation on the basis of information from PPA.
         Notes: (*) – pending reconciliation of contribution arrears between PPA and MOF
                  (*) – personal allowance of NIS 300 is funded by the MOF, while the family top-ups (NIS60 per
                  spouse and NIS20 per child) are funded by the PPA


While the PPA applies financial sanctions for the nonpayment of contributions, this approach does not
appear to be an effective way to deal with a systemic issue. A quarter of the total stock of arrears
constitutes interest and penalties. Since the PA is ultimately responsible for paying all pensions, such
penalties do not serve any practical purpose.
The PA’s arrears to the DB scheme could have been largely avoided had a different transition mechanism
been chosen at the time of the reform. The collected contributions could have been earmarked to finance
current pensions across all schemes, effectively using the surplus contributions from Scheme II to gradually
clear all past liabilities. This approach would also have secured the PA’s full compliance with its
contributory mandate.
The PPA effectively operates a non-contributory, zero-interest scheme that is both unique in the world
and suboptimal from a social perspective, as it both reduces DB-component benefits for pensioners and
increases risks to the public finances. The PPA currently maintains close to 137,000 individual DC accounts
across different sectors with a total value of close to NIS 3.7 billion on an accrual basis. This amount
includes only contributions and not the interest that would normally have accrued on those contributions
over the past 15 years. While contributions are deducted from employee pay, they are not transferred by
the MOF to the PPA to fund the individual DC accounts, and consequently no interest accrues on those
accounts, and their real value diminishes over time. Meanwhile, on a cash basis, contributions largely
finance the general budget. Upon retirement, the PPA simply pays each employee the total accrued
amount of their contributions as a lump sum or in installments,59 then bills that amount to the MOF.
Because the real value of DC-component contributions declines over time, employees that receive lump-
sum payments would likely have been better off had they deposited their contributions in a savings
account at a commercial bank. Moreover, the reduction in DB-component benefits is not offset by a
compensatory regular payout from the DC scheme, which creates political pressure to undo the reforms
to the DB program and increase DB benefits through direct budgetary financing. When the lump-sum DC

58
 According to the PPA.
59
 In principle, the Law provides for a choice of a form of payment – regular or one-off – but only one-off lump sum payments are
most common.


                                                                                                                            81
funds have been spent, the pensioner is left with a lower DB benefit and faces an increased risk of poverty,
posing an additional challenge for the PA. Finally, the focus on the lump sum may create a perverse
incentive to leave public employment early, with adverse effects the public sector.
While the DB and DC components of Scheme II accumulate almost no new assets, the PPA still
administers about NIS 1 billion in financial reserves. One-quarter of this amount is linked with pension
liabilities from the legacy schemes (Table 11), and the rest likely reflects the NGO sector’s participation in
DC accounts and DB reserves. These funds are professionally managed, and given the pension system’s
highly unstable financing arrangements, this stock of assets helps cover shortfalls in transfers from the PA,
allowing for the consistent payment of benefits (see Annex VII).60 However, these reserves will not be
sufficient to cover the pension program’s long-term financing gap.
                                 Table 11: Portfolio structure of the PPA’s reserves, US$
                                        Overseas Investments                   Local Investments
         Investment Type
                                      Scheme I        Scheme II            Scheme I        Scheme II
             Deposits                             0                  -       6,568,350         16,567,500
         Current Accounts                2,170,372                   -       2,989,793         16,179,824
               Bonds                    19,437,423                   -                0                0
              Shares                    19,197,793                   -     21,076,278         161,330,605
     Alternative Investments               892,682                   -                0                0
            Real Estate                           0                  -     17,165,071          42,781,112
      Loans to Beneficiaries                      0                  -                0        31,742,317
               Total                   41,698,271                    -     47,799,491         268,601,358
Source: PPA
There are several issues pertaining to the policy and operations of the PPA’s financial reserves
management:
•      The PPA will approach its financing breakeven point when, on an accrual basis, the expenditures for
       which it is financially responsible (i.e., all of the Scheme I and part of the Scheme II pensions) roughly
       equal the accrued DB contributions of Scheme II. In principle, the PPA has been running accrual
       surpluses and accrued assets in the new scheme since 2006, but in practice its revenues are mainly
       transfers from the MOF designed to match its annual pension-expenditure needs. Consequently, the
       PPA’s financial assets remain vulnerable to the discretionary funding policies of the PA. If MOF
       transfers fail to cover the payments required by the legacy schemes, the shortfall would have an
       immediate and dramatic impact on the PPA’s reserves, which are sufficient to cover just half of its
       annual expenditure needs. This situation may already have materialized in 2021, when the MOF
       reportedly failed to transfer a significant portion of its pension obligations, and the PPA used its
       reserves to cover the shortfall. To safeguard the PPA’s asset-management responsibilities, a clear
       policy must be developed defining the circumstances under which those assets may be used to finance
       current benefits. This policy should specifically protect assets in individual DC accounts, which are
       currently limited to participating NGO employees.
•      It is unclear to what extent assets under different schemes are separated. For example, there is no
       explicit guidance on whether the PPA could use the assets accumulated by participating NGO
       employees to cover a deficit in the civil-service or security-sector schemes. According to international
       best practices, the records and finances of NGOs should not be mixed with the finances of the public

60   A detailed assessment of investment management practices is outside of scope of this review.


                                                                                                              82
     sector, underscoring the importance of maintaining operational separation between assets within the
     pension system.

Fiscal Simulations: status quo and parametric reforms
The following fiscal analysis was conducted using Pension Reform Options Simulation Toolkit (PROST),
as a tool of long-term pension modeling.61 Separate projections were prepared for: (i) the civil-service
component of Schemes I and II, both of which are financed by the PPA, (ii) Scheme IV, which is financed
by the MOF, and (iii) the security-sector component of Schemes II and III. Revenues were projected on an
accrual basis. The simulations were conducted prior to the start of the ongoing conflict, and thus its impact
it has had on the economy and the population was not considered.
The projections indicate that, over the long term, DB pension expenditures for the civil-service programs
will rise by almost 1 percent of GDP. This expenditure trend primarily reflects the anticipated increase in
life expectancies mentioned above, which will make financing the current pension scheme increasingly
costly over time (see Figure 60.A and Table 4 Annex VI).62 Except for the personal allowance, which is
funded by the MOF, the projections do not distinguish between funding sources.63 The indicated revenues
accrue and remain stable as a share of GDP. Based on these parameters, the DB system’s deficit may exceed
1.5 percent of GDP for the civil service and 1 percent of GDP for the security sector in the long run (Figure
61).
Under an alternative scenario in which the size of the civil service remains stable over the next three
years and then grows at a rate equal to 80 percent of the population growth rate, pension spending
would be about 0.5 of GDP lower in the long run. Under these assumptions spending would remain
relatively stable over the projected period (Figure 60.B). However, revenue would be lower too, and thus
the change in the deficit is insignificant in the long run.
On an accrual basis, if all contributions were duly paid, the total financial assets attributable to the civil-
service pension program would cover its liabilities for about three years before being fully depleted. If
the accrued value of the PA’s overdue DB contributions and penalties (assessed at NIS 11 billion, minus
the accrued value of the DC accounts of NIS 3.7 billion) were transferred to the PPA, its reserves would
cover its liabilities until about 2040. These figures indicate highlight the system’s intrinsic fiscal
unsustainability.




61 See Annex VI for brief description of the PROST model and the assumptions used here.
62 Medium and long-run pension projections (except personal allowances) are indexed to a composite of prices and wages (see
Annex VI) that maintains their purchasing power. Indexation adds about 0.4 percent of GDP to nominal costs in the long run.
63 A portion of the Scheme II liabilities derive from service rendered under Schemes III and IV and are the responsibility of the

MOF.


                                                                                                                             83
 Figure 60: Projected consolidated DB expenditures and accrued revenues of civil-service programs, % of
                                                 GDP
                                         A. Baseline Assumptions
      3.0%

      2.5%

      2.0%

      1.5%

      1.0%

      0.5%

      0.0%



             Estimated personal allowance expenditures (I+II+IV)   CS Pensions IV
             CS Pensions (I+II)                                    CS Scheme II DB+Other Revenues (accrued)


             B. Civil-service program revenues and expenditures under alternative assumptions
      3.0%

      2.5%

      2.0%

      1.5%

      1.0%

      0.5%

      0.0%



             Estimated personal allowance expenditures (I+II+IV)   CS Pensions IV
             CS Pensions (I+II)                                    CS Scheme II DB+Other Revenues (accrued)


Source: Authors’ calculations
Notes: Revenues of DB component only (16%)




                                                                                                              84
     Figure 61: Projected consolidated DB expenditure and accrued revenues for security-sector programs,
                                                   %GDP
           2.5%

           2.0%

           1.5%

           1.0%

           0.5%

           0.0%


                  Estimated personal allowance expenditures (II+III)    Sec Pensions (II+III)
                  Sec Scheme II DB+Other Revenues (accrued)

Source: Authors’ calculations
Notes: Revenues of DB component only (16%)

The evolution of pension benefits relative to average wage rates is a key social consideration. The
simulations show that pension benefits, both for the civil service and the security sector, may gradually
lose about 5 percent of their value relative to average wage in the medium-to-long run. The decline is
largely due to the fact that service earned prior to 2006, which received a 2.5 percent annual accrual rate
under the old rules, is gradually being replaced with the service earned under the new accrual rate of 2.0
percent.64
     Figure 62: Benefits for new old-age pensioners in the civil-service program as a % of the average civil-
                                                 service wage
                  75.0%

                  70.0%

                  65.0%

                  60.0%

                  55.0%

                  50.0%



                                                      CS DB Male         CS DB Female


           Source: Authors’ calculations




64In fact, the base year of 2021 marked around a half-way of that transition, so the average baseline accrual rate was estimated
at around 2.25.


                                                                                                                             85
The simulations indicate that parametric reforms may help reduce the long-term deficit and sustain the
standards of living of the pensioners. A set of (moderate) parametric changes to the civil-service pension
plan were considered to illustrate their impact. The following changes are assumed to take effect in 2025:
     •   To keep pace with rising average life expectancy, the statutory retirement age is raised from 60
         to 63 via three-month increments each year for 12 years;
     •   Early retirement is restricted to five years below the full retirement age with no exceptions and
         no penalties;
     •   The minimum number of years of service is reduced from 15 to 10, with the base benefit
         correspondingly reduced to 20 percent; and
     •   Pension benefits are based on the average of the last five years of the individual’s wages, adjusted
         for inflation, not solely the final year.

These modest parametric changes marginally reduce the costs of the pension system and help stabilize
benefit levels in the long run. Although expenditures continue to rise, they remain about 0.3 percent of
GDP below the baseline projection (Figure 63.A and Annex VI). As individuals retire later in life and with
more years of service, average pensions remain stable in relative terms and with higher benefits than in
the baseline scenario. However, the contribution rate required to keep the system balanced in the long
run remains very high at about 28.5 percent of the payroll, versus 30 percent in the baseline scenario
(Tables 4 and 5 Annex VI).
A more ambitious reform package would have a greater fiscal impact but would still fail to close the
financing gap. In addition to the reforms described above, this scenario assumes: (i) a further increase in
the statutory retirement age to 6565 and (ii) a gradual reduction in the pension formula’s accrual rate from
2 percent to 1.75 percent. These measures would help contain pension expenditures at about 2 percent
of GDP in the long run (Figure 5.A), but at the cost of lower benefits. Under this scenario, the value of
benefits relative to wages would decline according to a very similar trajectory as in the baseline (Figure
63.B).
     Figure 63: Consolidated CS DB pension expenditures and replacement rates, under status quo and
                           reforms (Moderate and Significant Reform Scenarios)
                                     A. Pension expenditures as %GDP
          3.0%

          2.5%

          2.0%

          1.5%

          1.0%



                                     Expenditure Status quo            Expenditure M Reform
                                     Expenditure S Reform



65 Significant increases in the statutory retirement age need to be carefully calibrated against the risks of expansion of the
disability and survivorship benefits.


                                                                                                                           86
                                            B. Replacement rates as %Wages
          80.0%

          70.0%

          60.0%

          50.0%

          40.0%

          30.0%



                            Replacement Rate Status quo                       Replacement Rate M Reform
                            Replacement Rate S Reform

Source: Authors’ calculations
Notes: Expenditures include schemes I+II(CS)+IV (DB component only) as well as personal allowance

Closing the financing gap completely would be difficult to achieve through parametric adjustments
alone, and other solutions should be explored. Covering the pension system’s combined financing gap of
over 2 percent of GDP would require drastic increases in contribution rates66 and/or dramatic reductions
in benefits. However, the authorities do not need to achieve financial self-sufficiency for the pension
system as long as all non-contributory financing is treated as a matter of public-sector compensation
policy. At present, the overall compensation package for public employees, including pensions and other
benefits, is funded largely through the general budget. Nevertheless, improving the transparency and
flexibility of the system remain urgent priorities and are addressed in the recommendations below.
The DC component was intended to provide an additional layer of income security, but it has not lived
up to the expectations established by the 2005 reform. The DC component operates on an accrual basis,
offers zero nominal interest, and pays out only the face value of the total contributions in a lump sum. The
current system is favorable from the perspective of the MOF, as its transfers to the PPA cover only half the
DC payouts, while employer and employee contributions cover the other half. This means that the DC
component would remain largely balanced even if it were funded only by the 3 percent employee
contribution. However, this advantage comes at the expense of contributors, whose funds remain in zero-
interest virtual accounts for years or decades.




66For example, the contribution rate would need to be gradually raised to about 30% for the civil service (Annex VI) and about
40% for the security sector to completely eliminate the DB scheme’s deficit.


                                                                                                                          87
                 Figure 64: Projected DC contributions and benefit expenditures: SC scheme, % GDP
                     0.45%
                     0.40%
                     0.35%
                     0.30%
                     0.25%
                     0.20%
                     0.15%
                     0.10%
                     0.05%
                     0.00%



                                           Due DC contributions             Lump-sum DC benefits

            Source: Authors’ calculations

DC balances could also be annuitized to produce payments for life. This scenario assumes either zero
nominal interest, in line with the current situation, or zero real interest, with nominal interest accruing
after 2022. Under these conditions, the DC scheme would be able to provide an additional benefit equal
to 4-5 percent of average wages. After rising briefly in the medium term,67 this benefit would decline due
to suboptimal investment performance and increasing life expectancy (Figure 65).
     Figure 65: Indicative supplementary replacement rates of DC annuity in CS scheme, % of average wage
                   7.0%
                   6.0%
                   5.0%
                   4.0%
                   3.0%
                   2.0%
                   1.0%




                                   DC Annuity, zero real return             DC Annuity, zero nominal return

            Source: Authors’ calculations
            Notes: Assumed lifetime annuitization

The policy effectiveness of the DC component remains questionable. The component’s practical
implementation is not in line with either its original design or the contributory requirements defined by
law. The benefit does not provide for an increment to the regular pension, and beneficiaries do not take
full advantage of the funds that the law mandates be set aside for retirement.




67   The scheme is still young (covering only half of the average career), and so individual accounts will continue expanding in size


                                                                                                                                  88
Conclusions and recommendations
Recent public-sector pension reforms have not achieved their objectives, and further policy adjustments
will be needed to make the system sustainable. The reforms should proceed in three areas in parallel: (i)
financial restructuring, (ii) parametric adjustments, and (iii) systemic changes, including revisions to the
DC benefit. Additional measures to strengthen the institutional and operational capacity of the PPA are
outlined in Annex VII. Further analysis will be necessary to design a detailed reform agenda, and the
objectives and results of future reforms should be evaluated primarily in the context of overall public-
sector compensation policy.
I. Financial restructuring entails improving the transparency of the pension system by rationalizing the
respective institutional and financial responsibilities of the PPA and the MOF. The projections above
indicate that pension expenditures will always exceed pension contributions, even with the proposed
parametric reforms. If the PA implicitly guarantees all pension payments, regardless of the PPA’s
circumstances, the MOF should legally assume full financial responsibility for all current and future
pension obligations by promptly transferring all due contributions and by financing any deficit in the
system without differentiating between schemes. In exchange, all DB contribution arrears that the MOF
has accumulated so far, along with interest and penalties, would be annulled and voided as part of an
agreement on the DC component (see below). These measures would reduce the public debt.68 The MOF
would also avoid paying both for the legacy pension benefits and the new pension benefits, as described
above, easing the system’s overall fiscal burden. The PPA would cease to keep different books for different
schemes, instead bringing all current and future beneficiaries under a unified scheme. The PPA should also
be freed from the legal responsibility to self-finance Schemes I and II. A separate policy decision and
implementing guidelines would be required to ensure the proper management of the remaining assets
associated with the civil-service component of Schemes I and II. For example, they could be treated as a
buffer against future revenue shortfalls.
II. Parametric adjustments could improve the financial sustainability of the system and alleviate the cost
of future pension liabilities. The policy simulations presented above suggest that adopting the following
parametric reforms would significantly enhance the pension system:
▪    To keep pace with trends in life expectancy, the statutory retirement age could be gradually raised to
     63 via three-month increases implemented over a 12-year period.
▪    To limit the costs of early retirement and reinforce the system’s core objective of providing retirement
     benefits rather insuring against the short-term loss of income, early retirement should be restricted
     to five years below the full retirement age (currently 55), regardless of accumulated years of service.
     The early-retirement threshold would represent a “minimum retirement age,” and retirement below
     that age would be allowed only in cases of disability. Benefits should be reduced for early retirees, at
     least until they reach the statutory retirement age. The reduction should be either age-specific or at
     a flat rate. Alternatively, if the DB benefit is split into contributory and non-contributory components
     (see below), only the contributory component should be made available to individuals under the
     statutory retirement age and with no reduction in benefits, while the non-contributory component
     (financed by the MOF) would be triggered only by reaching the statutory retirement age. This rule
     should apply whether the individual separated voluntary or involuntarily from the public service. A


68 Even if the contribution arrears that the MOF has accumulated so far would be annulled and voided, the fiscal burden of the
future pension payments would not disappear. Pension liabilities would remain implicit, and their stock would have to be
diligently monitored through mechanisms of regular actuarial valuations of the scheme.


                                                                                                                           89
     separate insurance benefit could be introduced to cover the temporary loss of income of a working-
     age individual. This benefit would be funded by additional employee contributions (see below).
           Table 12: Proposed new age-related eligibility rules for civil-service retirement benefits
                 Age of separation or
                     retirement                               Eligibility to benefit
            Under 55                                         DC payout (optional)(*)
            55 and under 60                               DB (contributory), DC payout
                                                           DB (contributory), DB (non-
            60+
                                                            contributory), DC payout
         Source: Authors’ design
         Notes: (*) For example, as a severance benefit and an early separation insurance
▪    Correspondingly, no DB contributions should be repaid to employees who have not accumulated the
     minimum years of service or have not reached the minimum retirement age the point of separation.
     Individuals that separate from the public service before the minimum retirement age would have to
     wait until they reach that age before claiming benefits, and if in the interim they obtained new
     employment in the public sector or a qualifying NGO they would resume contributing to the pension
     system and accruing years of service. The possibility of transforming the DC component into a form
     of early-separation insurance could be explored. However, only in cases of disability or death would
     pension benefits be paid to individuals below the minimum retirement age (or their survivors).
▪    To allow more civil-service and security-sector personnel to access their regular DB pensions and to
     eliminate one-off contribution repayments, the minimum years of service (“vesting”) could be
     reduced from 15 to 10, with a corresponding reduction in the minimum base benefit to 20 percent or
     lower. This reform would reduce costs while strengthening social outcomes. Instead of paying out
     lump sums to employees with 10-14 years of service, the PPA will pay pension benefits of around NIS
     700 or higher for life, eliminating the need for the MOF-funded lifelong “basic pension” assistance of
     NIS 700. In place of the double compensation of a lump sum and a regular basic pension for life, such
     individuals will receive only a regular pension.
▪    Benefit indexation should carefully balance fiscal and social factors by considering both wage growth
     and inflation.69 Ad hoc benefit increases should be replaced by a rules-based approach that defines
     both the rate and timing of periodic adjustments.
▪    Gradually reducing the accrual rate for pension benefits could further narrow the financing gap. For
     example, the accrual rate for the minimum basic pension could be reduced from 2 percent to about
     1.75 percent. Potential changes to the accrual rate should be carefully examined in a subsequent
     analysis.
▪    Basing the pension amount on the average of the last five years of wages, adjusted for inflation, would
     discourage questionable late-career promotions.
▪    Eligibility for the family and personal allowance of NIS 300 could be linked to the main pension amount
     so that it is not added to the total amount above a certain benefit level. Alternatively, the age
     threshold for the allowance could be increased by five years or more, so that it becomes a seniority



69In the proposed context of the two components (contributory and non-contributory) of the DB benefit, an option could be to
have the contributory component wage indexed, while the non-contributory component could be inflation indexed. This gives a
lot of flexibility in achieving various objectives of the benefit indexation policy.


                                                                                                                         90
     top-up to the pension. Both options would result in cost savings, though the systemic reforms
     described below may make them unnecessary.
III. Systemic changes could focus on rationalizing the benefit package. The most feasible parametric
reform options are unlikely to make the system financially sustainable. If the system remains contributory,
it will always operate with a deficit and will be subsidized by the MOF. However, the DB scheme could be
improved by splitting it into two components: a contributory component that reflects the employee’s
earnings and a non-contributory base pension, carefully calibrated and periodically adjusted, that builds
on the NIS 300 personal allowance currently payable to all retirees. This approach would increase
budgetary transparency, explicitly link pensions to overall compensation policy, and give policymakers
more flexibility to respond to challenges. For example, while the contributory component would be linked
to earnings and its adjustments ideally would not be subject to the PA’s discretion, the value of the base
benefit could be set periodically as part of the annual budget and wage-bill approval process.70 Similarly,
eligibility for the contributory and non-contributory components could be defined in different terms (e.g.,
in different ages). For instance, an individual may gain access to the contributory component at the point
of early retirement, while access to the non-contributory component would be legally restricted to the
statutory retirement age. Calibrating the exact division of benefits into the contributory and non-
contributory components would require additional simulations to ensure fiscal neutrality. The preliminary
analysis of the long-term expenditure gap (Figures 60 and 61) suggests that the flat non-contributory
component could represent up to half of the current benefit, or around NIS 1200 for the civil service. If a
non-contributory base pension is introduced, it should be restricted to retiring public employees, and its
value could be scaled according to age and/or length of service, as both features have international
precedents and serve important policy objectives.
IV. Reforms to the DC benefit could be either modest or comprehensive. The DC component effectively
acts as an end-of-service indemnity scheme with a lump sum benefit. If the authorities decide to keep this
arrangement, they could consider replacing the PA’s 3 percent mandatory contribution with a voluntary
employee contribution, which would alleviate its fiscal cost. The DC component could also be transformed
into an end-of-service indemnity scheme or a form of early-separation insurance. The employee’s 3
percent contribution would pre-fund the costs associated with an unexpected separation from service
before the retirement age due to reasons other than death or disability. This could be a DC or a DB benefit.
Depending on the funding mechanism, unpaid benefits could be transferred to the employee upon
retirement (Table 12).
However, to maximize its contribution to retirement security the DC component could be comprehensively
reformed on the following basis:
▪    If the DC component is to be retained, with actual financial contributions in the future, all past accrued
     liabilities could be converted into formal recognition bonds.71 The PPA would bill the PA each time an
     employee retires in a more structurally and financially organized variation on the current process.
     Such bonds would earn notional interest at a rate agreed on by the MOF. This approach would confirm
     the MOF’s responsibility for clearing the estimated NIS 4 billion in arrears to that scheme, and it would
     add those arrears to the PA’s formal public debt stock. Under this scenario, the PA could minimize
     costs by not paying out the DC component as a lump sum to those who apply for early retirement and
     instead use the DC savings (even if notional) to finance the standard early-retirement benefit.


70 Indeed, different indexation policies could apply to contributory (insurance) and non-contributory (income guarantee)
components of the DB benefit package.
71 A special financial instrument, typically non-tradable, to recognize the accrued pension rights – both historic and incremental

future rights – and keep explicit record of the future pension liabilities.


                                                                                                                              91
▪   If DC contributions, as a matter of policy, materialize in the future, the associated financial assets
    should be segregated from the DB assets and could also be subject to different investment
    management.
▪   If there is no political will or fiscal space to make financial contributions to the DC accounts, or if the
    authorities aim to move away from accounts with explicit financial balances and arrears that add to
    the explicit public debt stock, the DC component could be converted to a notional DC scheme under
    which the explicit public debt arising from the pension scheme would be erased, and all liabilities
    would become notional but would be explicitly recorded in the individual accounts. No pre-funding
    would be required. This component could be merged with the contributory DB component and both
    could be converted into a notional DC plan.
▪   Under either of the above arrangements, payouts from DC or Nationally Determined Contribution
    (NDC) accounts could be redefined as pensions and reorganized as regular payments, smoothing the
    distribution of retirement income over time. Given its sophisticated electronic recordkeeping systems,
    this should not impose a significant additional administrative burden. The conversion could be
    implemented through the PPA’s existing mechanism by allowing the lump-sum DC payout to be used
    to purchase additional service in the DB component, leading to a higher DB benefit for life.
To strengthen budget planning and actuarial projections, the PPA could build its in-house analytical
capacity to conduct microsimulations. More nuanced and granular analysis will be necessary to
determine the specifics of the reform agenda.
Any major reforms to the pension system should be accompanied by a strong communications
campaign. An administrative assessment of the PPA (see Annex VII) reveals important weaknesses in its
capacity for public outreach. Surveys of public employees designed to gauge their perceptions of the PPA
could inform an outreach strategy. The PPA could also establish a hotline to address reform-related
inquiries by civil-service and security-sector personnel.
Finally, expanding the coverage of the existing pension system to workers outside the public sector
should not be a priority for the PPA until the fiscal sustainability of the scheme has been assured.
Broadening the system’s coverage or aiming to expand the PPA’s revenue base would only compound the
fiscal burden of unsustainable pension liabilities and exacerbate the PA’s financial challenges. The policy
dialogue on coverage expansion should take place within the broader context of the PA’s social-security
law.




                                                                                                            92
CHAPTER 4 THE PALESTINIAN HEALTH SYSTEM
Overview of the health system
This chapter assesses public health expenditures and conditions in the health sector prior to the start
of the ongoing conflict in October 2023. Since the conflict began, the health system in Gaza has been
dismantled by Israeli attacks, with 90 percent of health facilities damaged or destroyed. Meanwhile, the
health sector is struggling to manage a massive surge in conflict-related injuries, the consequences
resulting from the disruption of essential maternal and child health services and non-communicable
disease (NCD) treatment, and an unprecedented increase in infectious diseases. This analysis is based on
quantitative and qualitative data collected between June 2022 and January 2023.72

In addition to damage and disruption caused by the ongoing conflict, the Palestinian health system faces
spatial and political fragmentation, which creates structural barriers to equitable service provision.
While there is a single Palestinian MOH and a centralized de jure governance system, the political context
has fractured the institutional structure of the health sector. Most of the 3.2 million Palestinians in the
West Bank and East Jerusalem live in 165 noncontinuous enclaves (areas A and B), and checkpoints hinder
their access to health services, especially for patients who need to leave the West Bank for referral
services. A complex permit regime and the continued expansion of settlements in Area C further constrain
the movement of patients. Another 2 million Palestinians live in Gaza, which has been under a near-total
blockade and effectively cut off from the West Bank since 2007. The internal political divide between the
West Bank and Gaza further complicated the coordinated delivery of essential health services. According
to the World Health Organization (WHO), Israel has a responsibility to protect Palestinian civilians, which
includes ensuring timely access to essential health services.73 The ongoing restrictions and successive
rounds of violence, especially since October 2023, are the main constraints on timely access to quality
health services, which is a basic human right.74 Between 2019 and 2021, 563 attacks affected 151 health
facilities and injured 463 healthcare workers.75

Life expectancy in the West Bank and Gaza remains lower than in peer countries and has fluctuated due
to the impact of violence. With a relatively young, rapidly growing population, the West Bank and Gaza
is still at the early stages of the demographic transition, and effective economic and social policies will be
vital to achieve a demographic dividend. The total fertility rate (TFR) has recently declined but remains
high both in the West Bank and Gaza. Estimated life expectancy at birth was 74.3 years in 2022, with a
slightly higher rate in the West Bank (74.6 years) than in Gaza (73.7 years). Average life expectancy is also
slightly higher among women (75.4 years) than among men (73.3 years). Average life expectancy at birth
is close to the regional average and above the average for LMICs, but it is well below the average for Israel,
which is 83 years. Dips in life expectancy in 2001 and 2014 reflected the impact of rising violence, while
the COVID-19 pandemic caused a drop in life expectancy in 2021.
Despite improvements in health outcomes, the high and rising burden of noncommunicable diseases
(NCDs) is straining the health system. The Palestinian health system has undergone a rapid

72 The longer version of this chapter, published as a standalone piece, incorporates health financing data through end-2024 where

feasible.
73 76th World Health Assembly, provisional agenda item 18. “Health conditions in the occupied Palestinian territory, including east

Jerusalem, and in the occupied Syrian Golan: Report by the Director-General.” 17 May 2023.
https://apps.who.int/gb/ebwha/pdf_files/WHA76/A76_15-en.pdf
74 ibid
75 World Health Organization, Regional Office for the Eastern Mediterranean, 2023. Right to health, 2019 to 2021. Licence: CC BY-

NC-SA 3.0 IGO.


                                                                                                                               93
epidemiological transition, and NCDs now account for 72 percent of the disease burden. In 2019, eight of
the 12 main drivers of morbidity were NCDs, including cardiovascular conditions, chronic kidney disease,
lung cancer, and colorectal cancer. Similarly, the incidence of key risk factors such as high fasting plasma
glucose, high body-mass index, and high blood pressure have all increased by more than 30 percent
between 2009 and 2019 (Figure 66). Poor treatment indicators for hypertension and diabetes (Figure 67
and Figure 68) demonstrate the need to strengthen primary care, address frequent stockouts of essential
medicines, increase treatment adherence by expanding access to community-level primary healthcare
centers (PHC) facilities, and enhance follow-up care through family medicine.
   Figure 66: Changes in the distribution of the burden of disease in West Bank and Gaza (left) and risk
                                         factors (right), 2009-2019




Source: Institute For Health Metrics and Evaluation (IHME)

  Figure 67: Blood-pressure control among adults                      Figure 68: Blood-sugar control among adults ages
              ages 18-69 by sex, 2022                                                40-69 by sex, 2022

     Previously diagnosed with                             39.9%
     raised blood pressure, on                     26.0%
                                                                                              50.0%
       medication, controlled                         32.8%                                       47.5%
                                                                                           44.1%

                                                                         38.0%
                                             21.6%                                 36.5%
    Previously diagnosed with                                                 34.8%
    raised blood pressure, on              16.4%
    medication, not controlled              19.0%



                                                                                                             10.3%
    Previously diagnosed with       6.8%                                                                             10.8%

  raised blood pressure, not on      8.8%                                                                 11.4%                        5.2%
           medication                                                                                                           4.8%
                                    7.8%
                                                                                                                             5.7%



                                                     31.7%
    Raised blood pressure, not                                             On          On          No          No
                                                              48.7%
       previously diagnosed                                             medication, medication, medication, medication,
                                                           40.4%
                                                                        controlled uncontrolled controlled uncontrolled

                Females     Males   Both sexes                                        Male         Female         Both sexes

 Source: STEP, 2022




                                                                                                                                              94
Service delivery context
The fragmented and overly curative focus of the Palestinian health system faces constraints in
delivering quality services. There are 765 public primary healthcare centers (PHC) and 89 hospitals across
Gaza and the West Bank, which are organized in a pyramidal structure. Utilization rates are relatively high,
and the system is transitioning toward family health. However, high bed occupancy rates at tertiary
hospitals, which also provide a narrow range of services due to lack of specialists or medical equipment,
adversely impact care for cancer, cardiovascular conditions, and kidney disease. Four other types of
healthcare providers operate: The United Nations Relief and Works Agency (UNRWA), which provides
services to registered Palestinian refugees; the Palestinian Medical Military Services (PMMS);
nongovernmental nonprofit hospitals such as those in the East Jerusalem Hospital Network (EJHN); and
private for-profit hospitals. Routine barriers to care in the West Bank demonstrate the need to scale up
mobile and flexible service-delivery points. Without the full implementation of a family -health approach
or an institutionalized referral system from the primary to secondary and tertiary levels, patients can go
directly to hospitals for outpatient curative services, and there is no proactive follow-up to provide
preventive services or ensure treatment adherence. The effective management and control of chronic
diseases require a more comprehensive and continuous approach to service provision by trained
healthcare providers, which has been partly implemented through the rollout of the WHO-PEN package
of essential NCD interventions at the PHC level.
Due to insufficient hospital capacity, most NCDs are referred to nongovernmental hospitals, and
reimbursement impose a major financial burden for the MOH. NCDs require sustained treatment and
continuous access to preventive, curative, and palliative care. Since 2015, almost 90,000 cases per year
(23 percent from Gaza and 73 percent from the West Bank) have been referred from public health facilities
to private or NGO-run hospitals in the EJHN,76 the West Bank, Gaza, or Israel. These outside medical
referrals (OMR) result in average annual financial expenditures of about NIS 850 million (almost US$ 250
million), equivalent to one-third of total MOH spending or roughly 1.3 percent of GDP (2022). Moreover,
the MOH owes US$ 345 million in cumulative arrears to hospitals. Between 2020 and 2022, the top three
conditions for OMR were cancer, cardiovascular conditions, and urological conditions, which represented
a combined 60 percent of all referral expenditures. The MOH, through its Services Purchasing Unit (SPU),
oversees the medical and financial aspects of the referral process with the involvement of public hospitals
and regional coordination entities.77 Once the SPU has approved a referral, the patient applies for a permit
through the coordination bodies. When the permit has been issued, which may be after the appointment
date, the patient travels through checkpoints to access care and then returns home. Movement
restrictions, including an unpredictable Israeli permit system, negatively impact access to essential health
services. According to the WHO data, between 2019 and 2021 only 65 percent of patient permit
applications from Gaza and 84 percent of applications from the West Bank were approved on time.
However, the timely approval of referrals from Gaza began rising in November 2022 and reached 80
percent, while the timely approval of referrals from the West Bank fell to 75 percent.78 Timely-approval
rates for companions were even lower at 46 and 78 percent, respectively.79 Timeliness is essential to

76 Hospitals in the EJHN include Augusta Victoria Hospital, Makassed Hospital, Saint John Eye Hospital, Palestinian Red Crescent
Society Hospital, Princess Basma Center for Children with Diabetes, and Saint Joseph’s Hospital. While other hospitals in eas t
Jerusalem also receive referrals, EJHN hospitals receive almost the totality of referrals.
77 These include the Regional Referral Committees in the northern, central, and southern parts of the West Bank and in Gaza.
78 World Health Organization, office for occupied Palestinian Territory, 2023. Monthly Health Access Report: Barriers for patients

in the occupied Palestinian territory: July 2023” https://www.emro.who.int/images/stories/July_2023_Monthly_2.pdf?ua=1
79 World Health Organization, Regional Office for the Eastern Mediterranean, 2023. Right to health, 2019 to 2021. Licence: CC BY-

NC-SA 3.0 IGO.


                                                                                                                              95
access high-quality care, and these delays and denials pose a substantial health risk, particularly for cancer
patients. Since October 2023, referrals have been suspended in Gaza and disrupted in West Bank, posing
a substantial public health burden.

Shortages of medical equipment and essential medicines, particularly in Gaza, impose a chronic
constraint on effective service delivery. In 2022, 40 percent of medicines in Gaza were stocked out,
including 60 percent at the primary level. Moreover, 57 percent of medications essential for maternal care
and 37 percent of medications essential for chemotherapy were stocked out. About US$ 24 million per
year is needed to close the medicine stock gap in Gaza. Beyond financing, the near-total blockade has
severely delayed the entry of medicines to Gaza, as well as the procurement and maintenance of medical
equipment, including equipment used to diagnose and treat cancer patients such as interventional
radiology and ultrasonography devices and oxygen-generating stations.80 Limited flows of medical
equipment and resources between the West Bank and Gaza exacerbate local shortages.

The health sector’s human resources are insufficient. In 2021, there were 1.4 physicians, 1.76 nurses,
and 0.21 midwives per 1000 population, with slightly higher levels in Gaza than in the West Bank. The rate
of physicians per capita is low relative to comparator countries in MENA but above the LMIC and FCV
averages. The limited supply and inequitable distribution of specialists, particularly for cardiovascular and
oncological conditions, pose substantial challenges for timely access to specialized health services.

Financing flows in the Palestinian health system
The budget-formulation process suffers from deficiencies, and governorates and health facilities play a
limited role in budget execution. The MOF’s funding for the health system comes from general public
revenue, including taxes and donor support, and from government health insurance (GHI) contributions.
GHI contributions are collected in a health-insurance fund at the MOH but are transferred and pooled
with other revenues at the MOF level. These funding arrangements prevent the scheme from effectively
distributing risk or manage providers and beneficiaries. In addition to GHI contributions, households with
insurance contribute through copayments, while households without insurance pay the full cost of
services rendered at public facilities. These user fees are retained at the MOF level. Meanwhile, the MOH
receives transfers that reflect line items to be executed. MOH funds do not flow to public PHC facilities or
hospitals, which lack financial autonomy. Instead, the MOH pays for salaries, equipment, and medicines
used by public facilities both in the West Bank and Gaza. As a result, MOH is not only the provider and
purchaser of health services but also the public health sector’s sole cost center. Budget formulation and
execution are centralized, and none of the governorates or health facilities are cost centers.
In Gaza, a separate MOH mirrors the PA MOH, but there is little communication between the two
institutions.81 The Gaza MOF generates revenue through general taxation, GHI contributions, and
international donor support. GHI contributions and out-of-pocket (OOP) payments are pooled at the
central level and transferred to the MOH, which pays providers according to a line-items budget process.
No health funds are transferred directly between Ramallah and Gaza except for salary payments for MOH
staff in Gaza who were working prior to 2007, as well as transfers and payments for patients that are
treated outside of Gaza. In addition, UNRWA and other donors offer (mostly off-budget) financial


80 Palestinian Center for Human Rights, 2023. Medical Equipment and Medicine in Gaza Strip: Perpetual Shortage and Serious
Repercussions.
81 The assessment of the Gazan health financing system reflects the context prior to the beginning of the conflict and might

therefore be outdated at the time of publication.


                                                                                                                         96
assistance by directly delivering health services or providing medical equipment and supplies (Figure 69
and Figure 70).
 Figure 69: Financing flows in the West Bank                 Figure 70: Financing flows in Gaza




 Source: Palestinian Ministry of Health (PMOH)


In 2020, total health spending per capita reached US$ 332, almost double the average for peer
countries, with OOP expenditures constituting the majority of health spending. In 2020, health spending
totaled US$ 1.6 billion, equivalent to 10.3 percent of GDP.82 Per capita health spending has increased over
the last decade, from US$ 235 in 2009 to US$ 332 in 2020, indicating that the growth of health spending
is outpacing population growth. In 2020, OOP spending remained the largest financing source for the
Palestinian health system at US$ 128 per capita, followed by public spending (US$ 126), voluntary
insurance (US$ 52), GHI (US$ 16), and external financing (US$ 12) (Figure 71). High levels of OOP indicate
that health insurance offers only limited financial risk protection. Health expenditures are higher per
capita than other LMICs and regional comparators such as Tunisia, Morocco, and Egypt, but on par with
neighboring Jordan, which also has a high OOP per capita (Figure 72).




82Here and through the chapter, benchmarking figures with regards to GDP per capita and government health spending should
be interpreted cautiously given the constrained level of both due to the political and security situation.


                                                                                                                      97
  Figure 71: Evolution of per capita spending                     Figure 72: Per capita current health spending
      in West Bank and Gaza, 2000-2020                               in West Bank and Gaza and comparator
                                                                                 countries, 2020
                                 $400
    Health spending per capita




                                 $300

                                 $200

                                 $100

                                  $0
                                        2000
                                        2002
                                        2004
                                        2006
                                        2008
                                        2010
                                        2012
                                        2014
                                        2016
                                        2018
                                        2020
                                        External financing

                                        Social health insurance

                                        Private insurance

                                        Household out-of-Pocket
                                        Payment
 Source: World Bank World Development Indicators; PCBS



Public health spending
An elevated wage bill, costly referrals to hospitals outside the public sector, and high unit costs for
pharmaceuticals limit the resources available for investments and operational support. In 2021, health
spending by the PA reached NIS 2.14 billion, or about US$ 600 million (US$ 126 per capita), representing
13 percent of total public spending. Wages and salaries and OMR represented 42 percent and 34 percent
of public health spending, respectively. The purchase of goods and services (including medicines) made
up 20 percent of public health spending, and while infrastructure investment accounted for less than 1
percent. Since 2013, the combined share of expenditures allocated to salaries and OMR has fluctuated
between 70-86 percent of total public health spending and is currently at 75 percent, leaving little space
to invest in strengthening service delivery at public health facilities (Figure 73 and Figure 74).




                                                                                                                  98
      Figure 73: Evolution of breakdown of government                            Figure 74: Government spending on health as a
     health spending in West Bank and Gaza, 2013-2021                               share of general government expenditure,
                                                                                                   2013-2021
      100%                                                                                           7,000                                                                  16%




                                                                                                                                                                                  Health expenditure as a share of overall
      90%
                                                                                                                                                                            14%
                                                                                                     6,000
      80%
                                                                                                                                                                            12%




                                                                                                                                                                                         government expenditure
                                                                                                     5,000
      70%

                                                                                                                                                                            10%




                                                                                      Millions USD
      60%
                                                                                                     4,000

      50%                                                                                                                                                                   8%

                                                                                                     3,000
      40%                                                                                                                                                                   6%

      30%                                                                                            2,000
                                                                                                                                                                            4%

      20%
                                                                                                     1,000
                                                                                                                                                                            2%
      10%

                                                                                                         -                                                                  0%
       0%




                                                                                                                                  2016
                                                                                                             2013
                                                                                                                    2014
                                                                                                                           2015


                                                                                                                                         2017
                                                                                                                                                2018
                                                                                                                                                       2019
                                                                                                                                                              2020
                                                                                                                                                                     2021
                2013   2014   2015   2016   2017   2018    2019   2020   2021

             Wages and Salaries              Social contributions and benefits

             Outside Medical Referrals       Use of goods and services                                                     Health
                                                                                                                           Other government spending
             Fixed assets                    Inventories                                                                   %


 Source: PMOH and MOF


Public financial management issues affect each of the budget lines. Except in 2013 and 2016, the overall
budget execution rate has consistently exceeded 100 percent, peaking at 131 percent in 2017 (Figure 74).
Execution rates vary widely by expenditure type. For example, the execution rates for wages and salaries
as well as OMR surpassed 100 percent in 2021, while the rate for goods and services (mainly medicines)
was just 84 percent, and the rate for investments in fixed assets was only 53 percent despite the very low
investment budget (Figure 75). Spending on medicines is the third-largest budget item, but underfunding
and low execution rates result in chronic shortages of important medications. According to a recent World
Bank report,83 public spending on medicines in 2022 was about US$100 million, or 16 percent of the
annual MOH budget. Due to Israeli import restrictions and the limited use of reference pricing, medicine
purchases are very costly: the MOH pays 210 percent more than UNRWA, 206 percent more than the
United Nations International Children's Emergency Fund (UNICEF), and 330 percent more than the
Jordanian government for the same medicines. 84 Wages and salaries for the health workforce rose by 6
percent per year from 2011 to 2021 and now amount to 11 percent of the PA’s wage bill. Rising wages
were not driven by additional recruitment but by the increased use of allowances to retain existing health
workers, especially during the COVID-pandemic. As with the analysis in the rest of this section, the figures
on the wage bill must be updated to account for the current context, as healthcare workers have received
just 50-64 percent of their salaries since October 2023 due to the economic shock of the conflict and
reduced clearance revenues.


83   World Bank, 2023 (forthcoming) “Improving Efficiency in Public Procurement and Supply Chain Management of Medicines”
84   Ibid.


                                                                                                                                                                                                                             99
 Figure 75: The public health budget, expenditures,                                Figure 76: The public health budget,
          and execution rates, 2013-2021                                      expenditures, and execution rates by economic
                                                                                        classification, 2013-2021
  ILS 3,000,000,000                                                     140   ILS 1,000,000,000                             120

                                                                               ILS 900,000,000
                                                                                                                            100
                                                                        120    ILS 800,000,000
  ILS 2,500,000,000
                                                                               ILS 700,000,000
                                                                                                                            80
                                                                               ILS 600,000,000
                                                                        100
  ILS 2,000,000,000                                                            ILS 500,000,000                              60

                                                                               ILS 400,000,000
                                                                        80                                                  40
                                                                               ILS 300,000,000
  ILS 1,500,000,000
                                                                               ILS 200,000,000
                                                                                                                            20
                                                                        60
                                                                               ILS 100,000,000

  ILS 1,000,000,000                                                                       ILS 0                             0

                                                                        40



   ILS 500,000,000
                                                                        20




              ILS 0                                                     0
                      2013 2014 2015 2016 2017 2018 2019 2020 2021                    2021 Budget           2021 Expenditures
               Budget            Expenditures          Execution rate                 2021 Execution rate

 Source: PMOH and MOF


Prior to the ongoing conflict, high arrears already threatened the financial sustainability of the health
system, and this situation has worsened since October 2023. In the fourth quarter of 2023, economic
activity in Gaza and the West Bank contracted by 81.3 percent and 18.8 percent, respectively,
demonstrating the impossibility of mobilizing more domestic public health funding in the short-to-
medium term. Meanwhile, the conflict is massively increasing health needs due to the direct impact of
injuries and the indirect effects of foregone care. The health sector accounts for over half of the PA’s total
private arrears, which presents important fiscal risks and constraints. Since 2019, the total accumulated
arrears for medicines and private referrals amount to US$ 575 million, of which US$ 345 million were
accrued for OMR and US$ 200 million for the procurement of medicines. Cumulative health arrears are
almost equal to annual public health spending, further underscoring the challenges involved in increasing
health spending in the current fiscal context.

About 55 percent of health spending in Gaza is financed by the de facto authority MOF, with the rest
split between the PA MOF and international donors. The de facto authority MOF spent about US$ 120
million on public health in 2022, most of which was devoted to salaries or to the procurement of goods,
services, and medicines. A rising wage bill has driven an increase in de facto authority MOF health
spending over the last four years. Donor support has varied over time, weakening the financial
sustainability of the health system. Low levels of spending on medicines and equipment result in severe
shortages, leading to high rates of OMR from Gaza and significant disruptions in service delivery.




                                                                                                                                  100
     Figure 77: Distribution of public health             Figure 78: Public health spending in Gaza by
         spending in Gaza, 2019-2022                     financing source and expenditure type, 2019-
                                                                              2022
                                                    ILS 350,000,000
  100%
                                                    ILS 300,000,000
   90%                                              ILS 250,000,000

   80%                                              ILS 200,000,000

                                                    ILS 150,000,000
   70%
                                                    ILS 100,000,000
   60%                                               ILS 50,000,000

   50%                                                        ILS 0




                                                                                                                                               Drugs




                                                                                                                                                                                                                                 Drugs
                                                                      Salaries & wages




                                                                                                                          Treatment abroad




                                                                                                                                                       Salaries & wages




                                                                                                                                                                                                              Treatment abroad
                                                                                         Purchase of goods and services




                                                                                                                                                                            Purchase of goods and services




                                                                                                                                                                                                                                         Purchase of goods and services
   40%
   30%
   20%
   10%
    0%                                                                                   Gaza MoF                                                                         MoF Ramallah International donors
             2019       2020      2021     2022

         MoF Gaza Mof
          De facto              MoF Ramallah
                                 PA Mof

         International donors                                                            2019                                                2020          2021                                              2022

 Source: Gaza Ministry of Health


Pooling arrangements and out-of-pocket expenditures
The four main health insurance schemes are GHI, UNRWA insurance, private voluntary health
insurance, and Israeli health insurance. 78 percent of Palestinians have access to at least one of the
insurance schemes, and a substantial share of the population is covered under at least two schemes (Table
13Error! Reference source not found.). For example, those under the UNRWA scheme obtain GHI c
overage to access OMR services as needed. The rest of this section examines the GHI scheme, which is
the largest scheme and entails a complex set of arrangements.
                    Table 13: Snapshot of health insurance schemes in West Bank and Gaza
    Insurance               Population coverage                Eligibility criteria                                                                                          Summary of coverage,
     scheme                                                                                                                                                                copayments, and benefits

   Government                     60%                 Mandatory for public-sector                                                                                         Covers services at public PHC
     Health             (53% West Bank; 75% Gaza)       workers, voluntary for                                                                                               facilities, hospitals, and
 Insurance (GHI)                                        others; includes both                                                                                                 pharmacies; covers of
                                                        contributory and free                                                                                                 referrals to non-MOH
                                                              schemes                                                                                                           facilities based on
                                                                                                                                                                           authorization; copayments
                                                                                                                                                                          for each service are based on
                                                                                                                                                                                     a price list
     UNRWA                        40%                    Households who have                                                                                                 Fully covers all primary,
                        (28% West Bank; 76% Gaza)      registered as refugees in                                                                                             secondary, and tertiary
                                                        West Bank and Gaza; 70                                                                                               services at UNRWA PHC
                                                      percent of the population in                                                                                          facilities and referrals to




                                                                                                                                                                                                                                                                          101
                                                              Gaza and 28 percent in the          selected MOH facilities with
                                                                     West Bank                          no copayments



      Private                      2.4%                      Mandatory for employees of             Depends on the specific
 voluntary health       (3.1% West Bank; 0.5% Gaza)          the private sector or NGOs;           scheme, but mainly covers
    insurance                                                    voluntary for others            services at public and private
                                                                                                  PHC facilities, hospitals, and
                                                                                                          pharmacies
   Israeli health                   4%                        Palestinians working inside           Depends on the specific
     insurance             (5.3% West Bank; 0.02%             the Green Line; Jerusalem                      scheme
                                   Gaza)                               residents

    Percentage                                                  78%
  covered in any                                     (72% West Bank; 96% Gaza)
     insurance
      scheme
Source: PCBS (2017), stakeholder interviews, and a document review

GHI covers about 60 percent of the population, with fragmented enrollment conditions.85 GHI was
introduced with the ratification of Law 113 in 2004, which stipulates mandatory health insurance for
government employees and free health insurance for all children under age three. Since 2004, eligibility
has gradually expanded, and the entire population is now eligible to enroll on a voluntary basis, with
contributions deducted automatically from the payrolls of salaried workers or paid at the time of
registration for non-salaried workers. The roles and functions of different departments overlap, and none
focus on key aspects of performance management such as care, utilization, or provider quality except the
auditing unit of the SPU.
Contribution rates are low and capped, resulting in regressive targeting and insufficient revenue. In
2022, health-insurance contributions totaled about NIS 242 million, equal to just 11 percent of public
health spending and 5 percent of total health spending. Each population category has different
contribution requirements, and many categories are exempt. However, these exemptions are granted at
the group level and do not reflect socioeconomic status or ability to pay, which results in regressive
targeting. Premium levels are relatively low, with monthly ceilings of NIS 75 (US$ 21) covering an entire
household. This approach is also regressive: the contribution ceilings essentially protect wealthier
households from contributing more, and as a result contributions represent a larger percentage of total
consumption among poorer households. Due to low premiums and uneven collection, GHI contributions
amount to only 5 percent of the health system’s budget. Mobilizing additional resources through the GHI
will be difficult, as 62 percent of the population works outside of the formal sector and enrolls on a
voluntary basis. With high unemployment levels, a large share of the population would not be able to
contribute through payroll deductions.
Contributions are pooled at the level of MOF, and the GHI directorate does not perform either a pooling
or purchasing function, making it impossible to determine the precise breakdown of health-insurance
expenditures. GHI is managed by the Directorate-General for Health Insurance Administration at the
MOH. The directorate includes about 60 employees in four departments, most of whom work for the SPU,
which manages the purchasing of OMR services. Although GHI is managed by the MOH, collected

85 The results presented in this chapter are a  summary of an in-depth health insurance assessment completed in January – March
2023 that included: i) an analysis of existing documentations of the health insurance system; ii) interviews with MOH staff as well
as private service providers and other stakeholders; and iii) data extraction from the MOH information systems.


                                                                                                                              102
premiums are retained by the MOF. On the expenditure side, in the absence of an autonomous purchaser,
nongovernmental hospitals receive aggregated claim payments from the general MOH budget on a
monthly basis. As a result, there is no way to track GHI revenues or expenditures by beneficiary or to
identify transfers across ministries to finance the coverage of targeted population groups. Instead, GHI is
more of a mechanism to raise revenue for the MOF than a means of pooling risk at the population level.
In principle, there is a single benefits package and a medicines list with associated prices, but in practice
inadequate updates have led to open entitlements for beneficiaries. The national benefits package was
last revised in 2007, and since then services have been added without any clear inclusion criteria. Insured
and uninsured patients have access to the same services, with different copayment rates and user fees at
public and private facilities depending on whether the beneficiary is a GHI member or not. Certain diseases
are exempt from copayment for GHI patients, including communicable diseases such as HIV and
tuberculosis, as well as cancers and mental health conditions. Interventions in these cases are free at
public hospitals and at private and NGO hospitals that receive OMR.86 Copayment rates and user fees are
not based on the patient’s ability to pay or on the cost-effectiveness of the intervention, and they are not
routinely updated. Public PHC facilities and public hospitals have separate price lists, and OMR-receiving
hospitals have individual price lists based on memorandums of understanding (MOUs) signed with the
SPU.
Information systems are fragmented, and limited data are available on the GHI scheme. Since 2021, the
GHI Management Information System (MIS) has recorded data on registration, contributions, and
household characteristics of beneficiaries. However, the system focuses only on contribution collection
and enrolment, and no information system records data on service utilization or expenditures per
beneficiary. The GHI MIS is not linked with the electronic medical records system (Avicenna), or the
government’s accounting system (BISAN), which makes it difficult to manage transactions. The only
platform that enables claim management is the eReferrals system, which includes information on patients
referred to private hospitals for OMR and records detailed data on each OMR transaction. There is no
claims-management system for other GHI transactions at public PHC facilities, public hospitals, or
pharmacies, as these are not cost centers and do not manage funds.
As a result, GHI functions less like an insurance scheme and more like the public administrator of a tax-
based financing system. Despite its express purpose, GHI possesses almost none of the key elements of
a health-insurance scheme, which include: (i) legally autonomous benefit management; (ii) the definition
and collection of premiums based on actuarial principles and ability to pay; (iii) the definition of an explicit
benefits package; (iv) a clear division between purchaser and provider; (v) contracting both public and
private providers; (vi) output-based provider payments; and (vii) an information system that enables
proactive beneficiary, provider, and claims management, as well as evidence-based decision-making.
While the sophistication of these functions varies across insurance systems, they are all but absent from
GHI in the West Bank and Gaza.
Despite high levels of insurance coverage, 12.3 percent of the population incurred catastrophic health
spending in 2017, and insurance coverage is not associated with reduced OOP. A full 1.5 percent of the
population incurred impoverishing health spending in 2017,87 further underscoring the weak financial
protection offered by health insurance. Copayments, persistent shortages of medicines in public health

86 Diseases exempt from copayment include rabies, tetanus, cholera, malaria, HIV/AIDS, food poisoning, tuberculosis, diphtheria,
flaccid paralysis, child paralysis, H1N1, chronic mental illness, dog bite, leprosy, sexually transmitted diseases, cancer, organ
transplant, kidney failure, rheumatism, thalassemia and sickle cell anemia, hemophilia, therapeutic milk, and congenital
metabolic diseases.
87 At the relative poverty line of 60% of median daily per capita consumption




                                                                                                                            103
facilities, and a heavy reliance on hospital services are key drivers of OOP spending. Shortages of
medicines in public facilities often force patients to purchase medicines from private pharmacies,
especially essential NCD drugs, leading to high OOP payments and in some cases catastrophic spending.
       Figure 79: Disaggregation of OOP and                 Figure 80: OOP versus public expenditure on
     concentration curves of OOP spending and                    health in West Bank and Gaza and
          catastrophic health expenditure                                   comparators




 Source: Palestinian Expenditure and Consumption Survey (PECS) & WDI


Purchasing arrangements
As health facilities lack financial autonomy, the Palestinian MOH finances the public health care system
through passive purchasing. GHI resources are not kept separate from general public revenues, and the
MOH receives a fixed budget from the MOF. Public health facilities only receive funds through line-item
budgets, which limits their ability to leverage strategic provider payment methods to rationalize the
quantity or quality of services.
The health-insurance fund does not act as the purchaser of services, and the only services actively
purchased by the MOH level are those referred to private and NGO hospitals. The MOH purchases OMR
services through the SPU, which signs MOUs with referral-receiving hospitals specifying a mix of fee-for-
service and case-based payments. A declining but still significant proportion of these referrals are to Israeli
hospitals, and payments to these hospitals are deducted directly from the PA’s clearance revenues with
no price transparency, which further weakens the health-financing system. For patients with GHI, the SPU
processes invoices to be paid by the MOF to the referral-receiving hospitals.88 The process includes paper-
based records as well as the eReferrals system. MOH hospitals send referral applications to the SPU, and
the SPU coordinates with referral-receiving hospitals and referral committees. Reimbursements for
referrals to hospitals in the EJHN, the West Bank, and Gaza are processed through the BISAN system.

Weaknesses in MOUs and the inadequate capacity of public facilities to provide specialized services are
driving a continued increase in OMR costs. OMR services are based on MOUs signed with individual
referral-receiving private hospitals in East Jerusalem, the West Bank, and Gaza. Pricing arrangements are
relatively complex, as most are set by procedure and not by case. For example, there are over 100
payment categories for ophthalmology services, and they do not consider either the clinical complexity of
patients with comorbidities and complications or the quality of services delivered at hospitals. The MOUs


88Almost all OMR patients are covered under GHI, or enroll prior to requiring OMR services, indicating that all OMR costs are
covered by the MOH except OOP spending related to non-medical expenses or pharmaceuticals purchased by private pharmacies.


                                                                                                                        104
do not fix budgets for the medical services provided by the referral-receiving hospital, and there are no
stipulations on volume.89 The total volume and costs of OMR have been increasing since 2013, but
expenditure growth slowed in 2022 despite an increase in volumes, highlighting the impact of ongoing
efforts to negotiate and standardize prices (Figure 81 and Figure 82).
     Figure 81: Trends in OMR volumes                              Figure 82: Trends in OMR expenditures
                     120,000                              30.0%                 ILS 1,600                   60.0%




                                                                     Millions
                                                          25.0%                 ILS 1,400                   50.0%
                     100,000                              20.0%                 ILS 1,200
     Number of OMR




                                                          15.0%                                             40.0%
                      80,000                                                    ILS 1,000
                                                          10.0%                                             30.0%
                                                                                 ILS 800
                      60,000                              5.0%                                              20.0%
                                                          0.0%                   ILS 600
                      40,000                                                     ILS 400                    10.0%
                                                          -5.0%
                                                          -10.0%                 ILS 200                    0.0%
                      20,000
                                                          -15.0%                    ILS 0                   -10.0%
                          -                               -20.0%
                               2013 2015 2017 2020 2022

                               Volume        % change                                 Amount (ILS)   % change

 Source: eReferrals database

As a result, large variations in unit cost for OMR across disease categories and referral hospitals make
OMR spending highly unpredictable. Cancer continues to account for the largest share of OMR (37
percent), followed by cardiovascular conditions (15 percent) and urological diseases (8 percent). Most
OMR to Israel are referrals for the treatment of cancer and cardiovascular conditions. Efforts to negotiate
unit costs drove a decline in OMR expenditures between 2021 to 2022, particularly for cardiovascular,
maternal, neonatal, and child health conditions (Figure 83). Nevertheless, unit costs at one referral-
receiving hospital may be 10 to 20 times the costs at another (Figure 84). While case complexity may
account for some of this variation, it also reflects a lack of price standardization and contract enforcement
by the SPU.




89Duran et al, 2021. Towards Effective Chronic Case Management: Improving the Efficiency of Outside Medical Referrals in West
Bank and Gaza. World Bank. https://openknowledge.worldbank.org/entities/publication/41c3beb2-16c4-5d5e-a52e-
dfa30f3dc9ef


                                                                                                                        105
      Figure 83: Trends in OMR unit cost by                         Figure 84: Variation in unit costs across
                    condition                                     referral-receiving hospitals for key diseases
                                                                  ILS 80,000
   Diseases of the eye and adnexa
                                                                  ILS 70,000
   Symptoms, signs and abnormal
   clinical and laboratory findings,                              ILS 60,000
       not elsewhere classified
     Diseases of the genitourinary                                ILS 50,000
                system
                                                                  ILS 40,000
         Endocrine, nutritional and
            metabolic diseases
                                                                  ILS 30,000
        Diseases of the circulatory
                 system                                           ILS 20,000

   Diseases of the musculoskeletal
                                                                  ILS 10,000
    system and connective tissue
    Injury, poisoning and certain
                                                                       ILS 0
   other consequences of external
                causes                                                         0              2                     4      6
                        Neoplasms
                                                                                   Al Hayat Cathertization Center
     Congenital malformations,                                                     Al Makassed Hospital
   deformations and chromosomal
           abnormalities                                                           Istishari Arab Hospital
   Certain conditions originating in                                               Al Mezan Hospital - Hebron
         the perinatal period
                                                                                   Specialized Arab Hospital
   Diseases of the digestive system                                                Al-Rahma Policlinic

  Diseases of the blood and blood-                                                 Tel Hashomer - Sheba Hospital
     forming organs and certain
  disorders involving the immune…                                                  Al-Ahli Hospital -Hebron

                                                                                   An-Najah National University Hospital
                                       0          20000   40000
                                                                                   Augusta Victoria Hospital
                          2022             2021    2020                            Others


 Source: eReferrals data.
 Note: ** 1- Neoplasms 2- Diseases of the blood and blood-forming organs and certain disorders involving the
 immune mechanism 3- Diseases of the circulatory system 4- Diseases of the digestive system 5- Diseases of the
 genitourinary system



Conclusions and recommendations
The recommendations presented in this section can only be implemented following a durable ceasefire.
As indicated at the beginning of the chapter, this analysis was conducted prior to the start of the conflict
in October 2023, and recommendations were discussed with the PA MOH and other PA stakeholders
during that period. Even as the short-term implementation of these recommendations remains contingent
upon the implementation of a complete ceasefire and a transition towards a recovery and reconstruction
phase, they remain pertinent for health financing reform, based on the following principles: a) increased
pooling of funds sufficient to deliver an essential benefits package; b) financially sustainable and efficient
purchasing mechanisms; and c) sustainable delivery of essential services in an equitable manner. This
analysis also acknowledges the fact that it is conducted within a context of ongoing restrictions and
violence, which continue to remain as the main binding constraint for reaching universal health coverage:
this chapter therefore seeks to provide recommendations that can still be implemented within this
context.




                                                                                                                               106
The most critical financial challenges facing the Palestinian health sector are inequitable financial risk
protection, unsustainable health spending driven by inefficient purchasing arrangements, and shrinking
fiscal space. The Palestinian health-financing system is locked in a vicious cycle of elevated unit costs,
mounting arrears, chronic medicine stockouts, and weak public investment. Due to substantial payment
delays and the accumulation of arrears to pharmaceutical wholesalers, unit costs remain high, and few
pharmaceutical wholesalers remain active in the market, which further increases prices while
undermining MOH bargaining power. The limited availability of pharmaceuticals in public facilities
increases the frequency of referrals to non-MOH hospitals, which further inflates OMR-related
expenditures and arrears. The unit costs of pharmaceuticals remain substantially elevated due to the
limited use of reference pricing, the use of Israeli prices, high entry and exit requirements, and a restrictive
customs regime. The absence of an explicitly defined benefits package weakens cost controls and further
contributes to the unsustainability of pharmaceutical costs and other health spending. In the absence of
progressive reforms, this vicious cycle will continue to result in unsustainable and inequitable service
delivery. As the PA has little to no capacity to increase the fiscal space for health spending, at least in the
medium term, fostering inclusive and effective service delivery is vital. The following four-step prioritized
plan should be implemented as soon as a durable ceasefire has been established.
Step 1: Strengthen MOH purchasing arrangements by defining an essential benefits package, reference
prices, and contracting rules. Due to the PA’s fiscal constraints and the unsustainable nature of OMR
expenditures, the health-financing system must redefine its purchasing arrangements. The MOH is the
sole public purchaser of health services, and it should continue strengthening the capacity of the SPU by
explicitly defining a benefits package and prioritizing the services covered within it. Currently, almost all
OMRs are covered with no regard for patient needs or cost-effectiveness, resulting in high expenditures
and arrears. The benefits package and copayment structure should be comprehensively updated
according to current levels of service utilization, the public sector’s ability to deliver services, the
population’s ability to pay, and the unit costs of services. The benefits package should also define clinical
protocols and treatment pathways for each service to reinforce financial sustainability and adherence.
Once the essential benefits package has been established, additional packages can be defined and offered.
The SPU needs the capacity to fully manage OMR by determining where patients with specific conditions
would be referred to, and it must transition away from the existing patchwork of inconsistent MOUs to a
standardized system of contracts with improved accountability and auditing mechanisms.
Step 2: Expand equitable insurance coverage. Increasing coverage is essential given high levels of OOP
expenditures and the fact that over one-third of the population is not covered by GHI. Moreover, GHI
lacks many features of a standard health-insurance scheme and has more in common with tax-based
public financing systems that use public funds to protect against health risks rather than earmarked
insurance contributions. To expand equitable insurance coverage, the PA should either: (i) strengthen the
current GHI arrangements to ensure the delivery of the essential benefits package and a prioritized list of
OMR services; (ii) use general tax revenue to finance the essential benefits package and use GHI
contributions exclusively to finance priority OMR services; or (iii) use tax revenue to finance both the
essential benefits package and priority OMR services. Whichever option is chosen, policymakers will need
to mobilize sufficient resources, focus on controlling price, and define an essential benefits package as
described above. If the PA opts to scale up an insurance-based approach, poor and vulnerable households
should be exempted from premium payments, and the social registry operated by the Ministry of Social
Development could be used to determine exemptions on a household-by-household basis. Contributions
should be linked to ability to pay, with a range of premiums to be determined based on salaries for formal
workers or declared revenue for non-salaried workers using actuarial methods, and poor and vulnerable
households should be covered automatically. The PA’s health-insurance mechanisms should refocus on
ensuring access to essential health services without financial hardship rather than generating revenue for


                                                                                                           107
the health system. Beneficiary-management functions also need to be strengthened, and the authorities
should develop a plan for reaching universal coverage.
Step 3: Create additional fiscal space by raising and reallocating revenue, especially for covering the
poor and vulnerable to reduce OOP, and proactively managing arrears. Rationalizing benefits and
strengthening purchasing arrangements could ease pressure on the PA’s health budget. Even in upper-
middle and high-income countries with longstanding public health insurance schemes, tax revenue
typically subsidizes about one-third of healthcare costs, which indicates that relying solely on
contributions is not a feasible way to finance a health system. In the West Bank and Gaza, relatively few
households are able to contribute, and even if insurance premiums were tripled, they would barely reach
one-third of public health expenditures. As a result, general tax revenue will continue to play a major role
in financial risk protection. In addition to efficiency gains, the PA has three options for expanding the fiscal
space for health spending: (i) establish or increase taxes on unhealthy foods, tobacco, and alcohol; (ii)
reallocate budgetary funds to ensure the MOH has adequate resources to finance the essential benefits
package and other services for poor and vulnerable households; and (iii) develop a comprehensive
investment plan for the health sector and mobilize resources from external partners to reduce the
incidence of OMR, particularly to Israeli hospitals, and increase the share of conditions managed at the
PHC level.90 In addition, price negotiations between the MOH and referral-receiving hospitals and
pharmaceutical providers should focus on managing arrears to reduce fiscal pressure going forward. The
MOH should leverage its role as an integrated purchaser to negotiate bulk-purchase rates and establish a
feasible plan for clearing arrears.
Step 4: Improve the legal and institution framework for the health sector. To achieve its objectives for
public health in a context of tight resource constraints and other challenges, the PA will need to
continually refine and enhance the organizational structures and operational processes that underpin the
health sector. Building purchasing capacity and integrated information systems will be a necessary first
step. GHI can be enhanced by creating arrangements for a purchaser/provider split, establishing an
autonomous insurance agency, and introducing key beneficiary, provider, and claims-management
functions.




90An in-depth assessment of access and financing issues associated with referrals to Israeli hospitals is conducted by the authors
in World Bank. Racing Against Time: World Bank Economic Monitoring Report to the Ad Hoc Liaison Committee (English).
Washington,                        D.C.:                       World                           Bank                         Group.
http://documents.worldbank.org/curated/en/099638209132320721/IDU0e8b2e87e098b004a7a09dcb07634eb9548f4


                                                                                                                             108
CHAPTER 5 THE PALESTINIAN EDUCATION SYSTEM

Overview of the Education Sector
The analysis presented in this chapter is based on 2012-2022 data from the MOF and MOE, and like the
other chapters of this PER, it does not account for the impact of the conflict that began in October 2023.
This chapter examines the adequacy, efficiency, and equity of public spending on pre-tertiary91 education
in the West Bank and Gaza. The analysis is informed by domestic and international education standards,
the results of the annual General Secondary Education Certification Examination (Tawjihi) and the biennial
National Learning Standardized Assessment (NLSA), and the goals set forth in the PA’s Education Sector
Strategic Plan (ESSP). As a revised ESSP is currently being developed but has not yet been completed, this
chapter relies on the 2017-2022 ESSP. The results of the Program for International Student Assessment
(PISA) 2022 examination allow for international comparisons, as do the Trends in Mathematics and Science
Study (TIMSS) 2011, which is less current but offers a larger pool of participating countries.92

The Palestinian pre-tertiary education sector includes two years of pre-primary education (KG1 and
KG2), grades 1-12, technical and vocational education and training (TVET), and adult education. While
pre-primary education is not mandatory, a 2017 law aimed to make the second year of pre-primary (KG2)
universal. Grades 1-9 are considered basic education and are sometimes split into lower basic (grades 1-
4) and upper basic (grades 5-9). All years of basic education are compulsory. At the secondary level,
students have the option to continue on the academic track (grades 10-12), pursue TVET or other
alternative forms of education, or enter the labor market. Adult education programs provide up to two
years of informal education to individuals between the ages of 15 and 40 and may award the equivalent
of a grade 9 certificate.

Unlike most education systems, the Palestinian education sector is divided into three geographically
separated territories: the West Bank, Gaza, and East Jerusalem. 760,688 Palestinian students in the West
Bank, 597,722 students in Gaza, and 45,426 students in East Jerusalem attend pre-tertiary education (Table
14). Of these, 23.4 percent are enrolled in public schools,93 74.4 percent in private schools, and 2.1 percent
in UNRWA schools. An additional 40,573 Palestinian students attend schools run by the Municipality of
Jerusalem, and 2,734 are enrolled in contractor schools; these groups are not included in this PER, as they
fall under the authority of the GOI. While the chapter examines the role of private and UNRWA schools in
the Palestinian education sector, the expenditure analysis only tracks funding from the PA, which is limited
to public schools. Unless otherwise specified, East Jerusalem is treated as part of the West Bank, which is
standard for statistical breakdowns between the West Bank and Gaza.




91 Pre-tertiary education in the West Bank and Gaza includes pre-primary, basic, and secondary education, as well as TVET and
adult education.
92 Results for TIMSS 2023 have not been released in time to be included in this PER.
93 In East Jerusalem, public schools are referred to as Waqf schools. They operate in the same way that public schools in the West

Bank and Gaza do but may receive financial support from the Kingdom of Jordan. There are some (public) Waqf schools in the
West Bank that have oversight from the Ministry of Religious Affairs in addition to oversight from the MOE.


                                                                                                                             109
Table 14: Summary Statistics for the Education Sector in the West Bank and Gaza, 2021-2022
                                                                                                           Number of
                                              Number of             Number of          Percent of
                                                                                                           Classrooms/
                                              Schools               Students           Students
                                                                                                           Sections
                      Public                  1,878                 602,389            79.2%               22,455
 West Bank            Private                 395                   112,328            14.8%               5,077
                      UNRWA                   96                    45,971             6.0%                1,336
                      Public                  429                   289,409            48.4%               7,383
 Gaza                 Private                 66                    19,146             3.2%                880
                      UNRWA                   278                   289,167            48.4%               7,048
Note: Statistics on the West Bank include schools in East Jerusalem.
Source: MOE Annual Statistical Book

The MOE is the official entity responsible for the Palestinian pre-tertiary education sector, but its
authority varies across territories. In the West Bank, the MOE has full authority over public and private
schools and works in close collaboration with UNRWA (Table 15). In Gaza, the MOE shares responsibilities
for operating public schools with the de facto authority, though data on the specifics of this arrangement
are limited. Gaza’s Assistant Deputy Minister of Education and corresponding focal points at the various
technical departments cooperate with MOE counterparts in the West Bank, but they also have separate
areas of responsibility. Some public-school teachers in Gaza receive salaries from the MOE, while others,
especially those who took positions after 2007, are paid by the de facto authority. The MOE has no
information on the expenditures of the de facto authority or international donors operating in Gaza.94

Table 15: Responsibilities of the MOE in Schools in the West Bank and Gaza

                                                 Public Schools              Private Schools         UNRWA Schools
           Responsibilities of
          the Palestinian MOE
                                               West                          West                    West
                                                             Gaza                       Gaza                        Gaza
                                               Bank                          Bank                    Bank

 Set Curriculum                                  ✓            ✓               ✓          ✓            ✓              ✓

 Administer the NLSAs                            ✓            ✓               ✓                       ✓              ✓

 Administer the Tawjihi                          ✓            ✓               ✓          ✓            NA            NA
                                                           Shared
 Pay Teachers and School Staff                             with de
                                                 ✓
 Salaries                                                   facto
                                                          authority
 Collect Students’ Fees                          ✓
 Construct and Maintain School
                                                 ✓            ✓
 Buildings

94This PER analyzes the spending of the PA on the education sector in Gaza and acknowledges where there is likely additional,
unknown funding coming into the system.


                                                                                                                           110
 Provide School Registration and/or
                                            NA                        ✓                       ✓
 Licensing
 Conduct Academic Supervision                ✓
Note: This table excludes schools in Jerusalem. See Table 18 and Table 20 for more information on schools that are
located in Jerusalem.
Source: Based on interviews with the MOE.

The ESSP (2017-2022) sets out a set of goals for the Palestinian education sector, which include targets
under the Fourth Sustainable Development Goal (SDG 4) and the national priorities specified in the
National Policy Agenda 2017-2022. The ESSP identifies three general objectives for the education system
in the West Bank and Gaza: (i) ensuring safe, inclusive, and equitable access to quality education at all
levels of the system; (ii) developing a student-centered teaching and learning environment; and (iii)
enhancing accountability and promoting results-based leadership, governance, and management.

The West Bank and Gaza is classified as a conflict-affected situation, and this has a direct impact on the
education system. The effects of the conflict are multifaceted and have profound implications for students,
teachers, and institutions. A non-exhaustive list of these effects includes the following. First, educational
infrastructure, particularly the construction of new schools, is a highly politicized issue and is severely
restricted in the West Bank. This results in limited access to education, particularly at the pre-primary
level, in more remote areas. Second, the GOI imposes severe movement restrictions both on people and
goods in the West Bank, and Gaza has been subject to a near-total blockade since 2007, exacerbating the
political and economic fragmentation of the territories. Mobility restrictions also lead to delays and
increased transportation costs for teachers and students, which sometimes interrupt the school calendar.
Third, customs collection and the withholding of tax revenue directly affect GDP and public revenue, which
constrains spending in the education sector. Finally, the ongoing restrictions and the conflict have
significant negative implications for the mental health both of teachers and students, undermining
learning.

Education Access
Despite the immense challenges facing the education sector in the West Bank and Gaza, indicators of
education access have improved over the past decade, and universal basic education has been achieved.
Between 2012 and 2021, the number of children enrolled both in basic and secondary education increased
by 20 percent, and the gross enrollment rate (GER) reached 98.6 for basic education and 81.8 percent for
secondary education (Figure 85), surpassing the MOE’s targets. However, gains at other levels have been
slower. Pre-primary education has recently become a focus of the MOE, but in 2021 the GER for KG1 and
KG2 was 56.3 percent, well below the MOE’s target of 70 percent. Despite rising enrollment rates, the ratio
of students to teachers has declined over the past decade both in public and private schools (Figure 86).
However, high birth rates are expected to further increase the number of children entering the school
system in the medium term, which will increase pressure on educational facilities and resources.




                                                                                                               111
                                         Figure 85: GERs by Education Level                 Figure 86: Student-Teacher Ratios by School
                                                                                                               Type
                                       1,200                                    97%                             35
      Number of Children (Thousands)




                                                                                        Student Teacher Ratio
                                                                                                                     28                        28.2
                                               93%                                                              30
                                       1,000
                                                                                                                25
                                        800                                                                          20.7
                                                                                                                20
                                        600                                                                                                   17.4
                                                                                                                15   16.3
                                        400    74%                              81%
                                                                                                                10                              13
                                        200
                                                                                                                5
                                               48%                              56%
                                          -                                                                     0




                                                        Pre-primary Education                                               Public Schools
                                                        Basic Education                                                     UNRWA Schools
                                                        Secondary Education                                                 Private Schools
 Source: Authors’ calculations using population data                                  Source: Authors’ calculations based on the MOE’s
 from PCBS and data on enrolment from the MOE’s                                       Annual Statistical Books 2012-2013 – 2021-2022.
 Annual Statistical Books 2012-2013 – 2021-2022.

Education Quality
Palestinian students are regularly evaluated in national assessments, and their participation in
international standardized tests enables cross-country comparisons of education quality and student
performance. In 2022, Palestinian students participated in the PISA, which in itself is an important
milestone, as countries self-select for the assessment, and the West Bank and Gaza had one of the lowest
levels of GDP per capita among participating countries. Prior to the 2022 PISA, the most recent
international standardized test that the West Bank and Gaza participated in was the 2011 TIMSS. In 2023,
the TIMSS was administered in both both the West Bank and Gaza, and in the same year the literacy and
Numeracy Assessment (LaNA) was administered in the West Bank only. The results of both 2023
assessments had not yet been released at the time that the data analysis for this PER was done. The NLSA
is administered every other year to a sample of students from grades 5-9 in different types of school in all
three territories and covers a range of subjects. Students sit for the high-stakes Tawjihi.95

Average student learning outcomes in West Bank and Gaza are below the international average.
According to the 2022 PISA results, 80 percent of 15-year-old students in the West Bank and Gaza did not
meet Level 2 proficiency standards in mathematicsTable 16, indicating that they could not interpret a
simple situation represented mathematically without direct instruction. In addition, 77 percent failed to
meet proficiency standards for reading, while 71 percent did not meet the standards for science. Table 16
shows that the mean scores in the West Bank and Gaza are below both the international and MENA mean
scores. Almost no students in the West Bank and Gaza were top performers (passing Level 5 or 6 in the
PISA test) in mathematics, reading, or science. The results of the 2011 TIMSS were aligned with the PISA
results: more than half of grade 8 students failed to meet the low international benchmark for
mathematics, while 41 percent did not reach the benchmark for science. The 2022 NLSA found that less
than one-third of grade 9 students met the national minimum proficiency benchmark in mathematics and



95   Further details on domestic and international student assessments are provided in Annex VIII.


                                                                                                                                                      112
in “science and life.” Students fared better in Arabic, with just over half achieving a passing mark. Results
for grade 5 were similar across all subjects.

Table 16: Mean Scores in PISA 2022
                                          West Bank and Gaza           International                MENA Average96
                                                                       Average
 Mathematics                              366                          472                          388
 Reading                                  349                          476                          375
 Science                                  369                          485                          394
Source: Organization for Economic Cooperation and Development (OECD) (2023).


Equality Indicators
Unequal access to early education has important implications for school readiness and future academic
success. Pre-primary enrolment has grown steadily in recent years,97 reaching about 60 percent in KG1
and 75 percent in KG2 in 2021-22. However, 99 percent of KG1 and 91 percent of KG2 facilities are run by
private providers, making early education prohibitively expensive for many children from poorer
households. Unequal enrollment in early education likely widens the school-readiness gap between
socioeconomic groups.

Girls outperform boys in basic and secondary education. The 2022 NLSA found that girls scored higher in
mathematics, “science and life,” and Arabic in grade 5 and grade 9. These results are consistent with those
of the 2014 early grade reading assessment (EGRA), which found that boys’ reading comprehension in
grade 4 was particularly low. The results of the 2022 PISA indicated that 15-year-old girls outperformed
their male counterparts in mathematics, reading, and science, while in the TIMSS 2011 girls outperformed
boys in mathematics and science in grade 8. Moreover, more girls than boys have passed the Tawjihi
examinations both in the West Bank and Gaza every year for the past decade. During 2011-2022, 62
percent of students in the West Bank and 56 percent in Gaza who passed the Tawjihi were female (Figure
87). This pattern partly reflects the higher participation rate of girls in secondary education, as there are
1.24 girls enrolled for every boy, but girls also outperform boys in basic education, where enrollment rates
are close to gender parity.




96   Jordan, Morocco, Qatar, Saudi Arabia, UAE, and West Bank and Gaza are the PISA participants from MENA.
97   These figures refer to the 2017 and 2019 pre-primary adjusted net enrollment rate (Human Capital Index, 2020).


                                                                                                                      113
Figure 87: More Girls than Boys Pass the Tawjihi Examinations in the West Bank and Gaza
                                                   100%
 Share of Students that Passed the Tawjihi Exams



                                                   90%                                                                         36,893      38,019      39,256
                                                                                                       36,203      36,331            25,311      27,068           40,785
                                                                                                             26,639      25,270                             28,697      27,510
                                                   80%                                     34,710
                                                                   34,970      32,749            23,604
                                                       33,506            24,385
                                                   70%                               22,862
                                                             23,858
                                                   60%
                                                   50%
                                                   40%
                                                   30%
                                                   20%
                                                   10%
                                                          59% 57% 61% 57% 61% 57% 61% 57% 60% 54% 61% 56% 62% 56% 61% 54% 61% 53% 62% 56%
                                                    0%
                                                          West   Gaza   West   Gaza   West   Gaza   West    Gaza   West    Gaza   West   Gaza   West   Gaza   West   Gaza   West   Gaza   West   Gaza
                                                          Bank          Bank          Bank          Bank           Bank           Bank          Bank          Bank          Bank          Bank
                                                            2012-13       2013-14       2014-15       2015-16        2016-17        2017-18       2018-19       2019-20       2020-21       2021-22



                                                                                                                   Girls          Boys
Note: Percentages indicate the share of students that passed the Tawjihi that are female.
Source: Authors’ calculations based on data provided by Center for Educational Research and Development (CERD).


Finally, differences in educational achievement are evident across school types, with students in UNRWA
schools outperforming their counterparts in public and private schools. On the 2022 NLSA, in all tests
but one (grade 5 Arabic), students in UNRWA schools scored higher than those in public and private
schools (Table 17). Moreover, students in private schools consistently outperformed those in public
schools both on the 2022 NLSA and PISA 2022. This is broadly consistent with TIMSS 2011, where public
school students achieved the lowest scores.

Table 17: Results in NLSA 2022, PISA 2022, and TIMSS 2011 by School Type
                                                                                                        NLSA 2022                                                             PISA          TIMSS
                                                           Grade 5             Grade 5              Grade 5   Grade 9                     Grade 9             Grade 9         Math          Math
                                                           Math                Science              Arabic    Math                        Science             Arabic          2022          2011
            Public
                                                           33.77               35.32                45.61             23.36               29.16               44.30           362           427
            Schools
            UNRWA
                                                           47.43               52.48                56.32             42.29               47.03               63.81           NA98          444
            Schools
            Private
                                                           39.83               45.27                58.70             33.27               36.20               50.09           429           491
            Schools




98As PISA is an assessment of 15-year-old students, UNRWA schools were excluded from the assessment as the final year of
school in UNRWA schools is grade 9, when most students are 14-years of age.


                                                                                                                                                                                                      114
Note: PISA and TIMSS results shown in the table are mathematics mean scores. Results in other subjects are similar
and the rankings by type of school remain the same.
Source: Data provided by the MOE, OECD, 2023. PISA 2022 Results: Factsheet: Palestinian Authority.

Education Spending
Public spending on education in the West Bank and Gaza is relatively high and dominated by salaries,
with the basic and secondary education levels accounting for the largest share of spending. Public
education spending rose from NIS 2.3 billion in 2012 to NIS 3.1 billion in 2021. In 2022, over 90 percent of
total spending was devoted to operational expenditures, with over 80 percent going to salaries. While a
large share of salary spending is common among education sectors worldwide, the dominance of
operational expenditures leaves little space for investment. Over the past five years, teachers have
accounted for an average of 78 percent of salary spending, with the remaining 22 percent going to school
administrators and other non-teaching staff (Figure 88). The share of education in total government
spending has fluctuated over time but has consistently exceeded both the MENA regional average and the
world average. Almost 50 percent of education spending is devoted to basic education, 40 percent goes
to secondary education and the remaining 10 percent is split between pre-primary education, TVET,
informal adult education, and the governance and management of the sector.

Figure 88: Education Spending by Economic Classification
                     3,500
                                                                                                                                              2%
                                                                                                                                       1%
                     3,000                                                                                      4%
                                                                                                                                              9%
                                                                                                                                       8%
                                                                            4%          3%                                 4%                 9%
                                                                                                   3%           8%                     8%
                     2,500                             4%      3%           9%          9%                      8%         7%
                                           4%                                                      12%
   Millions of NIS




                             3%                        8%      9%           8%          8%                                 8%          13%    18%*
                             9%            8%          8%      8%                                  8%
                     2,000   8%            8%                                                                  22%
                                                                            20%        19%                                18%
                                                                                                   18%
                                                       23%     22%
                     1,500   28%          23%



                     1,000                                                                                                             70%    63%*
                                                                            59%        61%         60%         58%        63%
                                          57%          57%     59%
                             53%
                      500

                        -
                             2012         2013         2014   2015         2016       2017         2018        2019       2020         2021   2022

                                    Teacher Salaries                 Non-teaching Staff Salaries        Gov Share of Social Security
                                    Other Operational Expenditure Capital Expenditure

Note: The breakdown of salaries between teacher and non-teaching staff salaries in 2022 is based on a projection
from the years prior.
Source: Authors’ calculations based on MOF data.

Over the past three years, about 90 percent of the PA’s education budget has been directed to the West
Bank, home to 68 percent of all children who attend public schools. This uneven distribution between
the West Bank and Gaza likely reflects substantial education spending by the de facto authority in Gaza,
though data constraints prevent a thorough analysis of those expenditures. An estimated 13,000 public
school teachers work in Gaza, representing about 25 percent of all public-school teachers in the West Bank
and Gaza, but some are not on the MOE payroll, and the exact number of teachers is unknown. Similarly,



                                                                                                                                                     115
funding for construction, the sector’s second largest expenditure item, also comes from sources other
than the PA.

Direct donor contributions to the MOE amounted to NIS 74 million in 2022, representing almost one-
quarter of the development budget and over 80 percent of development spending. However, donor
contributions fluctuate from year to year, which complicates sector-level planning and budgeting, resulting
in frequent financing gaps. Donor contributions peaked at NIS 133.9 million in 2018 and have since
declined by 44.6 percent. Over the past decade, about 30 donors have provided support to the MOE,
though the pool of donors has changed repeatedly. Currently, the largest source of donor funding comes
from the Joint Financing Arrangement (JFA), a pooled fund backed by a group of European countries that
provides budget support to the MOE for the implementation of the ESSP.99 The World Bank has also been
an active donor in the education sector, providing project-based financing that is executed through the
MOE. Other bilateral donors such as Belgium, Japan, and the United States, various UN agencies, and the
Islamic Development Bank also provide financing for education projects, but these funds are usually not
executed through the MOE. Large donor contributions to UNRWA schools are not included in the MOE
budget. In addition, funding received by the de facto authority in Gaza or other education organizations,
as well as donations made directly to schools, are not accounted for by the MOE.

Since the various sources of financing are still falling short of what the education sector needs to keep
running and develop further, the government is becoming more reliant on arrears, raising concerns
about their credibility among contractors. In 2022 arrears came to a total of NIS 98.2 million, representing
3 percent of education spending. Arrears were under NIS 6 million in 2017, reaching NIS 40 million in 2021
and NIS 89 million in 2022 – 14 times what they were five years prior. The huge increase year on year is
partly because arrears are not cleared by the end of each financial year and are brought forward into the
next. There is currently no government strategy to address the clearance of these arrears.

Analyzing the Performance of Education Expenditures
The Adequacy of Spending
Public education spending in the West Bank and Gaza relative to GDP is in line with international
standards and high compared with the average for MENA and for the world, but may still be falling short
of what is needed in the sector. Over the past decade, education spending has remained stable at about
5 percent of GDP, consistent with international best practices.100 In the MENA region, education spending
averages just under 4 percent of GDP, while the world average is slightly above 4 percent. The PA’s relatively
high level of education spending is due in part to demographics: over 40 percent of the population in the
West Bank and Gaza is under the age of 15, far above both the MENA average (31 percent) and the world
average (25 percent).101 As noted above, these figures do not include expenditures by the de facto
authority in Gaza or funding from UNRWA, and thus actual spending on the education sector is higher



99 The JFA was designed as a technical platform for dialogue on key education issues and to provide a predictable and reliable
source of financing, although year to year the financing coming through the JFA has varied considerably. It currently includes the
following European countries: Finland, Germany, Ireland, and Norway.
100 The Third International Conference on Financing for Development, held in Addis Ababa in July 2015, called for education

spending to equal 4-6 percent of GDP.
101 World Bank WDI.




                                                                                                                             116
than reported here. Nevertheless, teachers have not been paid their full salaries since late 2021, and rising
arrears indicate that more financing is needed.

Education expenditures are also large relative to total public spending, further underscoring the PA’s
prioritization of the sector. The education sector accounts for 16 percent of total spending (Figure 89),
within the recommended range of 15-20 percent.102 Even though non-PA financing sources are excluded,
public spending on education is still high by international standards. Over the past decade, the share of
education spending in total spending consistently exceeded the MENA average of about 12 percent and
the world average of about 14 percent. While some MENA countries spend substantially larger shares of
their budgets on education, such as Tunisia (23 percent) and Morocco (24 percent),103 since 2012
education spending in the West Bank and Gaza has typically been above the MENA median of 14-17
percent. Despite the PA’s demonstrated commitment to education, increased donor support will be
necessary to cover the sector’s financing gap.

Figure 89: Education as a Share of Total Public Spending
                         20,000
                         18,000                                                     18,678   18,662                      19,111
                                                                                                       18,279   18,469
                         16,000                                 17,042     17,154

                         14,000                       14,629
       Millions of NIS




                                  14,000    14,377
                         12,000
                         10,000
                          8,000
                          6,000
                          4,000
                          2,000
                                  18.3%     17.4%     19.3%     17.7%      18.6%    18.8%     20.6%    17.4%    16.0%    16.3%

                                  2012      2013       2014      2015      2016     2017      2018     2019     2020     2021
                                           Education share                             Government budget
                                           West Bank and Gaza share (WDI data)         MENA average share
Source: Authors’ calculations based on data provided by the MOE and World Bank WDIs.

Expenditure Efficiency
Education Spending and Outcomes

Palestinian students outperform their counterparts in countries with similar levels of GDP per capita on
international standardized tests, but measures of proficiency across subjects suggest the quality of
education is low, particularly relative to education spending. The 2022 PISA provides the most up-to-date
assessment of education quality in the West Bank and Gaza in international context. Due to self-selection,
however, the 81 countries participating in PISA are relatively wealthy, and their students tend to perform




102   As per the Third International Conference on Financing for Development in Addis Ababa, July 2015.
103   World Bank WDI.


                                                                                                                           117
well.104 For that reason, the Learning Adjusted Years of Schooling (LAYS) index, which has a far larger pool
of countries, is also considered in the analysis, with details provided in (see ANNEX VIII).

Considering the West Bank and Gaza’s dire economic and security situation, Palestinian students
perform relatively well. The West Bank and Gaza has one of the lowest levels of GDP per capita among
2022 PISA participants, and even prior to the current conflict it was heavily affected by fragility and
violence. Despite these circumstances, Palestinian students achieve learning outcomes that exceed what
GDP per capita would predict (Figure 91). The average mathematics score of 366 in the 2022 PISA was
slightly above the scores of two other MENA countries with comparable levels of GDP per capita, Jordan
(361) and Morocco (365). However, 80 percent of 15-year-old Palestinian students scored below Level 2
proficiency in mathematics, highlighting an important area for improvement.

Figure 90: Association between PISA Mathematics Mean Scores and GDP Per Capita
                                    600

                                                                                                                Singapore
                                    550
      PISA Mathematics Mean Score




                                                                                             South Korea

                                    500                                                            Slovenia
                                                                                             Poland      Finland
                                                                                                               Sweden
                                                                        Vietnam               Slovakia
                                    450                                                                     USA
                                                                                          Turkiye Israel
                                                                                    Serbia
                                                                                                              UAE
                                    400                                                 Malaysia
                                                                                                                Qatar
                                                                          Jamaica
                                                                                  Mexico
                                                                   Morocco                     Saudi Arabia
                                                                                    Argentina
                                    350           West Bank and Gaza     Jordan Albania
                                                             Philippines
                                                                    El Salvador
                                                        Cambodia

                                    300
                                          6   7     8              9                  10               11               12
                                                           GDP Per Capita PPP
Note: Education as a share of GDP is taken as the average from 2012-2022 in cases where at least five years of
data are available and the log of GDP per capita is used.
Source: Authors’ calculations based on PISA 2022 results and United Nations Educational, Scientific and Cultural
Organization Institute for Statistics (UNESCO UIS) (2020).

In terms of education spending as a share of GDP, students in the West Bank and Gaza underperformed
on the PISA 2022. 53 percent of participating countries had lower levels of education spending relative to
GDP, but the West Bank and Gaza had the lowest average score for mathematics (Figure 90). Similar
patterns were observed for reading and science scores. The West Bank and Gaza’s performance on the

104Of the countries that participated in the 2022 PISA, 46 percent were OECD countries, and no country in Sub-Saharan Africa
took part in the assessment.



                                                                                                                        118
LAYS index, which includes less-wealthy countries, is commensurate with its level of education spending.
Education spending in the West Bank and Gaza equals 4.9 percent of GDP, above the global average of 4.4
percent, and its average LAYS score of 8.5 exceeds the global average of 7.9.

Figure 91: Association between PISA Mathematics Mean Scores and Public Expenditure on Education
                                 600

                                                      Singapore
                                 550
   PISA Mathematics Mean Score




                                                          South Korea
                                 500
                                                                             Poland
                                                                                Slovenia        Finland Sweden
                                 450                                     Vietnam
                                                                     Slovakia        USA
                                                                       Turkiye           Israel
                                                                  Serbia
                                                UAE
                                 400                         Qatar           Malaysia
                                                                                   Argentina
                                                                            Mexico
                                                                                          Jamaica    Saudi Arabia
                                                                   Albania
                                                                                          Morocco
                                 350                            Jordan West Bank and Gaza
                                                          Philippines
                                                               El Salvador
                                               Cambodia
                                 300
                                       0   1    2          3       4        5         6       7                  8   9   10
                                                           Education Spending as a Share of GDP
Source: Authors’ calculations based on PISA 2022 results and UNESCO UIS (2020).

Allocative Efficiency

While the education sector receives a relatively large share of the PA’s budget, pre-primary and TVET
programs have missed their ESSP 2017-2022 targets. Basic and secondary education account for about
90 percent of all education spending each year, and targets for both levels have been achieved or
surpassed (Table 18). The successes observed in education levels that receive a large majority of funding
suggest that education resources are relatively well-allocated overall. However, indicators for pre-primary
education—identified as a priority by the MOE in 2017—and TVET have both fallen short of their strategic
policy targets, indicating that more financing may be required at these levels.




                                                                                                                         119
Table 18: ESSP 2017-2022 Targets and Achievements by Education Level
                                           2014                        2019       Achievement       Achievement
 Program           Indicator                              2015
                                         (baseline)                  (Target)        (2019)            (2021)
 Pre-primary       GER                   55.1%          57.3%       70%           62.3%             56.3%
 Basic
                   Adjusted NER          94.2%          94.6%       97.6%         98.9%             98.6%
 Education
 Secondary
                   Adjusted NER          68.1%          66.8%       69.5%         77.4%             81.8%
 Education
 TVET              GER                   2.2%           2.1%        5%            4.5%              4.8%
    ESSP target achieved
    ESSP target not achieved
Note: Adjusted NER refers to the share of all children attending school who are within the bounds of the youngest
and oldest age for that level of schooling. For example, in basic education, the number of children who are enrolled
in grades 1-9 is presented as a share of all children between the ages of six and 15 years old in the population,
regardless of what age they are at each specific grade.
Source: ESSP (2017-2022) and annual Monitoring and Evaluation (M&E) reports from 2019-2020 and 2021-2022.


As the marginal cost of pre-primary education continues to decrease, reallocating resources across
education levels could generate efficiency gains. In 2021, the cost per student for public secondary
education was NIS 4,615, well below the cost of NIS 7,487 for public pre-primary education and NIS 2,377
for basic education (Table 19). The PA identified pre-primary education as a priority in 2017, and between
2017 and 2022 the marginal cost halved as high start-up costs gave way to economies of scale. The falling
marginal cost of pre-primary education creates opportunities to efficiently reallocate resources from the
secondary to the pre-primary level, in line with global evidence that investments in early childhood
education are among the most effective developmental interventions. High-quality pre-primary education
programs have been linked to lifelong improvements in academic performance, higher graduation rates,
and increased earning potential. These benefits generate cost savings by reducing the need for remedial
education and social welfare programs over the long term. As pre-primary education has only recently
become a priority for the MOE, the initial cost of universalizing KG2 is likely to be high, but the marginal
cost of serving additional students should fall steadily over time.

Table 19: Annual Public Spending per Student in Public School by Education Level
                                2015        2016         2017         2018        2019         2020         2021

 Pre-primary Education            -             -       15,330       9,534        6,270        5,029        7,487

 Basic Education               2,155        2,380        2,300       2,196        2,161        2,093        2,377

 Secondary Education           4,557        5,034        4,982       4,618        4,451        4,448        4,615

Source: MOE expenditure data and MOE’s Annual Statistical Books 2012 -2013 – 2021-2022.




                                                                                                                120
Teacher Salaries and Utilization

The West Bank and Gaza’s better-than-expected learning outcomes (when accounting for the dire
economic and security situation) are likely driven in part by its relatively well-educated and well-
remunerated teaching force. 82 percent of Palestinian teachers have a bachelor’s degree (BA or BSc), 10
percent have a master’s degree (MA or MSc), and the remaining 7 percent have high school diplomas or
lower qualifications. The distribution is similar in the West Bank and Gaza. The average teacher salary is
about NIS 50,000 (US$ 13,200) per year (Figure 92), far below OECD levels but more than twice the
minimum wage in the West Bank and Gaza. Average salaries for teachers have increased since 2010, and
allowances have risen even faster. However, many teachers are owed back-pay for the months in which
they received partial salaries to help the PA cope with its budget shortfall.

Figure 92: Average Real Wages for Teachers and Non-Teaching Staff
                     3,000                                                                                                 50,497
                                                                                                                  46,750            50,000
                                                                                                      44,826
                     2,500                                                       43,276 43,131 43,975                      2,438
                                                                        40,115
                                                      38,043
                                      35,251 35,943                                                                                 40,000
                                                               34,065                                     1,928    1,936
                     2,000                                                       1,877   1,891    1,811                    86.2%
   Millions of NIS




                             31,536
                                                                        1,682
                                                               1,646
                                                      1,519                                                                         30,000
                                              1,407




                                                                                                                                             NIS
                     1,500            1,346                                      85.2%   85.9%            86.0%   85.8%
                                                                                                 85.9%
                             1,179                             85.1%    85.1%
                                                      85.4%                                                                         20,000
                     1,000            84.8%   84.9%
                             84.4%

                      500                                                                                                           10,000



                        -                                                                                                           -
                             2010     2011    2012    2013     2014     2015     2016    2017     2018    2019    2020     2021

                                        Teachers           Non-Teaching School Staff             Average Teacher Annual Salary

Source: MOF wage bill data.

The large share of personnel costs in total spending makes efficiency gains difficult to achieve in the near
term. As noted above, personnel spending is relatively high but still broadly consistent with the levels of
comparator countries. Moreover, teachers in the West Bank and Gaza already work more hours per week
and per year than their MENA counterparts, leaving little scope to increase teaching hours. Efforts to
improve pedagogical quality should focus instead on ensuring that teachers are well prepared, adequately
monitored and supported, and sufficiently motivated.

The student-teacher ratio is low both in the West Bank and in Gaza, and retirement and turnover among
teachers offer opportunities to generate efficiency gains. Over the past decade, the number of teachers
in public schools has grown proportionally with the number of students, but the cost of salaries and
allowances has more than doubled in real terms. In 2021, the average student-teacher ratio was 15.7 in
the West Bank and 22.2 in Gaza (Table 20). While moderate student-teacher ratios are consistent with a
positive learning environment, these levels are difficult to justify in a context of tight fiscal constraints.




                                                                                                                                              121
Moreover, the MOE aims to increase the size of the teaching workforce by a further 3 percent,105 further
lowering the student-teacher ratio in the coming years. While this effort has been suspended due to MOF-
imposed restrictions on the growth of the wage bill, further analysis is necessary to determine how
attrition would affect the student-teacher ratio at the basic and secondary levels across localities.

Table 20: Average Pupil-Teacher Ratios for Grades 1-12
                                           Total              Public      UNRWA (basic             Private
                                                                          education only)

  2012-        West Bank                    19.9               20.1            25.0                 16.5
  2013         Gaza                         24.6               22.4            28.8                 15.6

  2021-        West Bank                    15.5               15.7            23.6                 12.9
  2022         Gaza                         24.5               22.2            29.1                 13.4
Source: MOE’s Annual Statistical Books 2012-2013 – 2021-2022.

Non-teaching staff account for over 20 percent of all positions in the education sector. The total cost of
teacher compensation, including both salary and allowances, rose from NIS 996 million in 2010 to
NIS 2.103 billion in 2021. Another NIS 336 million was spent on non-teaching staff in 2021, bringing the
education sector’s total wage bill to NIS 2.4 billion. The roles of non-teaching education staff should be
rationalized, and efficiency gains could be achieved by recalibrating the shares of teaching and non-
teaching staff, easing pressure on the wage bill.

The Equity of Spending
Over the past three years, about 90 percent of the PA’s education spending has been directed to the
West Bank, where 68 percent of the children who attend public schools live. On average, the MOE spends
over three times more per student in the West Bank than in Gaza. This is not a reflection of the true unit
cost per child in the respective territories, but rather indicates that additional funding from the de facto
authority is coming into the Gaza education system that is unaccounted for by the MoE. NLSA scores over
the past decade indicate that students in Gaza outperform those in the West Bank in all subjects and in all
grades (Table 21), yet the share of students that pass the Tawjihi examinations is higher in the West Bank
(82 percent) than in Gaza (79 percent). In addition, the share that achieves a university pass is higher in
the West Bank (63 percent) than in Gaza (55 percent).

Table 21: NLSA Average Performance for Grade 5 and Grade 9 in Gaza than West Bank, 2022
                                                       Mathematics     Science and Life     Arabic Language
 Grade 5                     West Bank                 32.8            35.6                 48.3
                             Gaza                      45.1            47.5                 52.6
 Grade 9                     West Bank                 23.4            29.2                 44.9
                             Gaza                      37.3            41.8                 57.8
Source: NLSA data provided by CERD.




105   This goal was expressed in interviews with MOE staff.


                                                                                                             122
The PA does not keep records of how education expenditures are allocated between governorates in
the West Bank and Gaza, which prevents a thorough analysis of distributional equity. Substantial
variations in Tawjihi results across governorates (Figure 93 and Figure 94) suggest that redistributing
resources could yield efficiency gains. However, the financial system is highly centralized, and granular
data on the distribution of financing across localities are not currently available.

 Figure 93: Tawjihi Pass Rates by Governorate         Figure 94: University Acceptance Rates by
                                                      Governorate
  100%
   90%
   80%
   70%
   60%
   50%
   40%
   30%
   20%
   10%
    0%




Source: Author’s calculations based on MOE data.

Students from households with higher socioeconomic status tend to have more educational
opportunities and higher achievement levels. The 2022 PISA includes an index of students’ economic,
social, and cultural status (ESCS). In the West Bank and Gaza, the average score for students in the top
quarter of the ESCS index was 50 points higher in mathematics, reading, and science than the average
score for students in the bottom quarter (Table 22). The OECD average difference in PISA scores between
the top and bottom quarters of ESCS is almost double in mathematics. At the pre-primary level, which is
dominated by the private sector, access rates are lowest among children from poor and vulnerable
households, even though these children often need early education the most.




                                                                                                     123
Table 22: 2022 PISA Scores and Socioeconomic Status
                                    PISA Mathematics           PISA Reading         PISA Science
                                    Mean Score                 Mean Score           Mean Score
 Bottom quarter of ESCS             343                        330                  346
 Second quarter of ESCS             360                        346                  364
 Third Quarter of ESCS              368                        349                  371
 Top quarter of ESCS                393                        375                  397
 Difference Between Top and         50                         45                   50
 Bottom
Source: PISA 2022 Results: Factsheet: Palestinian Authority.


Public Financial Management in Education
As noted above, expenditure data for the education sector lack granularity and precision, which
prevents an analysis of the distribution of spending across levels and governorates. Salaries are not
always recorded accurately, and a teacher working at one education level may have their salary recorded
under another level. As salaries make up a large share of education spending, these distortions significantly
obscure the distribution of spending. More comprehensive and disaggregated data will be necessary to
assess the potential efficiency gains from redistributing resources between education levels or
governorates.

The underspending of the approved budget likely reflects weak budget practices rather than idle funds.
For eight of the last 10 years, execution rates for the education budget ranged from 72.8 to 91.7 percent,
but in 2020 and 2021—as the shock of the pandemic depleted public resources—execution rates reached
100.0 percent and 98.3 percent, respectively (Figure 95). Low execution rates are a result of the budget
being overestimated at the beginning of the financial year, as well as mid-year budget cuts. The execution
rates for operational and development spending are both erratic. The execution rate for development
spending is especially low, and while the rate for operational spending is higher, in some years
expenditures have exceeded budgeted levels. The development budget is relatively small but has more
idle funds, with execution rates ranging from 28 to 57 percent between 2012 and 2021.




                                                                                                         124
Figure 95: Annual Budget Execution Rates
                     4,500

                     4,000                                                              72.8%
                                                                              82.9%
                     3,500                                        91.6%                            91.7%
                                                        87.9%                                                       98.3%
                                                                                                           100.0%
                     3,000                   91.8%
                             90.2%
   Millions of NIS




                                     90.7%
                     2,500

                     2,000

                     1,500

                     1,000

                      500

                        -
                             2012     2013   2014       2015       2016        2017         2018    2019    2020    2021

                                                     Approved Budget      Executed Budget

Note: The share of the approved budget that was executed for each year is indicated in the figure.
Source: MOE budget and expenditure data.

A lack of medium-term planning makes it difficult to secure financing for multi-year programs and
projects. The education sector uses annual budgets, which tend to prioritize short-term needs at the
expense of pursuing a long-term vision based on strategic goals. Capital-intensive projects like building
new schools or upgrading infrastructure are more difficult to fund through annual budgets, as they usually
require multi-year commitments. The budget for multi-year projects is recorded in the first year, and the
remaining total is recorded in each subsequent year, making annual budgets misleading. MOE staff are
aware of these issues, yet the same practices are repeated each year.

The budget cycle is not aligned with the academic cycle. The PA’s financial year runs from January to
December, but the school year runs from August to June. As a result, the budget is often depleted before
the large expenditures associated with the start of the school year have been executed. The lack of
synchronicity between budget disbursements and school expenses creates cash-flow issues that hinder
the timely payment of essential expenditures such as utility bills, textbook purchases, and even staff
salaries. As with annual budgeting, the issue of synchronicity is widely acknowledged but remains
unaddressed.

Donor contributions are unpredictable and erratic. There is no consistency in the scale of contributions
made to the education sector, either between years or between donors. As the sector relies on donor
funding, and rigid operational expenditures account for a large share of its budget, volatile contributions
greatly complicate planning and budgeting (Figure 96). Although many contributions from multilateral and
bilateral development partners are channeled through the MOE, they are not always well-utilized and or
properly accounted for, which exacerbates the unpredictability of donor support.




                                                                                                                            125
Figure 96: Selected Annual Donor Contributions to the MOE
                     20
                     18
                     16
                     14
   Millions of NIS




                     12
                     10
                      8
                      6
                      4
                      2
                     -
                          2012        2013    2014   2015   2016   2017         2018      2019       2020      2021      2022

                                 Aqsa Fund                                Arab Bank for Economic Development in Africa
                                 Arab Fund                                Belgian Government
                                 EU                                       German Government
                                 World Bank

Source: Authors’ calculations based on data provided by the MOF.


Recommendations
The PA has numerous opportunities for improving education spending in the West Bank and Gaza. While
the recommendations presented below (Table 23) reflect the state of the education sector before the
current conflict, they have been updated wherever possible based on the latest information. The
recommendations are organized according to the four core themes of this chapter: adequacy, efficiency,
equity, and sound financial management. Recommendations in yellow are particularly relevant in the
context of the ongoing conflict, and an explanation of the importance of each is provided below.




                                                                                                                                126
Table 23: Constraints on effective spending and recommendations
      Theme           Binding Constraint                            Recommendation                               Fiscal Impact        Timeline
                      By international standards, education         Ensure that education financing is           Additional cost      Short term
                      spending is high at about 5 percent of        prioritized and made available in a timely
                      GDP or 16 percent of total government         manner so that teacher salaries are paid on
                      spending, and teacher salaries are            schedule. The source of this financing could
                      relatively generous. However, the             be the PA budget, along with properly
 Adequacy of
                      partial payment of teacher salaries has       aligned and utilized donor contributions.
 Spending
                      repeatedly led to strikes that have
                      disrupted education service delivery.
                      The PA should prioritize civil servants, including teachers, to ensure salary payments are made on time and in full. Continued
                      payments will promote stability in the education system and prevent school closures. Contributions from development
                      partners are particularly necessary at a time when fiscal space is so tightly constrained.
                      Learning assessments partially overlap,       Design and structure the NLSA to             Fiscal savings       Short term
                      and they cannot always be used to track complement the timing, grade levels, and           (after initial cost
 Measurement
                      learning over time.                           subjects being evaluated in international    of redesign)
 of Education
                                                                    standardized tests.
 Performance
                      Revising the design and structure of the NLSA can allow the MOE to focus on key subjects and grade levels, enabling a
                      detailed assessment of the impact of extended school absences on learning.
                      The ESSP’s targets for basic and              More resources are needed in pre-primary Fiscally neutral         Long term
                      secondary education access have been          education and could be mobilized by
 Allocative
                      achieved, but not those for KG or TVET. increasing class sizes in secondary
 Efficiency
                                                                    education via the natural attrition of
                                                                    teachers.
                       National and international assessments Repetition rates in basic and secondary            Fiscal savings (in   Long term
                      indicate that a large share of students       education could be allowed to approach       the long term)
                      are not meeting minimum proficiency           the 5 percent cap established by the MOE.
 Internal
                      levels across various subjects.               This may help reduce heterogeneity in
 Efficiency
                                                                    learning levels within classrooms,
                                                                    promoting better learning and higher
                                                                    Tawjihi pass rates.106

106Notwithstanding changes to the repetition rate, remedial education might be critical to ensure that children are reaching minimum proficiency at their grade level. This would
be an additional fiscal cost.


                                                                                                                                                                            127
                Teacher salaries are dependent on          Personnel policies should be enhanced to       Additional fiscal  Medium term
                education level and years of experience include the professional development of           cost
                only, and promotion is independent of      teachers and sound performance
                performance. Teachers are well             management.
                educated and work long hours.
                Professional development should include training on how to adapt to the new environment and integrate psychosocial
                support into instructional time.
Human
                The MOE aims to grow the teacher           The MOE should assess the potential            Fiscal savings     Long term
Resource
                workforce by 3 percent each year,          impact of teacher attrition on the student- (after initial cost
Management
                which is fiscally unsustainable.           teacher ratio at the basic and secondary       of research)
                                                           levels across localities. A marginal increase
                                                           in the student-teacher ratio would ease
                                                           pressure on the wage bill.
                About one-fifth of education staff are     Decreasing the number of non-teaching          Fiscal savings     Medium term
                not teachers, and the associated           staff could further alleviate fiscal pressure.
                personnel costs inflate the wage bill.
                Girls consistently outperform boys in all Targeted policies and programs are needed Additional fiscal        Medium term
                grades, in all subjects, and in all        to improve learning for boys, including by     cost
                localities.                                increasing boys’ enrolment in secondary
Equity of
                                                           education.
Spending
                Household socioeconomic status is          Invest in education policies and programs      Additional fiscal  Medium term
                positively associated with educational     targeting children from households with        cost
                achievement.                               lower socioeconomic status.
                The ongoing conflict has profoundly altered the socioeconomic status of a huge number of households, and the MOE must
                ensure that students continue attending school and receive specialized assistance that addresses the impact of the crisis,
                including psycho-social support.
                There are inaccuracies in the way that     Systemically improve education                 Fiscally neutral   Medium term
                education expenditures are                 expenditure data to expand coverage and
Strengthening   disaggregated by program, and little is    support better analysis and planning.
Financial       known about the breakdown of               Measures to improve data collection at the
Planning        spending at the governorate level.         governorate level are necessary to better
                                                           understand the needs of district offices and
                                                           target resources accordingly.




                                                                                                                                         128
Budgeting is done on an annual basis,     The budget should incorporate medium-              Fiscally neutral       Short term
hindering multi-year project planning.    term expenditure plans.
Medium-term planning can facilitate the rebuilding, stabilization, and development of the educations sector following the
conflict.
The start of the fiscal year does not     Budget planning and strategic planning             Fiscally neutral       Medium term
align with the start of the school year,  should be aligned in the annual calendar.
and the budget is often depleted before
a school year has begun.
Budget processes are suboptimal, and      Budget processes should reflect strategic          Fiscally neutral       Short term
the MOE does not utilize the budget as    priorities and be informed by lessons
a tool to achieve strategic goals.        learned in previous years.
Teachers’ salaries are sometimes mis-     Salaries should be recorded with accuracy          Fiscally neutral       Short term
recorded, leading to distortions in       under the correct programs where
expenditure data at the program level.    teachers are working.
Donor contributions are erratic and       Donor coordination should be improved to Fiscal savings                   Short term
unpredictable. There is limited           optimize resources, promote coherence,
coordination between development          and avoid duplication. Also, the full
partners, and budgeting is not done       contributions that are made each year
efficiently. Pledged contributions are    should be spent before the end of the fiscal
not always expended by the end of the     year.
fiscal year and do not roll over.
Maximizing contributions and ensuring their effectiveness is especially vital during a crisis, as fiscal space is especially
constrained and there are additional demands on the sector.
The MOE has compounding arrears that A strategy to clear arrears should be                   Fiscally neutral       Medium term
are becoming unsustainably high.          developed.




                                                                                                                              129
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                                                                                                  131
ANNEXES
Annex I. List of public sector entities

Core Civil Service (39)                                Core Civil Service (Cont.)

Court of Judges                                        Prime Minister's Office
Deputy Prime Minister's Office                         Public Prosecution
General Secretariat for the Council of Ministers       Palestinian Legislative Council
General Staff Office                                   Prime Minister's Office
Ministry Of Agriculture                                Public Prosecution
Ministry of Awqaf and Religious Affairs                Supreme Constitutional Court
Ministry of Communications and Information
                                                       Supreme Council for Public Procurement Policies
Technology
Ministry of Culture                                    Supreme Judicial Council
Ministry of Education
                                                       Local Civil Administration (18)
Ministry of Education and Higher Education
Ministry of Finance                                    Bethlehem Governorate
Ministry of Foreign Affairs and Expatriate Affairs     Central Gaza Governorate
Ministry of Health                                     Gaza Governorate
Ministry of Higher Education and Scientific Research   Hebron Governorate
Ministry of Information                                Jenin Governorate
Ministry of Interior                                   Jericho Governorate
Ministry of Interior Affairs                           Jerusalem Governorate
Ministry of Jerusalem Affairs                          Khan Yunis Province
Ministry of Justice                                    Nablus
Ministry of Labor                                      North Gaza Governorate
Ministry of Local Government                           Northern provinces
Ministry of National Economy                           Provinces
Ministry of Planning and Administrative Development    Qalqilya Governorate
Ministry of Public Works and Housing                   Rafah Governorate
Ministry of Social Development                         Ramallah and Al-Bireh Governorate
Ministry of State for Entrepreneurship and
                                                       Salfit Governorate
Empowerment
Ministry of Tourism and Antiquities                    Tubas Province
Ministry of Transportation                             Tulkarm Governorate
Ministry of Women's Affairs
Office of Fatwa and Legislation
Office of Financial and Administrative Oversight
Office of the President
Palestinian Central Bureau of Statistics
Palestinian Legislative Council


                                                                                                         132
Other Public Sector Agencies (36)                       Other Public Sector Agencies (Cont.)

Civil Organizations Affairs Authority                   Supreme Council for Youth and Sports
Cooperative Action Authority                            The General Authority for Crossing and Borders
Dar Al-Hayat for Press, Printing and Publishing         Young Muslim Women
Department of National and International Relations
Department of Refugee Affairs                           Security Sector (9)
Environmental Quality Authority                         General Intelligence
Foundation for the Care of the Families of Martyrs
                                                        Insurance and Pensions Authority
and the Wounded
General Authority for Industrial Cities                 Internal Security
General Civil Affairs Authority                         Martyrs and Captives
Independence Bank for Development and Investment        National Security
Institutions of the Palestine Liberation Organization   Palestinian National Security Forces
Land and Water Settlement Authority                     Prisoners and Martyrs
Land authority                                          Reserve and Retirement
MTF / Commission for Prisoners and Ex-Prisoners
                                                        Security Forces
Affairs
National Committee for Education, Culture and
Science
National Committee for Summer Camps
National Political Guidance Commission
Negotiations Affairs Department
Palestinian Agricultural Credit Corporation
Palestinian Agricultural Risk and Insurance Fund
Palestinian Dar Al Ifta
Palestinian Energy and Natural Resources Authority
Palestinian Investment Promotion Authority
Palestinian Judicial Institute
Palestinian National Council
Palestinian National Fund
Palestinian National School of Administration
Palestinian News and Information Agency - Wafa
Palestinian Radio and Television Corporation
Palestinian Retirement Authority
Palestinian Water Authority
Settlement and Wall Resistance Authority
Standards and Metrology Institution




                                                                                                         133
Annex II. Pay scales in the public sector
                                                Civil Service Pay Scale (in NIS) - Established 2005, 101,313 employees in 2021
                                                               Category 3
                                  Category 4                                                                                     Category 1                   Higher category
                        Category 5                                                  Category 2
 Step    10      9          8         7         6       5          4         3          2         1       D2      D1      C          B         A       A4      A3        A2      A1
  0     1,250   1,330     1,410      1,490     1,570   1,700     1,830      1,960     2,090      2,220   2,340   2,460   2,470     2,720      2,970   3,220   3,470    3,720    4,020
  1     1,266   1,347     1,428      1,509     1,590   1,721     1,853      1,985     2,116      2,248   2,369   2,491   2,501     2,754      3,007   3,260   3,513    3,767    4,070
  2     1,281   1,363     1,445      1,527     1,610   1,743     1,876      2,009     2,143      2,276   2,399   2,522   2,532     2,788      3,045   3,301   3,557    3,814    4,121
  3     1,297   1,381     1,464      1,547     1,630   1,765     1,899      2,034     2,169      2,304   2,429   2,553   2,564     2,823      3,083   3,342   3,602    3,861    4,173
  4     1,314   1,398     1,482      1,566     1,650   1,787     1,923      2,060     2,196      2,333   2,459   2,585   2,596     2,859      3,121   3,384   3,647    3,910    4,225
  5     1,330   1,415     1,500      1,585     1,671   1,809     1,947      2,086     2,224      2,362   2,490   2,618   2,628     2,894      3,160   3,426   3,692    3,958    4,278
  6     1,347   1,433     1,519      1,605     1,691   1,832     1,972      2,112     2,252      2,392   2,521   2,650   2,661     2,930      3,200   3,469   3,739    4,008    4,331
  7     1,364   1,451     1,538      1,625     1,713   1,854     1,996      2,138     2,280      2,422   2,553   2,683   2,694     2,967      3,240   3,513   3,785    4,058    4,385
  8     1,381   1,469     1,557      1,646     1,734   1,878     2,021      2,165     2,308      2,452   2,585   2,717   2,728     3,004      3,280   3,556   3,833    4,109    4,440
  9     1,398   1,487     1,577      1,666     1,756   1,901     2,046      2,192     2,337      2,483   2,617   2,751   2,762     3,042      3,321   3,601   3,880    4,160    4,496
 10     1,415   1,506     1,597      1,687     1,778   1,925     2,072      2,219     2,366      2,514   2,650   2,785   2,797     3,080      3,363   3,646   3,929    4,212    4,552
 11     1,433   1,525     1,616      1,708     1,800   1,949     2,098      2,247     2,396      2,545   2,683   2,820   2,832     3,118      3,405   3,691   3,978    4,265    4,609
 12     1,451   1,544     1,637      1,730     1,822   1,973     2,124      2,275     2,426      2,577   2,716   2,855   2,867     3,157      3,447   3,738   4,028    4,318    4,666
 13     1,469   1,563     1,657      1,751     1,845   1,998     2,151      2,304     2,456      2,609   2,750   2,891   2,903     3,197      3,491   3,784   4,078    4,372    4,725
 14     1,487   1,583     1,678      1,773     1,868   2,023     2,178      2,332     2,487      2,642   2,785   2,927   2,939     3,237      3,534   3,832   4,129    4,427    4,784
 15     1,506   1,602     1,699      1,795     1,892   2,048     2,205      2,361     2,518      2,675   2,819   2,964   2,976     3,277      3,578   3,880   4,181    4,482    4,843
 16     1,525   1,622     1,720      1,818     1,915   2,074     2,232      2,391     2,550      2,708   2,855   3,001   3,013     3,318      3,623   3,928   4,233    4,538    4,904
 17     1,544   1,643     1,742      1,840     1,939   2,100     2,260      2,421     2,581      2,742   2,890   3,038   3,051     3,360      3,668   3,977   4,286    4,595    4,965
 18     1,563   1,663     1,763      1,863     1,963   2,126     2,289      2,451     2,614      2,776   2,926   3,076   3,089     3,402      3,714   4,027   4,340    4,652    5,027
 19     1,583   1,684     1,785      1,887     1,988   2,153     2,317      2,482     2,646      2,811   2,963   3,115   3,128     3,444      3,761   4,077   4,394    4,710    5,090
 20     1,603   1,705     1,808      1,910     2,013   2,179     2,346      2,513     2,679      2,846   3,000   3,154   3,167     3,487      3,808   4,128   4,449    4,769    5,154
 21     1,623   1,726     1,830      1,934     2,038   2,207     2,375      2,544     2,713      2,882   3,037   3,193   3,206     3,531      3,855   4,180   4,504    4,829    5,218
 22     1,643   1,748     1,853      1,958     2,063   2,234     2,405      2,576     2,747      2,918   3,075   3,233   3,246     3,575      3,903   4,232   4,561    4,889    5,283
 23     1,663   1,770     1,876      1,983     2,089   2,262     2,435      2,608     2,781      2,954   3,114   3,274   3,287     3,620      3,952   4,285   4,618    4,950    5,350
 24     1,684   1,792     1,900      2,008     2,115   2,290     2,466      2,641     2,816      2,991   3,153   3,314   3,328     3,665      4,002   4,338   4,675    5,012    5,416
 25     1,705   1,814     1,924      2,033     2,142   2,319     2,496      2,674     2,851      3,028   3,192   3,356   3,370     3,711      4,052   4,393   4,734    5,075    5,484
 26     1,727   1,837     1,948      2,058     2,169   2,348     2,528      2,707     2,887      3,066   3,232   3,398   3,412     3,757      4,102   4,448   4,793    5,138    5,553
 27     1,748   1,860     1,972      2,084     2,196   2,377     2,559      2,741     2,923      3,105   3,273   3,440   3,454     3,804      4,154   4,503   4,853    5,202    5,622
 28     1,770   1,883     1,997      2,110     2,223   2,407     2,591      2,775     2,959      3,143   3,313   3,483   3,498     3,852      4,206   4,559   4,913    5,267    5,692
 29     1,792   1,907     2,022      2,136     2,251   2,437     2,624      2,810     2,996      3,183   3,355   3,527   3,541     3,900      4,258   4,616   4,975    5,333    5,763
 30     1,815   1,931     2,047      2,163     2,279   2,468     2,656      2,845     3,034      3,223   3,397   3,571   3,586     3,948      4,311   4,674   5,037    5,400    5,836
 31     1,837   1,955     2,072      2,190     2,308   2,499     2,690      2,881     3,072      3,263   3,439   3,616   3,630     3,998      4,365   4,733   5,100    5,467    5,908
 32     1,860   1,979     2,098      2,217     2,336   2,530     2,723      2,917     3,110      3,304   3,482   3,661   3,676     4,048      4,420   4,792   5,164    5,536    5,982
 33     1,883   2,004     2,125      2,245     2,366   2,561     2,757      2,953     3,149      3,345   3,526   3,707   3,722     4,098      4,475   4,852   5,228    5,605    6,057
 34     1,907   2,029     2,151      2,273     2,395   2,593     2,792      2,990     3,188      3,387   3,570   3,753   3,768     4,150      4,531   4,912   5,294    5,675    6,133
 35     1,931   2,054     2,178      2,302     2,425   2,626     2,827      3,028     3,228      3,429   3,614   3,800   3,815     4,201      4,588   4,974   5,360    5,746    6,209
 36     1,955   2,080     2,205      2,330     2,455   2,659     2,862      3,065     3,269      3,472   3,660   3,847   3,863     4,254      4,645   5,036   5,427    5,818    6,287
 37     1,979   2,106     2,233      2,359     2,486   2,692     2,898      3,104     3,310      3,515   3,705   3,895   3,911     4,307      4,703   5,099   5,495    5,891    6,366
 38     2,004   2,132     2,261      2,389     2,517   2,726     2,934      3,142     3,351      3,559   3,752   3,944   3,960     4,361      4,762   5,163   5,563    5,964    6,445
 39     2,029   2,159     2,289      2,419     2,549   2,760     2,971      3,182     3,393      3,604   3,799   3,993   4,010     4,415      4,821   5,227   5,633    6,039    6,526
 40     2,054   2,186     2,318      2,449     2,580   2,794     3,008      3,222     3,435      3,649   3,846   4,043   4,060     4,471      4,882   5,292   5,703    6,114    6,607




                                                                                                                                                                                134
                                                                             Diplomatic Corps Pay Scale (in NIS) - Established in 2007, 325 employees in 2021
                Ambassador                       Senior Adviser                        Adviser                        First Secretary                   Second Secretary                   Third Secretary                      Attaché
Step   Basic   Nature of work    Total   Basic   Nature of work    Total    Basic   Nature of work    Total   Basic   Nature of work    Total   Basic   Nature of work     Total   Basic   Nature of work    Total   Basic   Nature of work   Total
0      5,940        85          6,025    4,620        80           4,700    4,180        72           4,252   3,740        61           3,801   3,432        57            3,489   3,080        57           3,137   2,728        43          2,771
1      5,940       5,049        10,989   4,620       3,696         8,316    4,180       3,010         7,190   3,740       2,281         6,021   3,432       1,956          5,388   3,080       1,756         4,836   2,728       1,173        3,901
2      6,014       5,112        11,126   4,678       3,742         8,420    4,232       3,047         7,279   3,787       2,310         6,097   3,475       1,981          5,456   3,119       1,778         4,897   2,762       1,188        3,950
3      6,089       5,176        11,265   4,736       3,789         8,525    4,285       3,085         7,370   3,834       2,339         6,173   3,518       2,005          5,523   3,157       1,800         4,957   2,797       1,203        4,000
4      6,166       5,241        11,407   4,795       3,836         8,631    4,339       3,124         7,463   3,882       2,368         6,250   3,562       2,031          5,593   3,197       1,822         5,019   2,832       1,218        4,050
5      6,243       5,306        11,549   4,855       3,884         8,739    4,393       3,163         7,556   3,931       2,398         6,329   3,607       2,056          5,663   3,237       1,845         5,082   2,867       1,233        4,100
6      6,321       5,373        11,694   4,916       3,933         8,849    4,448       3,202         7,650   3,980       2,428         6,408   3,652       2,082          5,734   3,277       1,868         5,145   2,903       1,248        4,151
7      6,400       5,440        11,840   4,978       3,982         8,960    4,503       3,242         7,745   4,029       2,458         6,487   3,698       2,108          5,806   3,318       1,891         5,209   2,939       1,264        4,203
8      6,480       5,508        11,988   5,040       4,032         9,072    4,560       3,283         7,843   4,080       2,489         6,569   3,744       2,134          5,878   3,360       1,915         5,275   2,976       1,280        4,256
9      6,561       5,577        12,138   5,103       4,082         9,185    4,617       3,324         7,941   4,131       2,520         6,651   3,791       2,161          5,952   3,402       1,939         5,341   3,013       1,296        4,309
10     6,643       5,646        12,289   5,167       4,133         9,300   4,674        3,366         8,040   4,182       2,551         6,733   3,838       2,188          6,026   3,444       1,963         5,407   3,051       1,312        4,363
11     6,726       5,717        12,443   5,231       4,185         9,416    4,733       3,408         8,141   4,235       2,583         6,818   3,886       2,215          6,101   3,487       1,988         5,475   3,089       1,328        4,417
12     6,810       5,788        12,598   5,296       4,237         9,533    4,792       3,450         8,242   4,288       2,615         6,903   3,935       2,243          6,178   3,531       2,013         5,544   3,127       1,345        4,472
13     6,895       5,861        12,756   5,363       4,290         9,653    4,852       3,493         8,345   4,341       2,648         6,989   3,984       2,271          6,255   3,575       2,038         5,613   3,167       1,362        4,529
14     6,981       5,934        12,915   5,430       4,344         9,774    4,913       3,537         8,450   4,396       2,681         7,077   4,034       2,299          6,333   3,620       2,063         5,683   3,206       1,379        4,585
15     7,068       6,008        13,076   5,498       4,398         9,896    4,974       3,581         8,555   4,450       2,715         7,165   4,084       2,328          6,412   3,665       2,089         5,754   3,246       1,396        4,642
16     7,157       6,083        13,240   5,566       4,453        10,019    5,036       3,626         8,662   4,506       2,749         7,255   4,135       2,357          6,492   3,711       2,115         5,826   3,287       1,413        4,700
17     7,246       6,159        13,405   5,636       4,509        10,145    5,099       3,671         8,770   4,562       2,783         7,345   4,187       2,386          6,573   3,757       2,142         5,899   3,328       1,431        4,759
18     7,337       6,236        13,573   5,706       4,565        10,271    5,163       3,717         8,880   4,619       2,818         7,437   4,239       2,416          6,655   3,804       2,168         5,972   3,369       1,449        4,818
19     7,428       6,314        13,742   5,778       4,622        10,400    5,227       3,764         8,991   4,677       2,853         7,530   4,292       2,446          6,738   3,852       2,196         6,048   3,412       1,467        4,879
20     7,521       6,393        13,914   5,850       4,680        10,530    5,293       3,811         9,104   4,736       2,889         7,625   4,346       2,477          6,823   3,900       2,223         6,123   3,454       1,485        4,939
21     7,615       6,473        14,088   5,923       4,738        10,661    5,359       3,858         9,217   4,795       2,925         7,720   4,400       2,508          6,908   3,949       2,251         6,200   3,497       1,504        5,001
22     7,711       6,554        14,265   5,997       4,798        10,795    5,426       3,907         9,333   4,855       2,961         7,816   4,455       2,539          6,994   3,998       2,279         6,277   3,541       1,523        5,064
23     7,807       6,636        14,443   6,072       4,858        10,930    5,494       3,955         9,449   4,915       2,998         7,913   4,511       2,571          7,082   4,048       2,307         6,355   3,585       1,542        5,127
24     7,904       6,719        14,623   6,148       4,918        11,066    5,562       4,005         9,567   4,977       3,036         8,013   4,567       2,603          7,170   4,099       2,336         6,435   3,630       1,561        5,191
25     8,003       6,803        14,806   6,225       4,980        11,205    5,632       4,055         9,687   5,039       3,074         8,113   4,624       2,636          7,260   4,150       2,365         6,515   3,676       1,580        5,256
26     8,103       6,888        14,991   6,303       5,042        11,345    5,702       4,106         9,808   5,102       3,112         8,214   4,682       2,669          7,351   4,202       2,395         6,597   3,722       1,600        5,322
27     8,205       6,974        15,179   6,381       5,105        11,486    5,774       4,157         9,931   5,166       3,151         8,317   4,740       2,702          7,442   4,254       2,425         6,679   3,768       1,620        5,388
28     8,307       7,061        15,368   6,461       5,169        11,630    5,846       4,209        10,055   5,230       3,191         8,421   4,800       2,736          7,536   4,307       2,455         6,762   3,815       1,641        5,456
29     8,411       7,149        15,560   6,542       5,233        11,775    5,919       4,262        10,181   5,296       3,230         8,526   4,860       2,770          7,630   4,361       2,486         6,847   3,863       1,661        5,524
30     8,516       7,239        15,755   6,624       5,299        11,923    5,993       4,315        10,308   5,362       3,271         8,633   4,920       2,805          7,725   4,416       2,517         6,933   3,911       1,682        5,593
31     8,623       7,329        15,952   6,706       5,365        12,071    6,068       4,369        10,437   5,429       3,312         8,741   4,982       2,840          7,822   4,471       2,548         7,019   3,960       1,703        5,663
32     8,730       7,421        16,151   6,790       5,432        12,222    6,144       4,423        10,567   5,497       3,353         8,850   5,044       2,875          7,919   4,527       2,580         7,107   4,010       1,724        5,734
33     8,840       7,514        16,354   6,875       5,500        12,375    6,220       4,479        10,699   5,566       3,395         8,961   5,107       2,911          8,018   4,583       2,613         7,196   4,060       1,746        5,806
34     8,950       7,608        16,558   6,961       5,569        12,530    6,298       4,535        10,833   5,635       3,437         9,072   5,171       2,948          8,119   4,641       2,645         7,286   4,110       1,767        5,877
35     9,062       7,703        16,765   7,048       5,638        12,686    6,377       4,591        10,968   5,706       3,480         9,186   5,236       2,984          8,220   4,699       2,678         7,377   4,162       1,790        5,952
36     9,175       7,799        16,974   7,136       5,709        12,845    6,457       4,649        11,106   5,777       3,524         9,301   5,301       3,022          8,323   4,757       2,712         7,469   4,214       1,812        6,026
37     9,290       7,896        17,186   7,225       5,780        13,005    6,537       4,707        11,244   5,849       3,568         9,417   5,367       3,059          8,426   4,817       2,746         7,563   4,266       1,835        6,101
38     9,406       7,995        17,401   7,316       5,853        13,169    6,619       4,766        11,385   5,922       3,613         9,535   5,435       3,098          8,533   4,877       2,780         7,657   4,320       1,858        6,178
39     9,524       8,095        17,619   7,407       5,926        13,333    6,702       4,825        11,527   5,996       3,658         9,654   5,503       3,136          8,639   4,938       2,815         7,753   4,374       1,881        6,255
40     9,643       8,196        17,839   7,500       6,000        13,500    6,786       4,886        11,672   6,071       3,703         9,774   5,571       3,176          8,747   5,000       2,850         7,850   4,428       1,904        6,332
41     9,763       8,299        18,062   7,594       6,075        13,669    6,870       4,947        11,817   6,147       3,750         9,897   5,641       3,215          8,856   5,062       2,886         7,948   4,484       1,928        6,412




                                                                                                                                                                                                                                              135
                                                              Judicial Staff Pay Scale (in NIS) - Established in 2003, 531 employees in 2021
                            Assistant Prosecutors    Chief    Magistrates Judges of the    Presidents of    Judges of the   Presidents of   Supreme      Supreme   Vice-Presidents   Vice-Presidents President of the
                              Public              Prosecutors   Court     First Instance    the Court of      Courts of     the Courts of Court Judges     Court   of the Supreme    of the Supreme Supreme Court
                           Prosecutors                         Judges                      First Instance      Appeal          Appeal                     Judges        Court             Court
         Grade                 11         10           9          8              7                6              5                4             3           3              2                 2              1
       Job code              1,040        1,021       1,038        1,017       1,022           1,023           1,024           1,037         1,019        1,025        1,041             1,036            1,008
     Nature of work             0         1,125       1,260        1,260       1,440           1,440           1,710           1,710         2,070        2,070        2,070             2,070            2,250
Representation allowance        0          279         630            0           0             792               0            1,282           0            0          1,656             1,656            2,250
   Annual increment           108          117         126          126         144             144             171             171           207          207          207               207              225
          Step               Basic        Basic       Basic        Basic       Basic           Basic           Basic           Basic         Basic        Basic        Basic             Basic            Basic
            0                5,400        5,625       6,300        6,300       7,200          7,200            8,550          8,550         10,350       10,350       10,350            10,350           11,250
            1                5,508        5,742       6,426        6,426       7,344          7,344            8,721          8,721         10,557       10,557       10,557            10,557           11,475
            2                5,616        5,859       6,552        6,552       7,488          7,488            8,892          8,892         10,764       10,764       10,764            10,764           11,700
            3                5,724        5,976       6,678        6,678       7,632          7,632            9,063          9,063         10,971       10,971       10,971            10,971           11,925
            4                5,832        6,093       6,804        6,804       7,776          7,776            9,234          9,234         11,178       11,178       11,178            11,178           12,150
            5                5,940        6,210       6,930        6,930       7,920          7,920            9,405          9,405         11,385       11,385       11,385            11,385           12,375
            6                6,048        6,327       7,056        7,056       8,064          8,064            9,576          9,576         11,592       11,592       11,592            11,592           12,600
            7                6,156        6,444       7,182        7,182       8,208          8,208            9,747          9,747         11,799       11,799       11,799            11,799           12,825
            8                6,264        6,561       7,308        7,308       8,352          8,352            9,918          9,918         12,006       12,006       12,006            12,006           13,050
            9                6,372        6,678       7,434        7,434       8,496          8,496           10,089          10,089        12,213       12,213       12,213            12,213           13,275
           10                6,480        6,795       7,560        7,560       8,640          8,640           10,260          10,260        12,420       12,420       12,420            12,420           13,500
           11                6,588        6,912       7,686        7,686       8,784          8,784           10,431          10,431        12,627       12,627       12,627            12,627           13,725
           12                6,696        7,029       7,812        7,812       8,928          8,928           10,602          10,602        12,834       12,834       12,834            12,834           13,950
           13                6,804        7,146       7,938        7,938       9,072          9,072           10,773          10,773        13,041       13,041       13,041            13,041           14,175
           14                6,912        7,263       8,064        8,064       9,216          9,216           10,944          10,944        13,248       13,248       13,248            13,248           14,400
           15                7,020        7,380       8,190        8,190       9,360          9,360           11,115          11,115        13,455       13,455       13,455            13,455           14,625
           16                7,128        7,497       8,316        8,316       9,504          9,504           11,286          11,286        13,662       13,662       13,662            13,662           14,850
           17                7,236        7,614       8,442        8,442       9,648          9,648           11,457          11,457        13,869       13,869       13,869            13,869           15,075
           18                7,344        7,731       8,568        8,568       9,792          9,792           11,628          11,628        14,076       14,076       14,076            14,076           15,300
           19                7,452        7,848       8,694        8,694       9,936          9,936           11,799          11,799        14,283       14,283       14,283            14,283           15,525
           20                7,560        7,965       8,820        8,820      10,080          10,080          11,970          11,970        14,490       14,490       14,490            14,490           15,750
           21                7,668        8,082       8,946        8,946      10,224          10,224          12,141          12,141        14,697       14,697       14,697            14,697           15,975
           22                7,776        8,199       9,072        9,072      10,368          10,368          12,312          12,312        14,904       14,904       14,904            14,904           16,200
           23                7,884        8,316       9,198        9,198      10,512          10,512          12,483          12,483        15,111       15,111       15,111            15,111           16,425
           24                7,992        8,433       9,324        9,324      10,656          10,656          12,654          12,654        15,318       15,318       15,318            15,318           16,650
           25                8,100        8,550       9,450        9,450      10,800          10,800          12,825          12,825        15,525       15,525       15,525            15,525           16,875
           26                8,208        8,667       9,576        9,576      10,944          10,944          12,996          12,996        15,732       15,732       15,732            15,732           17,100
           27                8,316        8,784       9,702        9,702      11,088          11,088          13,167          13,167        15,939       15,939       15,939            15,939           17,325
           28                8,424        8,901       9,828        9,828      11,232          11,232          13,338          13,338        16,146       16,146       16,146            16,146           17,550
           29                8,532        9,018       9,954        9,954      11,376          11,376          13,509          13,509        16,353       16,353       16,353            16,353           17,775
           30                8,640        9,135      10,080       10,080      11,520          11,520          13,680          13,680        16,560       16,560       16,560            16,560           18,000
           31                8,748        9,252      10,206       10,206      11,664          11,664          13,851          13,851        16,767       16,767       16,767            16,767           18,225
           32                8,856        9,369      10,332       10,332      11,808          11,808          14,022          14,022        16,974       16,974       16,974            16,974           18,450
           33                8,964        9,486      10,458       10,458      11,952          11,952          14,193          14,193        17,181       17,181       17,181            17,181           18,675
           34                9,072        9,603      10,584       10,584      12,096          12,096          14,364          14,364        17,388       17,388       17,388            17,388           18,900
           35                9,180        9,720      10,710       10,710      12,240          12,240          14,535          14,535        17,595       17,595       17,595            17,595           19,125
           36                9,288        9,837      10,836       10,836      12,384          12,384          14,706          14,706        17,802       17,802       17,802            17,802           19,350
           37                9,396        9,954      10,962       10,962      12,528          12,528          14,877          14,877        18,009       18,009       18,009            18,009           19,575
           38                9,504       10,071      11,088       11,088      12,672          12,672          15,048          15,048        18,216       18,216       18,216            18,216           19,800
           39                9,612       10,188      11,214       11,214      12,816          12,816          15,219          15,219        18,423       18,423       18,423            18,423           20,025
           40                9,720       10,305      11,340       11,340      12,960          12,960          15,390          15,390        18,630       18,630       18,630            18,630           20,250




                                                                                                                                                                                                             136
                                                             Security Sector Pay Scale (in NIS) - Established in 2007, 53,445 employees in 2021

Step   Lance Corporal Corporal Sergeant Sergeant Major Warrant Officer Staff Warrant Officer Lieutenant First Lieutenant Captain Major   Lieutenant Colonel   Colonel Brigadier General   Major General   Lieutenant General

 0        1,330        1,410    1,490        1,570          1,700             1,830           1,960        2,090        2,290   2,570          2,820          3,320         3,620            4,020              4,420
 1        1,347        1,428    1,509        1,590          1,721             1,853           1,985        2,116        2,319   2,602          2,855          3,362         3,665            4,070              4,475
 2        1,363        1,445    1,527        1,610          1,743             1,876           2,009        2,143        2,348   2,635          2,891          3,404         3,711            4,121              4,531
 3        1,381        1,464    1,547        1,630          1,765             1,899           2,034        2,169        2,377   2,668          2,927          3,446         3,757            4,173              4,588
 4        1,398        1,482    1,566        1,650          1,787             1,923           2,060        2,196        2,407   2,701          2,964          3,489         3,804            4,225              4,645
 5        1,415        1,500    1,585        1,671          1,809             1,947           2,086        2,224        2,437   2,735          3,001          3,533         3,852            4,278              4,703
 6        1,433        1,519    1,605        1,691          1,832             1,972           2,112        2,252        2,467   2,769          3,038          3,577         3,900            4,331              4,762
 7        1,451        1,538    1,625        1,713          1,854             1,996           2,138        2,280        2,498   2,803          3,076          3,622         3,949            4,385              4,822
 8        1,469        1,557    1,646        1,734          1,878             2,021           2,165        2,308        2,529   2,839          3,115          3,667         3,998            4,440              4,882
 9        1,487        1,577    1,666        1,756          1,901             2,046           2,192        2,337        2,561   2,874          3,154          3,713         4,048            4,496              4,943
10        1,506        1,597    1,687        1,778          1,925             2,072           2,219        2,366        2,593   2,910          3,193          3,759         4,099            4,552              5,005
11        1,525        1,616    1,708        1,800          1,949             2,098           2,247        2,396        2,625   2,946          3,233          3,806         4,150            4,609              5,067
12        1,544        1,637    1,730        1,822          1,973             2,124           2,275        2,426        2,658   2,983          3,273          3,854         4,202            4,666              5,131
13        1,563        1,657    1,751        1,845          1,998             2,151           2,304        2,456        2,691   3,020          3,314          3,902         4,254            4,725              5,195
14        1,583        1,678    1,773        1,868          2,023             2,178           2,332        2,487        2,725   3,058          3,356          3,951         4,308            4,784              5,260
15        1,602        1,699    1,795        1,892          2,048             2,205           2,361        2,518        2,759   3,096          3,398          4,000         4,362            4,843              5,325
16        1,622        1,720    1,818        1,915          2,074             2,232           2,391        2,550        2,794   3,135          3,440          4,050         4,416            4,904              5,392
17        1,643        1,742    1,840        1,939          2,100             2,260           2,421        2,581        2,828   3,174          3,483          4,101         4,471            4,965              5,459
18        1,663        1,763    1,863        1,963          2,126             2,289           2,451        2,614        2,864   3,214          3,527          4,152         4,527            5,027              5,528
19        1,684        1,785    1,887        1,988          2,153             2,317           2,482        2,646        2,900   3,254          3,571          4,204         4,584            5,090              5,597
20        1,705        1,808    1,910        2,013          2,179             2,346           2,513        2,679        2,936   3,295          3,615          4,256         4,641            5,154              5,667
21        1,726        1,830    1,934        2,038          2,207             2,375           2,544        2,713        2,973   3,336          3,661          4,310         4,699            5,218              5,737
22        1,748        1,853    1,958        2,063          2,234             2,405           2,576        2,747        3,010   3,378          3,706          4,363         4,758            5,283              5,809
23        1,770        1,876    1,983        2,089          2,262             2,435           2,608        2,781        3,047   3,420          3,753          4,418         4,817            5,350              5,882
24        1,792        1,900    2,008        2,115          2,290             2,466           2,641        2,816        3,085   3,463          3,800          4,473         4,877            5,416              5,955
25        1,814        1,924    2,033        2,142          2,319             2,496           2,674        2,851        3,124   3,506          3,847          4,529         4,938            5,484              6,030
26        1,837        1,948    2,058        2,169          2,348             2,528           2,707        2,887        3,163   3,550          3,895          4,586         5,000            5,553              6,105
27        1,860        1,972    2,084        2,196          2,377             2,559           2,741        2,923        3,203   3,594          3,944          4,643         5,063            5,622              6,181
28        1,883        1,997    2,110        2,223          2,407             2,591           2,775        2,959        3,243   3,639          3,993          4,701         5,126            5,692              6,259
29        1,907        2,022    2,136        2,251          2,437             2,624           2,810        2,996        3,283   3,685          4,043          4,760         5,190            5,763              6,337
30        1,931        2,047    2,163        2,279          2,468             2,656           2,845        3,034        3,324   3,731          4,094          4,819         5,255            5,836              6,416
31        1,955        2,072    2,190        2,308          2,499             2,690           2,881        3,072        3,366   3,777          4,145          4,880         5,321            5,908              6,496
32        1,979        2,098    2,217        2,336          2,530             2,723           2,917        3,110        3,408   3,825          4,197          4,941         5,387            5,982              6,578
33        2,004        2,125    2,245        2,366          2,561             2,757           2,953        3,149        3,450   3,872          4,249          5,002         5,454            6,057              6,660
34        2,029        2,151    2,273        2,395          2,593             2,792           2,990        3,188        3,494   3,921          4,302          5,065         5,523            6,133              6,743
35        2,054        2,178    2,302        2,425          2,626             2,827           3,028        3,228        3,537   3,970          4,356          5,128         5,592            6,209              6,827
36        2,080        2,205    2,330        2,455          2,659             2,862           3,065        3,269        3,581   4,019          4,410          5,192         5,662            6,287              6,913
37        2,106        2,233    2,359        2,486          2,692             2,898           3,104        3,310        3,626   4,070          4,465          5,257         5,732            6,366              6,999
38        2,132        2,261    2,389        2,517          2,726             2,934           3,142        3,351        3,672   4,120          4,521          5,323         5,804            6,445              7,087
39        2,159        2,289    2,419        2,549          2,760             2,971           3,182        3,393        3,717   4,172          4,578          5,389         5,876            6,526              7,175
40        2,186        2,318    2,449        2,580          2,794             3,008           3,222        3,435        3,764   4,224          4,635          5,457         5,950            6,607              7,265
41        2,213        2,346    2,480        2,613          2,829             3,045           3,262        3,478        3,811   4,277          4,693          5,525         6,024            6,690              7,356
42        2,241        2,376    2,511        2,645          2,864             3,083           3,303        3,522        3,859   4,330          4,752          5,594         6,100            6,774              7,448
43        2,269        2,406    2,542        2,678          2,900             3,122           3,344        3,566        3,907   4,385          4,811          5,664         6,176            6,858              7,541
44        2,297        2,436    2,574        2,712          2,936             3,161           3,386        3,610        3,956   4,439          4,871          5,735         6,253            6,944              7,635
45        2,326        2,466    2,606        2,746          2,973             3,201           3,428        3,655        4,005   4,495          4,932          5,806         6,331            7,031              7,730




                                                                                                                                                                                                                     137
Annex III. Wage premium tables
                      Table 1: Oaxaca decomposition of the difference in mean wages between public and private sectors
                                                                               West Bank                       Gaza Strip
                                                                                                                       Coefficient Std. Err.                 P>z         Coefficient            Std. Err.           P>z
Panel A. Decomposition of mean hourly wages
   Average hourly wages in the public sector                                                                             15.729              0.161         0.000           14.889                0.219            0.000
   Average hourly wages in the private sector                                                                            12.670              0.098         0.000            3.564                0.053            0.000
   Difference in hourly wage                                                                                              1.241              0.016         0.000            4.178                0.087            0.000
   …due to differences in endowments (explained)                                                                          1.259              0.015         0.000            1.581                0.033            0.000
   …due to differences in returns to those endowments (unexplained)                                                       0.986              0.015         0.336            2.642                0.067            0.000
Panel B. Explained portion of the wage gap
   Education                                                                                                              1.176              0.010         0.000             1.206               0.017            0.000
   Experience                                                                                                             1.094              0.011         0.000             1.213               0.028            0.000
   Experience squared                                                                                                     0.970              0.006         0.000             0.902               0.015            0.000
   Male                                                                                                                   0.982              0.003         0.000             0.995               0.004            0.174
   Married                                                                                                                1.033              0.005         0.000             1.007               0.004            0.109
   Locality Type                                                                                                          0.995              0.002         0.001             0.999               0.001            0.497
   Occupation                                                                                                             1.000              0.013         0.986             1.197               0.022            0.000
Panel C. Unexplained portion of the wage gap
   Education                                                                                                              1.249            0.181           0.125             1.076             0.148              0.594
   Experience                                                                                                             1.049            0.083           0.551             1.909             0.255              0.000
   Experience squared                                                                                                     1.104            0.048           0.025             0.706             0.053              0.000
   Male                                                                                                                   0.728            0.016           0.000             0.786             0.046              0.000
   Married                                                                                                                0.957            0.020           0.039             1.042             0.049              0.388
   Locality Type                                                                                                          0.950            0.014           0.001             0.950             0.035              0.164
   Occupation                                                                                                             0.887            0.030           0.000             1.037             0.065              0.558
Constant                                                                                                                  1.164            0.175           0.311             2.260             0.389              0.000
Observations                                                                                                                             7,769                                               3,177
Source: World Bank calculations using Palestinian Labor Force Surveys (PLFS) of the Palestinian Central Bureau of Statistics (PCBS).
Note: The dependent variable in the wage equations is the logarithm of hourly wage; and the independent variables are experience, experience
squared, male, marital status, urban/camp area, a set of occupational dummies, and a sector dummy variable (that takes on the value 1 if the
worker is employed in public sector, and 0 if employed in the private sector). The symbols *,**, *** represent statistical significance at the 10, 5,
and 1 percent levels.




                                                            Table 2. Decomposition of the public-private earnings gap at selected quantiles
                                                   West Bank                                                                                                    Gaza Strip
           Difference in hourly wage                 Explained                   Unexplained                Difference in hourly wage                              Explained                         Unexplained
           Coefficient Std. Err. P>z Coefficient Std. Err. P>z Coefficient                   Std. Err.       P>z        Coefficient Std. Err. P>z Coefficient            Std. Err.    P>z Coefficient Std. Err. P>z
Mean         1.241      0.016 0.000    1.259      0.015 0.000 0.986                           0.015         0.336         4.178      0.087 0.000 1.581                    0.033      0.000 2.642       0.067 0.000
     th
  10          2.038        0.035    0.000       1.022       0.008     0.006      1.994        0.037         0.000          5.514        0.212    0.000      1.777         0.063      0.000      3.102       0.141     0.000
    th
  20          1.070        0.017    0.000       1.041       0.012     0.000      1.028        0.020         0.147          7.300        0.305    0.000      2.043         0.082      0.000      3.573       0.183     0.000
  30th        0.896        0.015    0.000       1.099       0.015     0.000      0.816        0.016         0.000          4.724        0.150    0.000      1.745         0.054      0.000      2.708       0.111     0.000
  40th        0.979        0.015    0.183       1.113       0.014     0.000      0.880        0.016         0.000          2.994        0.070    0.000      1.497         0.033      0.000      2.000       0.061     0.000
  50th        1.007        0.014    0.598       1.097       0.014     0.000      0.918        0.015         0.000          2.422        0.050    0.000      1.381         0.027      0.000      1.755       0.047     0.000
     th
  60          0.875        0.012    0.000       1.100       0.015     0.000      0.796        0.014         0.000          1.943        0.040    0.000      1.333         0.026      0.000      1.457       0.039     0.000
    th
  70          0.716        0.010    0.000       1.091       0.018     0.000      0.656        0.013         0.000          1.589        0.035    0.000      1.310         0.028      0.000      1.213       0.035     0.000
  80th        0.403        0.007    0.000       0.981       0.024     0.436      0.410        0.012         0.000          1.012        0.029    0.681      1.294         0.038      0.000      0.782       0.031     0.000
  90th        0.315        0.007    0.000       0.866       0.025     0.000      0.363        0.013         0.000          0.905        0.033    0.006      1.302         0.045      0.000      0.695       0.033     0.000
Source: World Bank calculations using Palestinian Labor Force Surveys (PLFS) of the Palestinian Central Bureau of Statistics (PCBS).
Note: The dependent variable in the wage equations is the logarithm of hourly wage; and the independent variables are experience, experience squared, male, marital status, urban/camp area, a set of
occupational dummies, and a sector dummy variable (that takes on the value 1 if the worker is employed in public sector, and 0 if employed in the private sector). The symbols *,**, *** represent statistical significance
at the 10, 5, and 1 percent levels.




                                                                                                                                                                                                                     138
Annex IV. Entry level salary benchmarking methodology
Two surveys were conducted at the employee and employer levels, respectively, with a local survey
firm. The employer level survey was used to collect information on salary scales and allowances in the
private sector and from the Ministry of Finance for public sector employees directly. The team
complemented the data received from employers with a survey of employees, offering valuable insights
into the current practices and perceptions. Data collection began on October 29th, 2023, and concluded
on January 12th, 2024. The surveys followed international research ethics and confidentiality standards.

Employer survey

The employer survey provided information on the structure of the salary components within each sector
and type of institution for selected occupations. These occupations included all key employees in the
education, health, and engineering sectors. Data on salary components was collected for both fixed and
non-fixed contractual employees separately. The questionnaire collected information on the base pay, as
well as all allowances and benefits that comprise worker compensation which altogether represent gross.
Net salaries represent the total take-home salaries for civil servants after tax, healthcare, and retirement
deductions (See Table 1 for more information).

Table 1: Terminology of Pay Composition

 Term                 Explanation

 Base Salary          Fixed compensation that employees receive for performing their job duties,
                      excluding any additional benefits, bonuses, or allowances.
 Health insurance     Comprehensive coverage for employees and their families at a nominal annual fee
                      of NIS 900, covering treatment at public hospitals, with exceptions made for
                      specialized cases requiring referral to private healthcare facilities.
 Transport            Public sector workers receive a transport allowance, although eligibility and
 Allowance            amounts vary based on individual commuting circumstances.
 Social allowance     Married public sector workers receive a social allowance.
 Annual leave         Public sector workers receive 20 days (about 3 weeks) of annual leave while
                      coverage varies across private sector workers
 Sick leave           Public sector workers receive up to 90 days (about 3 months) of sick leave a year
                      while coverage varies across private sector workers
 Total Gross          Calculated with customized allowances, that can be different from one employee
 Salary               to another, such as managerial allowance, transport allowance, and social
                      allowances.
 Total Net Salary     Gross salary after income tax, healthcare, and retirement deductions.
 Taxes                Employers are typically responsible for deducting income tax from their
                      employees' salaries based on the applicable tax rates. These deductions are then
                      submitted to the Palestinian tax authorities on behalf of their employees.


The total sample of private sector employers used in the analysis is presented below in Table 2. The sample
of public institutions is excluded, as all information on the salaries and allowances for the public employees




                                                                                                          139
was obtained from the Ministry of Finance. The private sector sample for the employer survey is 216
businesses.

Table 2: Employer Survey Sample

 Panel A: Sector of operation                      Percent

 Education                                         47

 Engineering                                       10

 Healthcare                                        43

 Panel B: Location                                 Percent

 Bethlehem                                         13
 Hebron                                            20
 Jenin                                             7
 Nablus                                            15
 Qalqilya                                          1
 Ramallah                                          36
 Salfit                                            2
 Tubas                                             3
 Tulkarem                                          1


While the survey collects data on the allowances and benefits received by employees across both
sectors, the study was supplemented by a desk review to understand the nuances. These include
comprehensive health insurance coverage for employees and their families, transport allowances to
employees, and annual and sick leave entitlements. In addition, married couples receive a social
allowance, and employees with university-going children benefit from tax deductions to assist with tuition
fees. Furthermore, teachers receive full compensation during scheduled breaks instead of designated
annual leave days, ensuring their continued financial stability throughout the academic year. These are
important to understand as the survey findings will explore the extent to which these de jure allowances
are received by public sector employees.

This curated dataset provides a useful, albeit limited view of the structure of employee salaries in the
West Bank. While the data collected from employers may not be sufficient for a comprehensive
understanding of salaries, the data provided does paint a unique picture of the current compensation
practices, allowances, and bonuses across sectors and institutions in the West Bank.

Employee survey

A survey of employees across various sectors was conducted to complement the salary analysis, offering
valuable insights into the perceptions of employees. Data collection was carried out in-person. The
questionnaire, designed by the Bureaucracy Lab of the World Bank has been implemented in multiple
countries, was tailored to the context of the West Bank. 262 employees participated in the survey. Of the
262 employees surveyed, 38 percent work in the education sector, 37 percent in the health sector, and 25


                                                                                                      140
percent in the engineering sector. Eighty-nine percent of all respondents have permanent contracts, while
eleven percent have temporary contracts. Furthermore, of the 262 employees, 70 percent work in the
private sector, while 30 percent work in the public sector. A detailed breakdown of respondent
characteristics is shown in Table 3. These characteristics are important to discuss to better place the
findings presented next.

Table 3: Employee Survey Respondent Characteristics

 Panel A: Contract Type                                          Percent

 Permanent                                                       89

 Temporary                                                       11

 Panel B: Sector of operation                                    Percent

 Education                                                       38

 Engineering                                                     25

 Healthcare                                                      37

 Panel C: Type of Employment                                     Percent

 Private                                                         70

 Public (governmental)                                           30



Challenges during the data collection period

Sensitive nature of the topics under discussion and the timing of the survey due to conflict necessitated
adjustments to the sampling plans. Data collection was planned to be conducted among International
NGOs, local NGOs, and relief organizations such as UNRWA107. However, due to conflict, we were unable
to conduct any surveys with UNRWA. Additionally, discrepancies appeared in data consistency and facility
statuses between employers and employees for International and local NGOs, as some facilities were
identified as private by employees but labeled as NGOs by employers. We were unable to resolve these
because of the conflict. Consequently, these organizations were excluded from the employer analysis.




107   United Nations Relief and Works Agency for Palestine Refugees in the Near East


                                                                                                     141
Annex V . History of the PA’s policy initiatives and pension
reforms
The Unified Pension Law (UPL) was approved in 2005 and all government employees, including civil and
security services who were less than 46 years of age in 2006, were enrolled into a new scheme (Scheme
II). It was designed to have two components: a defined-benefit (DB) and a defined contribution (DC). The
old schemes and their beneficiaries were grandfathered.

In 2008, the PA adopted the Palestinian Reform and Development Plan (PRDP) 2008-2011 in which the PA
committed, among other things, to the preparation of a pension reform action plan covering
administrative and parametric changes to drive the pension system on the path of fiscal sustainability.

In 2009, the MOF issued a decree requiring all civil servants to remain in each grade for a minimum of five
years before being eligible for promotion and in the case of security services personnel, a minimum of four
years. This would limit manipulations that could affect the pension rights. All pensions as of January 1,
2009, were calculated using the average of three years of wages to determine the pensionable salary. As
such artificial end-of-career salary increases, which had a negative effect on pension liabilities, were
brought under control.

In July 2010, the Council of Ministers approved an action plan aimed at reducing the heavy burden that
the pension system imposes on the budget. The plan, however, only consisted of small measures that were
likely to produce desirable effects in the short-term but were not enough to ensure long-term
sustainability. The plan included a set of administrative reforms to strengthen the institutional capacity of
the PPA in addition to a number of parametric changes aimed at improving the financial performance and
fairness of the existing pension schemes.

Proposed parametric reforms covered by the plan included: i) increasing the mandatory retirement age
from 60 to 62; ii) early retirement would only be allowed if pensions are reduced according to an actuarially
fair coefficient; iii) lump sums for those who contributed to Scheme I for more than 28 years would be
calculated using the same average salary as the one used to calculate regular pensions; iv) buying
additional years of contributions would only apply with a limit of up to 3 years at the time of retirement
for Schemes I, III, IV; v) new entrants to Scheme II would be allowed to purchase voluntary contributions
of up to 5 years in advance within the first year of joining the system; vi) pensions would be indexed to the
CPI published by the Palestinian Central Bureau of Statistics; and vii) the DC component of Scheme II would
be modified to introduce notional accounts instead of funded accounts as currently stipulated by the law.

Progress made in the implementation of the above reform action plan was uneven. Most of the
administrative reforms were implemented, leading to an overall improvement in the organizational
aspects of the PPA. However, none of the parametric reforms were carried out.

In recent years, the most important changes to the pension rules were introduced by the Presidential
Decree No. 29 of 2018 «Amending the Public Retirement Law No. 7 of 2005 and its Amendments». These
changes were probably intended to harmonize the conditions of the old and new pension schemes, as
employees began to retire, whose careers were partly under one of the old pension schemes, partly new
scheme II. As the body of the retirees of the new scheme was growing, it also became clear that benefits




                                                                                                         142
under the Scheme II were lower than under the legacy schemes, and this caused discontent. The changes
instituted by the Decree, therefore, were as follows:

•   Service in the old schemes was equated to the participation in the new scheme regarding the
    entitlement to a pension;

•   Investment revenues of the PРA, base salary pension and all types of contributions were exempted
    from income tax;

•   Frequency of conducting actuarial analytical studies to redefine contribution and benefit rates
    increased from three to five years;

•   For years of service earned in the old schemes, it is allowed to use the accrual rate that was in these
    old schemes (i.e. 2.5%, not 2% as in the new scheme II);

•   Maximum replacement rate for calculating the pension amount in the DB formula increased from 70%
    to 80%;

•   Payment of the full amount accumulated on the personal account of the DC pillar was allowed when
    the employee retires for any reason, including due to early resignation (previously it was possible to
    receive such payment only upon reaching the mandatory retirement age);

•   Choice of the payments type from the DC pillar was limited to the lump sum payment of the entire
    amount or a monthly payment an agreed schedule (previously there were also options for a monthly
    lifetime payment and a combination of a lump sum payment with a monthly payment);

•   It was forbidden to combine two salaries to calculate a pension. For an employee who has two
    pensionable salaries, only the higher one is taken into the formula to calculate the pension;

•   It was clarified that all pensions are calculated on the basis of the average salary for the last three
    years;

•   The MOF Treasury was made to finance the financial obligations of pension under DB and DC schemes
    in the event that funds were unavailable to pay beneficiaries and their heirs for any reason.

Thus, the latest changes in the pension legislation rather increased the financial obligations of the public
budget.




                                                                                                        143
                          Table 1: Consolidated parameters of pension schemes




Source: Updated on the basis of World Bank, PER, 2016




                                                                                144
Annex VI. Pensions modeling methodology overview
A1. Assumptions

1.1       General framework

The financial projections were produced with the World Bank’s PROST (Pension Reform Options Simulation
Toolkit) model. The analysis covered both the Scheme II (New Scheme) and Schemes I, III, and IV (Legacy
(Old) Schemes). The civil and security sectors were modeled separately, with the consolidation of new and
old schemes in each sector as follows:

                                                           Civil                          Security
        Financial responsibility                PPA                MOF                      MOF
        Pension schemes                   II (Civil) + I             IV               II (Security) + III


All contributors and new pensioners were modeled under the New Scheme, while participants in the old
schemes were gradually being phased out of the total stock of pensioners. We did a detailed modeling of
both the DB and DC components, including the family and personal allowance (NIS 300) as part of the
total DB pension.

The simulation period runs from 2021 (the base year) to 2080 (the ending year) – approximately a lifetime
of one generation (working age and retirement age), which is viewed as an adequate time span for pension
system modeling. Information for the base year was kindly provided by the PPA. We present the key data
and assumptions used in the modeling exercise as well as some projection results.



1.2       Macroeconomic indicators

Table 1 below presents key economic indicators. Real GDP growth and inflation rate were provided by the
World Bank macroeconomic team, while other indicators were simulated by the authors using PROST. In
the medium to long run, the real GDP growth is assumed at 3% (is slightly higher than the population
growth rate), and the inflation rate was set at 2%. Wage growth rates were calibrated based on our core
assumption that public sector payroll as share in GDP remains stable (about 10.5% of the civil and security
sectors combined).

                                   Table 1. Projected macroeconomic context
                           2021   2022   2023    2024       2025   2030   2040    2050     2060      2070     2080
Macroeconomic Indicators
Nominal GDP, NIS bln       58.5   63.1   66.1     68.9      71.8   91.9   150.5   246.6   404.0      661.9   1,084.3
Real GDP Growth            7.1%   4.0%   3.0%    3.0%       3.0%   3.0%   3.0%    3.0%     3.0%      3.0%     3.0%
Inflation Rate             1.2%   3.7%   1.6%    1.2%       1.2%   2.0%   2.0%    2.0%     2.0%      2.0%     2.0%
Nominal Wage Bill, NIS bln
Civil Sector               3.8     4.1   4.3      4.5        4.7   6.0     9.8    16.1     26.3       43.1    70.5
Security Sector            2.3     2.5   2.7      2.8        3.0   3.9     6.0    9.9      16.1       26.4    43.2




                                                                                                                 145
Total                      6.1    6.6               7       7.3        7.7       9.9          15.8       26         42.4       69.5           113.7
Nominal Wage Bill as % of Nominal GDP
Civil Sector                6.5% 6.5% 6.5% 6.5% 6.5% 6.5%                                   6.5%        6.5%       6.5%       6.5%         6.5%
Security Sector             3.9% 4.0% 4.0% 4.1% 4.1% 4.3%                                   4.0%        4.0%       4.0%       4.0%         4.0%
Total                       10.4% 10.5% 10.5% 10.6% 10.6% 10.8%                             10.5%       10.5%      10.5%      10.5%        10.5%

Source: WB macro indicators and Authors’ PROST Simulations



1.3       Demography

The UN World Population Prospects 2022 is the source of our demographic data and assumptions.
Population projections for the Palestinian Territories are in line with the long-term international trends
and demographic transition theory. The total fertility rate is assumed to decrease, while the mortality rates
are also assumed to decline gradually over the whole period (Table 2).

           Table 2. Projected Life Expectancy and Total Fertility Rate (for the General Population)
                                 2021        2022       2023      2024       2025      2030     2040      2050      2060     2070     2080
       Total Fertility Rate       3.4         3.4        3.3       3.3        3.3       3.0      2.6       2.4       2.2      2.0      2.0
       Life Expectancy: Male
       At Birth                70.8          71.5       72.2      73.0       73.9      74.7      76.4      78.2      80.0    81.8      83.3
       At Age 60               16.1          16.6       17.2      17.8       18.4      18.9      20.0      21.2      22.5    23.9      25.1
       At Age 65               12.7          13.1       13.6      14.1       14.7      15.1      16.0      17.1      18.3    19.6      20.7
       Life Expectancy: Female
       At Birth                   75.7       76.3       76.9      77.5       78.1      79.0      80.5      82.0      83.3    84.5      85.7
       At Age 60                  19.7       20.2       20.6      21.1       21.7      22.2      23.2      24.3      25.3    26.3      27.2
       At Age 65                  15.7       16.1       16.5      17.0       17.5      17.9      18.9      19.9      20.8    21.7      22.6

Source: UN World Population Prospects 2022 (Online Edition) and Authors’ PROST Simulations


The decreasing fertility and increasing longevity are the two driving forces for population aging. Given the
fact that both working age population (15-59) and the old age population (60+) are both increasing, the
old-age dependency ratio is relatively constant for a few years, however, from around 2040 the old-age
dependency ratio starts considerably increasing. By 2050, the old-age dependency ratio is projected to be
more than 18% and will double again by 2080 (Table 3).

                    Table 3. Summary of Population Projections (for the General Population)
                               2021      2022       2023       2024      2025       2030      2040      2050      2060      2070      2080
       Total Population, thousands persons
       Total                    5,130    5,253      5,378      5,505     5,634      6,301     7,684     9,051     10,307    11,420    12,332
       Age 0 - 14               2,009    2,033      2,056      2,078     2,097      2,172     2,347     2,474      2,482     2,463     2,422
       Age 15 - 59              2,844    2,930      3,019      3,109     3,205      3,709     4,691     5,563      6,295     6,839     7,112
       Age 60 and over           277      289        302        317       332        420       646      1,014      1,530     2,118     2,799
       Age Structure of Population
       Total                   100%      100%       100%       100%      100%       100%      100%      100%      100%      100%      100%
       Age 0 - 14              39.2%     38.7%      38.2%      37.8%     37.2%      34.5%     30.5%     27.3%     24.1%     21.6%     19.6%
       Age 15 – 59             55.4%     55.8%      56.1%      56.5%     56.9%      58.9%     61.0%     61.5%     61.1%     59.9%     57.7%
       Age 60 and over          5.4%      5.5%       5.6%       5.8%      5.9%       6.7%      8.4%     11.2%     14.8%     18.5%     22.7%




                                                                                                                                                 146
           Dependency Rates
           Age 0-14 / Age 15-60         70.6       69.4        68.1        66.8   65.4        58.5   50.0        44.5             39.4        36.0       34.1
           60 + / Age 15-59              9.7       9.9         10.0        10.2   10.4        11.3   13.8        18.2             24.3        31.0       39.4
           Support Ratio:
                                        10.3       10.1        10.0        9.8    9.6         8.8    7.3         5.5              4.1         3.2        2.5
           Age 15-59 / 60 +

Source: UN World Population Prospects 2022 (Online Edition) and Authors’ PROST Simulations


Population pyramids (Figure 1) illustrate the projected aging trend. Based on the above assumptions, the
population is projected to grow from 5.1 million in 2020 to about 12.3 million by 2080.

                                                   Figure 1. Projected Population Pyramids

                                        2021                                                                                 2080

                                        99                                                                                   99
                                        92                                                                                   92
                                        85                                                                                   85
                                        78                                                                                   78
                                        71                                                                                   71
                                        64                                                                                   64
                                        57                                                                                   57
                                        50                                                                                   50
                                        43                                                                                   43
                                        36                                                                                   36
                                        29                                                                                   29
                                        22                                                                                   22
                                        15                                                                                   15
                                         8                                                                                    8
                                         1                                                                                    1
      94      74     54       34   14          6   26     46          66    86           94     74   54     34          14          6    26         46   66     86




Source: UN World Population Prospects 2022 (Online Edition) and Authors’ PROST Simulations



1.4           Policy, parametric, and procedural assumptions

•     The number of contributors in the legacy schemes (I, III, IV) was in insignificant in 2021 and was
      ignored.

•     The baseline scenario assumes that the existing parameters and rules of the pension scheme II remain
      unchanged throughout the forecast period.

•     The number of employees in the public sector (they are also contributors to the II scheme) is growing
      at the same rate as the total population, so it remains stable in relative terms. Subsequent rounds of
      simulations will need to explore option where the size of the public sector remains stable in absolute
      terms or is expanding less rapidly.

•     The structure of new contributors by gender and age remains unchanged throughout the projection
      period.

•     Contribution revenues were projected on the accrual basis.


                                                                                                                                                                     147
•   Given the long run horizon of the projections, all DB pensions are indexed to 100% of inflation until
    2030 and 50%/50% inflation/wages correspondingly, thereafter. For the same reason, we assumed
    that value of the personal allowance (currently, NIS 300 monthly) would be automatically indexed
    with inflation and be added uniformly to all the new pensions.

•   We did not include calculations of the NIS 700 “basic pension” allowance as a compensation to those
    who did not earn rights for pension.

•   As a prevailing practice, all employees separate from service by decree of the employer, hence no
    reduction in benefit due to early retirement simulated.

•   Considering average service of 27 years at retirement and 15 years into the reform process from 2006,
    we assumed that in 2023, the average accrual factor (which combines careers from before and after
    reform) is 2.25, and it would gradually transition to 2.0 by the year 2036.

•   Since the detailed age/gender data was not available for Scheme IV, we utilized and extrapolated the
    distributions of Scheme I to approximate the composition of Scheme IV.

•   We estimated a NIS 300 million among the stock of the PPA pension reserves attributable to the Civil
    Service DB schemes. We did not attribute any reserves to the security DB scheme.

•   For simplicity, all PPA administrative expenditures were attributed to and included under the CS
    scheme for calculation purposes.

•   DC scheme calculations:

    o   The distribution of accrued values in individual DC account balances by age and gender (Separately
        for civil service and for security) was provided by the PPA

    o   All new contributions are subject to the full statutory rate of 3%+3%

    o   Accounts earn zero interest (as per current policy)

    o   Payout takes various forms. For the purpose of assessment of the income replacement capacity,
        we assumed full annuitization (i.e., payments for life).




                                                                                                      148
1.5               Summary of financial projections

                        Table 4. Summary of Projections: Civil Service Schemes I and II, DB only, Baseline
  I        D                                                    2021       2022       2023       2025       2030       2035        2040        2050        2060        2070          2080
 PAYG Total Revenue                                                635       697        723        780        973       1,247        1,595      2,632       4,298       7,005         11,605
          Employer and Employee Contributions                      607       654        685        744        952       1,220        1,561      2,575       4,205       6,853         11,354
          Pensioner Contributions
          Government Contributions & Transfers
          Other Revenue                                             13        15         15         17         21         27              35          57          93      152              252
          Investment Returns                                        15        28         24         20
 PAYG Total Expenditure                                            566       622        712        877       1,403      2,141        3,090      5,179       8,390      15,995         29,294
          Pension Payments                                         551       606        695        859       1,378      2,107        3,044      5,104       8,268      15,784         28,931
          Other Payments                                               3          3          3          4          7      11              15          26          41          79           145
          Administrative Costs                                      12        13         13         14         18         24              30          50          81      132              219
 PAYG Current Balance                                               69        75         12        (97)       (430)      (894)      (1,495)     (2,547)     (4,092)     (8,990)       (17,689)
          PAYG Reserve (Explicit PAYG Debt)                        369       444        456        316
          PAYG Implicit Debt                                   33,342.7 36,440.9 38,996.8 44,094.2 61,347.7 83,719.1 112,226.1 196,840.1 352,719.3 611,881.2 1,000,892.8
 Total PAYG Debt                                               32,973.4 35,996.6 38,540.7 43,778.6 61,347.7 83,719.1 112,226.1 196,840.1 352,719.3 611,881.2 1,000,892.8
 As % of GDP
          PAYG Total Revenue                                     1.1%       1.1%       1.1%       1.1%       1.1%       1.1%         1.1%        1.1%        1.1%        1.1%           1.1%
          PAYG Total Expenditure                                 1.0%       1.0%       1.1%       1.2%       1.5%       1.8%         2.1%        2.1%        2.1%        2.4%           2.7%
          PAYG Current Balance                                     .1%       .1%        .0%       (.1%)      (.5%)      (.8%)       (1.0%)      (1.0%)      (1.0%)      (1.4%)         (1.6%)
          PAYG Reserve (Explicit PAYG Debt)                        .6%       .7%        .7%        .4%
          Total PAYG Debt (Implicit & Explicit)                 56.3%      57.0%      58.3%      61.0%      66.8%      71.2%        74.5%       79.8%       87.3%       92.4%          92.3%


 Contribution Rate from Employees and Employers
          Average Collected                                     16.0%      16.0%      16.0%      16.0%      16.0%      16.0%        16.0%       16.0%       16.0%       16.0%          16.0%
          Required to Balance Fund from Base to Current Year    14.2%      14.6%      15.1%      16.3%      18.8%      21.1%        23.2%       26.1%       27.2%       28.5%          30.0%


                Table 5. Summary of Projections: Civil Service Schemes I and II, DB only, Moderate Reform
      I     D                                                   2021       2022       2023       2025       2030       2035        2040        2050        2060        2070         2080
 PAYG Total Revenue                                                635       697        723        780        965      1,202        1,498       2,513       4,061       6,609        10,850
          Employer and Employee Contributions                      607       654        685        744        944      1,176        1,465       2,458       3,973       6,466        10,615
          Pensioner Contributions
          Government Contributions & Transfers
          Other Revenue                                             13        15         15         17         21         26           33          55          88        143            236
          Investment Returns                                        15        28         24         20
 PAYG Total Expenditure                                            566       622        712        881      1,353      1,873        2,601       4,941       7,505      14,157        26,655
          Pension Payments                                         551       606        695        862      1,328      1,841        2,560       4,869       7,392      13,963        26,318
          Other Payments                                               3          3          3          4          7          9        13          24          37         70            132
          Administrative Costs                                      12        13         13         14         18         23           28          47          77        125            205
 PAYG Current Balance                                               69        75         12       (100)      (388)      (671)       (1,103)    (2,428)     (3,444)     (7,548)       (15,804)
          PAYG Reserve (Explicit PAYG Debt)                        369       444        456        311
          PAYG Implicit Debt                                   31,610.4 34,488.3 36,819.2 41,408.1 56,611.8 73,445.8              95,100.1 176,196.0 305,447.1 551,617.0           914,765.0
 Total PAYG Debt                                               31,241.1 34,044.1 36,363.5 41,096.9 56,611.8 73,445.8              95,100.1 176,196.0 305,447.1 551,617.0           914,765.0
 As % of GDP
          PAYG Total Revenue                                      1.1%      1.1%       1.1%       1.1%       1.1%       1.0%         1.0%       1.0%        1.0%        1.0%           1.0%
          PAYG Total Expenditure                                  1.0%      1.0%       1.1%       1.2%       1.5%       1.6%         1.7%       2.0%        1.9%        2.1%           2.5%
          PAYG Current Balance                                     .1%       .1%        .0%       (.1%)      (.4%)      (.6%)        (.7%)     (1.0%)       (.9%)      (1.1%)         (1.5%)
          PAYG Reserve (Explicit PAYG Debt)                        .6%       .7%        .7%        .4%
          Total PAYG Debt (Implicit & Explicit)                  53.4%     53.9%      55.0%      57.2%      61.6%      62.4%       63.2%       71.4%       75.6%       83.3%          84.4%


 Contribution Rate from Employees and Employers
          Average Collected                                      16.0%     16.0%      16.0%      16.0%      16.0%      16.0%       16.0%       16.0%       16.0%       16.0%          16.0%
          Required to Balance Fund from Base to Current Year     14.2%     14.6%      15.1%      16.3%      18.7%      20.5%       21.9%       24.7%       25.9%       27.1%          28.5%




                                                                                                                                                                                            149
Source: Authors’ calculations
Notes: “PAYG” refers to the DB scheme. Schemes I and II (CS) only.


A2. PROST Model Overview

PROST is a computer-based pension model developed to simulate the behavior of pension systems and
assess their financial sustainability under various economic and demographic hypotheses during a lengthy
period of time. This model may be adapted to a wide range of various pension systems in different
countries; it also allows modeling various options of pension system reform.

The model consists of a Work Book to enter input data and five Output Modules. For input data, a user
would enter a number of demographic and economic parameters and parameters of the pension system
of a given country, as well as hypotheses on future changes. This information is recorded in the input data
file that includes six Worksheets:

 General                  Economic variables (GDP and wage growth, inflation, interest rate), parameters of
                          the pensions system that do not depend on age (pension fund balance and
                          pension expenditures in the baseline year, retirement age, contribution rate,
                          pension indexation rules, etc.) and some demographic variables.

 Population               Population by age and sex in the baseline year, fertility and mortality rates and
                          migration, disaggregated by age and sex.

 Labor force              Labor force participation and unemployment rates disaggregated by age and sex
                          as well as distribution of wages and pension by age and sex.

 Pensions                 Information on the number of contributors, pensioners, coverage ratios and share
                          of retirees, average contributory period at retirement and income replacement
                          rates for new pensioners, disaggregated by age and sex.

 Profile                  Information on typical individuals such as sex, contributory period, individual
                          wage, life expectancy, etc.

 Reform                   Parameters required to simulate systemic reforms (any combination of legacy
                          schemes of PAYG type, FF and NDC), including a strategy for switching to a new
                          system, form of paying pension rights accrued in the old system, contribution rate,
                          rules of annuitization and payments from FF and NDC, income replacement
                          rates/formula for calculating new pensions in DB, indexation, etc.

The general calculation scheme can be presented in a most simplified form as shown below.

PROST tracks down sex and age cohorts over time and estimates the population projections that, together
with labor market hypotheses, are used to predict the number of contributors and pensioners. In their
turn, these predictions help calculate the flows of revenues and expenditures. Then the model calculates
the balance of cash flows and implicit pension debt. Also, the model projects the equilibrium rate of
contributions and admissible income replacement rates that ensure the balance of the pension fund in
each year of the projection period. Finally, PROST calculates parameters with regard to individuals, i.e.,
how much contributions a given individual would pay to the system and what he/she would receive from



                                                                                                         150
    PAYG or from a multi-pillar system. This allows analyzing both intra- and intergenerational redistributional
    processes.

    Based on the features of the pension system and available data, a user may select a method to calculate
    some variables. In particular, the number of contributors and pensioners may be calculated through using
    either a Margin Method or a Flows Method. The Margin Method first calculates the total number of
    contributors/pensioners (Margin) for each year, and then the inflow (new contributors and pensioners) is
    calculated as changes in the margin:

                                  Inflow(a,t,g) = Margin(a,t,g) – Margin(a-1,t-1,g) + Outflow(a,t,g),

    The Flows Method first calculates the inflow, and then the margin is calculated as the margin of the
    previous year in each age/sex group adjusted for net inflow (inflow – outflow):

                                   Margin(a,t,g) = Margin(a-1,t-1,g) - Outflow(a,t,g) + Inflow(a,t,g),
                                               where: a = age, t = year, and g = gender.

    Since РROST tracks down the contributory period accrued by each sex and age cohort, the calculated
    number of new pensioners, regardless of what method was used, is then adjusted in a way so that the
    contributory period accrued by a cohort is equal to the total contributory period declared by the cohort
    for calculating pensions at retirement. After the number of new pensioners is adjusted, the margin of
    pensioners is recalculated using the Flows Method.

    A user may also select the way of simulating pensions of new pensioners, i.e., either using the pension
    calculation formula or using the income replacement rates for each age and sex.

                                           General Calculation Scheme




    As mentioned earlier, the PROST outputs are grouped into five Output Modules. Each module contains a
    number of Excel Worksheets and a summary graph for key indicators:

Demographic projections                  Projections of the population and demographic pyramid, longevity
                                         tables, changes in life expectancy, population dependency ratios, etc.



                                                                                                            151
Pension system demographics         Projections of the labor force number and employment rate, the
                                    number of contributors and pensioners, demographic structure of
                                    the pension system, and system dependency rates.

Finances of one-pillar PAYG         Macroeconomic projections, projections of wage, pensions for all or
                                    new pensioners, pension system’s revenues and expenditures,
                                    contribution rate and average income replacement rate needed for a
                                    balanced system, and implicit pension debt.

Finances of a Multi-Pillar System   Projections of pensions for all or new pensioners in each of the three
                                    pillars (PAYG, NDC and FF), PAYG and FF revenues and expenditures,
                                    implicit pension debt in PAYG, reform and reform outcomes (compare
                                    projections of the level of pensions and finances in the one-pillar
                                    PAYG scenarios and multi-pillar system scenarios).

Individual Accounts                 Paid contributions and received pensions during the entire life and
                                    summary analytical indicators of participating in the system for six
                                    types of individuals specified in the input data file table, Section
                                    Profile, for PAYG (in the form set forth by law as well as in options
                                    with an adjusted contribution rate and adjusted level of pensions)
                                    and for a multi-pillar system (for those who switched to multi-pillar
                                    system and for those who stayed in PAYG DB).




                                                                                                      152
Annex VII. Administrative diagnostics of the PPA
This assessment was produced using the Social Insurance Administrative Diagnostic (SIAD), a tool
developed by the World Bank. There are currently eight modules within the tool, covering the following
areas of administration, that were used in the assessment:

▪     Internal Governance
▪     Investment and Management of Funds
▪     ICT Management and Data Policies
▪     Identification and Registration
▪     Contribution Collection
▪     Benefits Management
▪     Grievances – Appeals and Complaints
▪     Communications

It should be noted that in some instances it would only be possible to more fully flesh out the various
topics and findings by undertaking deeper and more extensive analysis. This level of effort was outside
the scope of this assessment.



A1. Internal Governance

The Public Sector Pension Scheme in the Palestinian Territories (West Bank and Gaza) is administered by
the Palestinian Pension Authority (PPA). The PPA is an independent public legal entity reporting directly
to the President of Palestinian Authority. The PPA was established in 2005 under the Palestinian Pension
Law 7 of 2005 (hereinafter ‘the Law’) and it took over responsibility for pensions system management
from the General Pensions and Insurance Corporation (GPIC).

1.1      Board of Directors

The PPA is governed by a Board of Directors (BoD) and a Head of Agency/General Director (Chief Executive
Officer (CEO)). The BoD comprises of nine persons, three of whom are nominated by the Council of
Ministers and the remaining six are nominated (one per institution) by PPA, General Personnel Office,
Administrative Head of Police and Security Forces, Local Government/Municipalities, Association of
Retirees, and Ministry of Finance. The nominations are submitted to the President who has the final
authority to approve the Board. The President also appoints the Chairman and Deputy Chairman of the
Board and decides on remuneration level for the Board. The Law prescribes the attributes that BoD
members must have, and these act as guidance in their selection. Members of the BoD serve for four
years, with one period of renewal permitted. The BoD nominates the General Director and submits the
nomination to the President for final approval. The General Director is ex-officio a voting member of the
BoD.

The BoD has a wide range of responsibilities, as prescribed in the Law (Articles 40 through 55, and Articles
61 through 81). These are typical of the strategic governance role of a Board. It is noted that a major
responsibility of the BoD relates to the investment function – policy, asset classes, risk, audit etc. The BoD
has also two permanent sub-Committees (Investment, Audit) and establishes other sub-Committees from
time to time as required. The BoD also contracts in expertise for specialist tasks, such as developing the


                                                                                                          153
PPA Strategic Plan, undertaking Actuarial Studies, and undertaking Investment Management. The PPA has
a formal code of conduct that must be adhered to by BoD members, and it also requires disclosure of any
conflict of interest by BoD members.

1.2    Organisational Structure

The General Director is supported by four Assistant General-Directors (AGD), and each AGD manages a
group of Departments. The Organisation Chart below shows a very detailed and comprehensive
organisational architecture.




                                                                                                   154
                                                                                                               Chairman of the Council
                                                                    Director of the Chairman's
                                                                              Office                             (Board of Directors)

                                                     Audit Committee                                                                             Investment Committee                              Preserver

                        External                                                     Specialized Committees
                        Auditor                                                                                                                                           Investment
                                                                                                                                                                           Manager
                                                                                                                    Head of
                                                                                                                    Agency
                            Financial Control Department
                                                                                                                   (Minister's                                                Follow-up and Coordination
                                                                                                                    degree)                                                         Department
                             Administrative Control and                   Internal Control and Total
                              Total Quality Department                                                                                       Office of the Chairman
                                                                             Quality Department                                               of the Commission                 Public Relations and
                            Department of Legal Studies                                                                                                                         Media Department
                                and Consultations
                                                                                    Legal Affairs Unit                                            Technical
                           Judicial Follow-up Department                                                                                         Committees
                                                                                       Advisers


             Assistant to the President
                                                                          Assistant Chairman for                                   Assistant Chairman for                     Assistant Chairman of the
                of the Authority for
                                                                         Subscriptions and Public                                     Technical Affairs                        Authority for Financial
              Support Services Affairs
                                                                                 Services                                                                                      Affairs and Investment

                              Department of                                                                              Settlement and              Settlement and
    IT Management          Administrative Affairs,              Public Services                Manage                 Pensions Department         Pensions Department       Investment               Finance
                           Studies, and Planning                                                                          for Southern              for the Northern       Management
                                                                 Department                  Subscriptions                Governorates                Governorates                                 Department

  Department of                Studies and                  Operators Services             Registration and                                            Settlement          Investment              Collections
                                Planning                       Department                     Matches                     Settlement
                                                                                                                                                      Department
   Systems and                 Department                     (Department                    Department                  Department                                         Study and              Department
                                                                                                                      Government Sector            Government Sector
  Programming                                                   Manager)                                                                           (Civil and Security      Follow-up
                                                                                                                      (Civil and Security
                             Risk and Actuarial
                                                            Offices & Branches
                                                                                            Department of                 Forces
                                                                                                                      Non-Governmental
                                                                                                                                     )                 Forces     )
                                                                                                                                                   Non-Governmental       Department                Payments
                            Studies Department                                              Purchase and               Sector Settlement            Sector Settlement                              Department
   Computerized                                                 Coordinator                   Addition of                    Service                      Service
                                                               (Department                   Contribution                                                                   Specific
Systems Department                                               Manager)                                                                                                                           Accounts
                                                                                               Periods                Pension Department           Pension Department     Shareholding
                              Department of
                             Human Resources                                                                          Government Sector            Government Sector      Investments              Department
                              and Personnel                 Specific Contribution           Department of              (Civil and Security          (Civil and Security
   Database and                                               Services Service              Counting and                      Forces)                      Forces)        Department              Financial Audit
    Reporting                                                  (Department                   Processing of                                                                 Loans and
   Department                 Maintenance and                                                                         Non-governmental             Non-governmental                                Department
                                                                  Manager)                   Contribution              sector pensions              sector pensions       Replacement
                              General Services                                                  Periods
                                Department                                                                               department                   department          Department
   Department of                                                                                                                                                                                    Reports and
 Infrastructure and                                            Archiving and                                                                                                                     Technical Support
                                                                                                                                                                                                            155
                                Supplies and                    Documents                     Director of             Registration and             Registration and                                 Department
    Maintenance                 Warehouses                                                 Contributions and         Audit Department             Audit Department
                                                                Department
                                Department                     (Department                 Reports Follow-up
                                                                 Manager)                    Department
1.3     Procedures Management

The PPA has a broad range of formal policies and procedures that guide its work. These cover budget
formulation and management, investment management, responsibility delegation policy from Board to
senior management, human resource policy, procurement and outsourcing, and operational risk
management.

The PPA has a set of written Standard Operating Procedures (SOPs) that govern each key work function
and business processes. These SOPs are routinely reviewed and updated, with the last update being
undertaken in 2020. There is a formal process to encourage and review PPA staff suggestions to amend
and improve the SOPs and business workflow procedures.

1.4     Budget and Finances

The PPA administration budget is approved annually by the BoD. The Law (Article 5) permits the PPA to
be funded from a variety of sources: deduction from contributions collected, payments to PPA from
other bodies contracted to pay PPA benefits, a (unspecified) proportion of investment returns, and other
(unspecified) sources related to PPA (undefined) activities. No more than 2% of contributions payable
can be deducted to fund the PPA administration budget. Any amount exceeding 2% requires
Parliamentary approval. The amount allocated to PPA in 2021 was 0.778% of the contributions.

1.5     Audit – Internal and External

The PPA’s BoD has a full-time Audit sub-Committee, whose responsibility is to oversee PPA’s financial
affairs, investment activities, external audit, and internal audit. This work also includes reviewing the
internal and external controls of the Custodian (financial institution that holds PPA’s funds in safe-keeping)
and Investment Managers contracted by the PPA.

The PPA also has a permanent Internal Audit Unit, with 2 staff, and which reports directly to the General
Director. This Unit produces an annual Audit Plan setting out the areas and time-frames for audit activities.
However, such audits focus only on financial matters such as investments assets and operational finances.
The Internal Audit Unit does not undertake auditing in relation to PPA’s business processes, data
management, or record-keeping activities. The Unit produces an annual Audit Report for PPA senior
management.

The PPA is subject to an annual External Audit by a designated government agency. The External Audit
covers most aspects of the PPA’s business including - finances, investments, operations, business
processes, and data and records-keeping. The PPA does not have a systematic follow-up process to address
audit findings and recommendations or brief the BoD on actions taken post-audit. The results of the
External Audit are not published or made available to the public.

1.6     Strategic Planning

The PPA undertakes Strategic Planning and last produced a Strategic Plan in 2022. This Plan identifies
strategic priorities and goals. It encompasses human resources, financial management, workload volume
predictions, and Information and Communication Technologies (ICT) alignment activities. An action plan
to achieve those priority outcomes is also included. The Head of ICT is an active participant in the Strategic
Planning process.



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1.7     Quality Assurance

The PPA does not have a formal Quality Assurance (QA) system in place. Implementing a QA system would
include establishing acceptable performance and service thresholds for each key function. Then, PPA
would undertake systematic sampling of actual levels of performance/service, identify areas of under-
performance or deficits in levels of service, identify reasons for such under-performance/ service level
deficits, identify changes required to achieve QA standards, develop and implementing those changes, and
monitor results.

1.8     Risk Management

The PPA does have a Risk Policy (overseen by the BoD), but it has a very narrow focus and concentrates on
financial risk only, is not integrated within the PPA’s Strategic Plan, and is updated only once every 5 years.
However, comprehensive risk management encompasses all critical areas of the institution, including
organisation, technology, service, human resources, finance, and physical assets. The PPA does not have
a Risk sub-Committee (Board level), or a formal Risk Officer position, or a Risk Unit. Furthermore, the PPA
does not keep a Risk Register – a prioritised list of major risks and the likelihood of them materialising.

1.9     Actuarial Review

The PPA periodically undertakes an Actuarial Review of the Pension System (Defined Benefit component).
The Law originally prescribed that such a review be undertaken every two years, and 5 years. This was
later amended by Presidential Decree 29/2018 (Article 6), which stated “The Authority shall conduct every
five years an actuarial advisory study to redetermine the percentage of contributions and benefits, taking
into account the indicators of other regulations, in order to reach the financial balance."

The projected time-frame within an Actuarial Review is 50-100 years. The last Actuarial Review was
undertaken (by the ILO) in 2017. The Actuarial Report is submitted to the President, Government,
Parliament, and External Financial Auditor. The Report is not made public or published on-line.

1.10    Annual Reporting

The Law requires the PPA BoD to produce an Annual Report and to present this Report to the Prime
Minister. It also prescribes the topics to be covered by that Report. The Law also requires that the Report
sets out (ex-post) information about PPA’s business activities, investments, service delivery, audits,
financial performance, and human resources. This Report is made available to the BoD, PPA management
and other institutional stakeholders. However, the Report is not published online, or made available to
the public.

1.11    Human Resources Management

The PPA has a formal HR unit (Department of Human Resources) within the Directory of Administrative
Affairs, Studies, and Planning. The Director of that Directory is a member of the PPA’s senior management
team and participates in the development of the PPA Strategic Plan. The PPA’s staff are all public servants,
and the Department of Human Resources participates in the staff recruitment, selection, and promotion
processes. This Department also undertakes staff requirements forecasting.

PPA staff are recruited via multiple steps – open advertisement, interview, and examinations. Selected
staff are then placed on probation – to confirm their suitability. There is a staff evaluation process, though



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it is not linked to a financial reward programme. Technical and professional staff positions have formal
written job descriptions.

There is a PPA Human Resources committee, and whilst it is not a sub-Committee of the BoD, it comprises
of the three Assistant General-Directors, the Administration and Planning Director, and the Head of the
Counsel. Its’ duties include review and analysis of HR and administrative issues in PPA and deliver
conclusions and recommendations to the General-Director.



A2. Investment and Management of Funds

The PPA is legally tasked with managing the investment of contribution funds. The PPA’s investment
function is guided by the PPA’s Investment Policy Statement and is under the management control of the
Assistant General-Director for Financial Affairs and Investment. There is a specific Department comprised
of three units (Investment Study and Follow-up, Specific Shareholding, Loans and Replacements) that
administers the investment function. Investment decisions are under the final approval authority of the
BoD sub-Committee for Investments. PPA has a written code of ethics that govern all staff involved in the
investment function.

Investment execution and management (active/passive) of PPA’s assets are contracted out to the Bank of
Palestine. The PPA’s investment assets are safeguarded by a Custodian (the National Bank) contracted by
the PPA.

The PPA publishes quarterly reports on the financial situation of the investment portfolio. The last report
was in final quarter of 2022. The information is provided in Excel spreadsheets only, as PPA does not use
special software to help manage its’ investment function.



A3. ICT Management and Data Policies

The PPA has a strong culture of Information and Communication Technologies (ICT), a relatively mature
ICT system, and a well-organised ICT administration system. There is a formal Head of ICT Management
Division, and this person is a member of the PPA’s senior management team. The ICT Department has ten
staff who are professionally qualified ICT specialists. The PPA has a comprehensive set of written policies
governing the work of the ICT Department and system. These policies cover the areas of ICT governance,
ICT risk management, data governance and data management.

There is an ICT Help Desk to support business users, and a mechanism for users to provide feedback to
(ICT Department) on their use of the software applications.

The ICT system has a client-server architecture and is deployed, via PPA’s private VPN, to all (three) PPA
branch offices. The PPA does not use cloud services. It does not have any preferred hardware brand or
supplier and does not have a maintenance contract in place. The PPA has plans to significantly upgrade its’
ICT system within the next three (3) years.

3.1     Software




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Software development is undertaken both in-house and by outsourced contractors. At present there are
three (3) such contracts being managed. The main software applications were developed in-house. The
last comprehensive business requirements/gap analysis was undertaken in 2013. The PPA has a separate
unit (Department of Systems Programming) responsible for software development and maintenance. This
unit applies formal development analysis, standards, and methodologies to all software development
tasks – ensuring reliability and consistency across all modules. However, the skill levels in this unit have
been diminished (e.g. with retirements of skilled staff, and lack of new major applications developments).

There is a lack of documentation underpinning the current software applications. However, there is the
original source code for its main software applications.

Most software is covered by up-to-date licenses, except for the Oracle applications.

The core business functions of client registration, contribution collection and accounting, individual
insurance accounts management, benefits processing, benefits payments, and client case management
are covered by the main software applications. In addition. there are a small number of support
applications (e.g., OpenText - document management/archiving, Oracle Financials – accounting, workflow
management).

The last significant upgrade to the core software applications was undertaken in 2017. The last significant
upgrade to the operating system was undertaken in 2016. The last upgrade to the system hardware was
undertaken in 2015. The PPA reports that a main challenge for it is the lack of experienced in-house
technical staff, and the lack of training for ICT staff.

3.2     Data Centre

The PPA has its own on-premises Data Centre where the main hardware and software applications are
housed. This Data Centre manages all the PPA’s ICT services. This Data Centre is not benchmarked against
international standards published by organisations such as the Uptime Institute, or Telecommunications
Industry Association.

The PPA does not have a physical back-up Data Centre, or any virtual back-up facility (e.g., using cloud
services).

3.3     Risk Management and Disaster Recovery

The PPA’S ICT Department has its own stand-alone written Risk Management Plan. This plan covers most
critical ICT-centric issues including data destruction, technology, hardware, networks, software
applications, systems security, human resources, internal accident (e.g., fire, accidental loss of data), and
natural disaster event (fire, flood, lightening, earthquake).

However, the PPA does not have a written Business Continuity (BC) plan or an Emergency Response Team
– that would cover how the PPA’s core business functions could continue operating in the event of a
catastrophic event impacting on the ICT system. The PPA does have a Disaster Recovery (DR) plan, and a
DR plan is a key sub-set of a full BC plan.

The PPA undertakes systematic tests to ensure the DR plan is functioning. However, it is not understood
how a DR Plan can be considered complete without a backup Data Centre functionality (either in the cloud
or in a physical premises).



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The systems administrator uses a formal process to restrict access to areas of the system (including use of
applications and access to data), and to remove permissions from persons who leave the organisation or
who change roles within the PPA.

The PPA has a formal policy (including security) to manage the use of mobile devices for PPA business. The
PPA’s ICT system access points (pcs/tablets/terminals/phones) are all covered by secure authentication
procedures that involve the use of strong password and lock-out functionality. In addition, the PPA uses
anti-malware and cyber-threat detection tools, and keeps these protections updated.

3.4         Data Governance and Management

The PPA does not have data privacy-specific guiding legislation at national level108 that governs the matter
of data privacy and data protection.

However, the PPA does have a Data Working Group/Committee that is focused on Data Governance and
Management policies. These policies include data organisation standards, data formats and data entry
standards, data storage/access/retrieval standards and procedures, data integrity, database management,
data exchange (internal and external), and data reporting.

The PPA does not have a Chief Data Officer that is responsible for developing and managing data-specific
policies – including data safeguarding, data manipulation, data storage, data sharing, data amendments.

The PPA’s ICT systems development/upgrading/amendment plans are reviewed formally to ensure their
conformance with PPA’s Data Governance policy.

All PPA staff must sign a data non-disclosure/confidentiality agreement. However, there is no formal
sanction system applicable to those who breach such agreements.

The PPA does not have a well-established system of automatic data exchange with other agencies (e.g., to
verify civil status, etc.). It is understood that this is mainly due to the lack of digitalisation of such records
in such institutions.

The PPA undertakes regular sampling of its’ beneficiary data quality and integrity.

3.5         Reports, Business Intelligence, and Data Analytics

The PPA produces a range of reports that provide information on service, delivery, operational
performance, and technical issues. These reports are generated in accordance with prescribed formats
and content. Reports are made available to managers in Directories and in branch offices. The reports
are produced on a daily and monthly basis, or by special request. There is no central dashboard from
which managers can obtain critical information about the business and technical systems performance or
detect service delivery issues.

The PPA uses its own software to generate reports from data analysis. These reports are generated directly
from the live production databases only. The PPA does not have a Data Warehouse – from which it could
generate reports without potentially affecting the live database. PPA does not use Business Intelligence
software to, e.g., undertake deeper data analytics, or to detect trends.


108   For example: the EU General Data Protection Regulation.


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A4. Identification and Registration

All insured members must be registered in the PPA by the employer. Registration with the PPA is separate
(and not linked) to registration with any other institution (e.g., health insurance, tax authority) and there
is no linkage (or registration data exchange) between registration with PPA and registration with other
institutions (health insurance, tax authority etc.). Registration is undertaken electronically, although the
original contract of employment must still be submitted to PPA in hard copy (paper) format.

All insured members are registered using their National Identity Document (ID)109 as the primary
registration key. However, for persons who work in the non-government sector, there can be more than
one linked employer number. The PPA checks existing registrations in its database before it registers a new
member. The primary data collected and recorded by PPA.

The PPA uses the National ID to identify and register contributors and beneficiaries in all Schemes. In cases
where the subject has no National ID (e.g. foreigners) the PPA uses an alternative identification method
(usually passport number etc.).

Notwithstanding the fact that most pensioners would be in possession of a National ID card, the PPA issues
its’ own card to pensioners. This card is used for identification purposes. It is a plastic card that contains
a photo and basic information of the beneficiary, including National ID. It also contains a card number and
Beneficiary Number that is generated by PPA. It has no magnetic band or any electronic chip onboard. It
is issued from PPA through the Information Technology (IT) Department after the approval of the Pensions
Department. It is not issued for survivors, but only for the primary beneficiaries.



A5. Contribution Collection

The process of calculating and paying contributions due is as follows:

      1. Employer submits a declaration form (extract from payroll) to PPA for pre-approval – with details
         of each active employee, including their wages and the time worked.
      2. The PPA uses the payroll information to calculate the contributions due to be paid in respect of
         each employee.
      3. The PPA notifies the employer about the calculated contributions due to be paid.
      4. The employer then remits the contributions to PPA – the Government sector uses a wire transfer,
         whilst non-Government employers use a bank cheque.




109 The PA’s Ministry of Interior (national civil affairs registry) issues National ID numbers to persons at birth in the Palestinian
Territories, and to other qualified persons if they were born abroad or were exiled by Israel. This ID is used by the PPA, the Tax
Administration and by most other public institutions and service providers (e.g. medical insurance, social assistance). This ID is
also supposed to be recognized by Israel in accordance with the Oslo Accords. The National ID card does not contain any electronic
bio-metric data but does have a photo included. It also contains personal information about the cardholder, as well as date of
issuance. The data on the card is written in both Arabic and Hebrew languages. The card also contains an ID number. The ID is
just a simple sequential number, but it is a unique number and is adopted in almost all institutions as identification for residents.
The number does not contain personal identification data within its’ structure.




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The contributions are paid into a single account that covers all Schemes, though the payment declaration
form shows the amount due for each Scheme.

When the payment has been made the PPA checks that the paid amount balances with the amount
notified to the employer by the PPA at the contribution calculation and approval stage.

The PPA does not have a control and compliance unit that is responsible for ensuring employers are
complying with their contribution and reporting obligations. The PPA does not have field inspectors that
visit employers’ premises or inspect employers’ books to ensure compliance with their social insurance
obligations.

The PPA has the authority to impose sanctions on employers in cases off non-payment of contributions,
late payment of contributions, or irregularities in registration of employees.



A6. Benefits Management

The PPA manages the following categories of benefits:

•     Old-Age (Retirement) – defined benefit
•     Old-Age (Retirement) – defined contribution
•     Old-Age (Retirement) – basic pension (means-tested)
•     Disability Benefit
•     Survivors Benefit
•     Family Allowance/Child Allowance
•     Funeral Grant
•     Marriage Grant
•     Loans to active contributors

6.1      Old Age – Defined Benefit

Employers notify the contributor that they should apply for their Old-Age/Retirement benefit. There is no
facility to apply online (web service) for the benefit. Applicants must supply the following evidence to the
PPA:

▪     National ID
▪     Employer workbook showing details of applicant’s employment history
▪     International Bank Account Number (IBAN) number – for bank account that benefit will be paid into
▪     Marriage certificate – for applicants claiming additional Wife Allowance component
▪     Birth certificate(s) – for applicants claiming additional Child Allowance component

The PPA uses its internal electronic and paper-based records to assist in determining the
contributor/member’s application for benefit.

Applicants who were born after 1 September 1961, and who were, up to September 2006, enrolled in a
Scheme that has been closed have their employment/insurance periods transferred to the new Unified
Pension Scheme (Scheme II). These periods of insurance are added together to determine their total
number of years insurance. However, the amount of pension is calculated separately for the periods they



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were in each Scheme in accordance with the rules of those Schemes – and then combined to make up
their pension amount payable.

6.2     Disability Benefit

This benefit, whilst it requires registration as a Contributor/Member, is not contingent on having a
minimum number of insurance periods. Applicants are medically examined by a committee of medical
professionals appointed by the Ministry of Health. Following this initial examination persons who are
deemed medically eligible are then medically re-assessed every 24 months. The results of medical
assessments are used solely by the PPA and are not shared with any other institution.

6.3     Survivors Benefit

Articles 32 through 36 of the Law prescribes a detailed and complex system of qualification for a survivors’
benefit, and apportionment of such benefit amongst eligible family members. Continued entitlement
conditions are also set out in these Articles. Further analysis of this benefit is outside of scope of this note.

6.4     Basic Pension

In addition to benefits payable under the social insurance Schemes, the PPA pays a basic pension to
persons who were formerly members of a Scheme but who do not qualify under the rules of the Scheme
(don’t have enough contributions/insurance periods). This benefit is means-tested, and the PPA collects
proof of means (from inspections undertaken by the Ministry of Social Security) to verify eligibility. This
payment is funded by the Ministry of Finance and payment is administered through the PPA system.

6.5     Benefit Payments and Control

Beneficiaries are required to have a bank account, and to submit their IBAN number when making
application for benefit. Payments are made monthly and are deposited directly into the beneficiary’s bank
account. There is no other payment method or payment channel used by PPA.

The PPA periodically (annually and sometimes more frequently) undertakes a ‘proof of life’ review of
beneficiaries. This requires the beneficiary to personally attend a PPA office and show proof of ID. In
addition, the Civil Registry periodically supplies – offline and in batch mode - the PPA data on registered
deaths, in digital format. These data are used as a control measure – to identify persons who have died
but where PPA have not been notified.

The PPA has a policy of prosecuting persons who fraudulently obtain benefits. However, PPA does not have
a special control unit (internal or external) to ensure beneficiaries continued eligibility and to detect
potential fraud.

From the fraud control perspective, it is unclear why the PPA Beneficiary Card is a necessary addition to
the National ID Card, as it seems to duplicate all the data on the National ID card. Furthermore, the PPA
Beneficiary Card has not been produced in the same secure environment or according to the same data
management rules as the National ID card.



A7. Grievances - Appeals and Complaints




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The Law (Article 39) provides for the right of participants to appeal against decisions taken by the PPA.
This right also includes the right to apply to the courts to seek a judge’s decision. The PPA has a formal
regulated system of grievance redress (appeals and complaints resolution). This system differentiates
between appeals and complaints. The PPA has a senior manager (akin to a Chief Appeals Officer) who
oversees the system.

Both appeals and complaints are handled at PPA’s regional and central office levels. Whilst there is no
specific form that must be used to submit an appeal or a grievance, appeals can be lodged through
personal attendance at PPA office, by letter, or by telephone call. There is no online facility to submit an
appeal, and appeals are not accepted if they are submitted by email.

Whilst the Law requires the PPA to act ‘promptly’ to resolve appeals, there is no specific time-limit set for
PPA to resolve appeals or complaints. In addition to using the appeals channel, persons are also entitled
to directly ask the courts to investigate their appeal, though it is unclear (in the Law) if they must first
engage with the PPA’s appeal process.

Though appeals data are examined to identify potential improvements/adjustments to operations or
service delivery, complaints data are not similarly analysed.



A8. Communications

The PPA has a special unit ‘Public Relations and Media Department’ whose responsibility is to develop and
implement PPA communications plans. This Department reports directly to the PPA’s General Director.
The Head of the Department is a member of the PPA’s senior management team. The PPA co-operates
with other institutions (e.g., Tax Administration/ health insurance fund, trade unions, employers) to
provide Scheme information to employees, and other relevant persons.

The PPA does not have a written communications strategy or plan. It does not undertake targeted public
awareness campaigns – to explain pension-related issues to the employees and servicemen of the public
sector, to inform them of changes to the pensions system, to remind employers and employees of their
rights and obligations to the pension system. It does not have a formal internal communications plan either
– to brief staff, keep staff updated on specific topics etc.

The PPA does have a written document that specifies customers rights, responsibilities, PPA’s service
standards, and information about how to make a complaint. It does not undertake client opinion surveys
– to measure attitudes towards the PPA and the pensions system, to measure the public’s understanding
of the pensions system, to gain suggestions about improvements to the PPA’s service etc. Furthermore,
the PPA doesn’t utilise outreach methods (focus groups, customer panels, customer liaison committees
etc) to seek advice or gain input to its business strategy or seek policy implementation feedback.

The PPA does not operate a call-centre. While its website contains information brochures for employers
and employees, it does not provide a Frequently Asked Questions section and is not linked to other
governmental websites. The PPA uses social media and its website to disseminate information. However,
the PPA does not collect data on how or through what medium/channel the public accesses information
about the pensions system or about PPA’s services. The website is lacking in interactivity with the clients,




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as it does not enable members to view their contributions history, to submit benefit applications, or to
submit appeals.

Summary of Observations and Recommendations

Overall, the PPA appears well structured. It has administration units with responsibilities for most
functions expected of a public pension institution. Its’ formal governance system reflects international
best practice – in terms of having a representative Board, Board sub-Committees, General-Director (Chief
Executive), and Assistant General-Directors. The roles and responsibilities of these formal positions are
clear and well-articulated in the Law (2005). In addition, there are written job descriptions for each senior
managerial position. The organisational architecture below these (most) senior management levels is
quite logical and structured, with groupings at Directory, Department, and Unit levels.

The PPA is organisationally structured and positioned to implement the Law as it is written. Nonetheless,
the reality is that some components of the Law (Defined Contribution, basic pension for all-population)
are not fully operable in practice. Furthermore, the contribution collection function is seriously impaired
– due to the lack of finances available to the Government, with consequential knock-on effects for
availability of funds to the investment function.

The ICT function is well organised, and the system contains most of the functionality expected of a
pensions ICT system. However, there are weaknesses with regard to web/e-services, data governance,
and disaster recovery. Whilst the PPA does have a basic online presence, it lacks sufficient functionality.
There is an opportunity to pivot the technology towards web-services and reduce reliance on physical
attendance by clients at PPA offices and using legacy channels to obtain data.

There are also weaknesses in critical areas such as:

▪   Risk management (focus is too narrow)
▪   Audit (focus is too narrow)
▪   Data analysis and reporting tools (e.g., underdeveloped Business Intelligence)
▪   Quality assurance-management (function is too weak)
▪   Appeals (function is underdefined)
▪   Communications (focus is too narrow)



In respect to the above findings, the following summarizes our key recommendations:



e-Services

•   Adopt an e-services digitalisation strategy.
•   Re-develop the PPA website to encompass more (automated) functionality – including benefit claims
    submission, employer reporting, appeals submission, email acceptance, FAQs, etc.
•   Re-design function and process workflows to facilitate automatic (and digitised) data reception and
    transmission.
•   Develop interoperability functionality – to facilitate automatic data exchange with other public sector
    institutions and data sources.


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ICT and Data Governance

•   Appoint a Chief Data Officer
•   Develop and implement a data governance plan – which will include (a) an analysis of how each type
    of data is managed and safeguarded (against error, fraud, accident etc.), and (b) a definition of what
    the PPA’s master data are.

Business Intelligence and Data Analytics

•   Deploy an offline data warehouse to enable business analytics and reports to be generated without
    using the live production database.
•   Deploy Business Intelligence tools – to enable better and more accurate insight to: business systems
    efficiency, policy outcome/effectiveness, identify trends, highlight performance issues, better
    respond to requests for data etc.

Disaster Recovery and Back-up Capacity

•   Develop a full Business Continuity Plan
•   Develop a physical back-up Data Centre and/or buy-in cloud back-up and storage facilities - as part of
    Disaster Recovery Planning.

Audit and Risk

•   Broaden the Audit Plan to include audit of business processes, data management, record-keeping,
    service delivery, disaster recovery etc.
•   Mandate the Internal Audit Unit to undertake such expanded scope of auditing.
•   Link Audit Plan to the Risk Plans.
•   Develop a PPA Risk Strategy – with detailed Risk Plans for every PPA function and responsibility.
•   Create a Risk Unit
•   Appoint a Chief Risk Officer

Quality Management

•   Develop and implement a Quality Assurance (QA) system to enable performance measurement across
    all key areas of PPA administration. Such a QA system would include specifying acceptable
    performance and service thresholds for each key administration function and using those standards
    to benchmark actual performance and identify needed modifications to systems or practice.
•   Integrate a QA Plan into the PPA Strategic Plan.

Appeals

•   Analyse complaints data. Examine ways in which Scheme information can be improved – to reduce
    possibility of appeals that are due to misunderstanding.
•   Impose time-limits for PPA resolution of appeals and complaints, as part of service standards
•   Develop case management system (as an MIS module) to register all appeals, track progress, and
    record results. Publish annual report on appeals system, using anonymised cases to highlight
    important cases and decisions. Include ratio of accepted/rejected cases – per Scheme.
•   Benchmark the existing appeals system against best practice principles.



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Communications

•   Review existing communications function – internal and external. Identify gaps and opportunities to
    strengthen and improve communications.
•   Assess options of establishing a call-centre for clients.
•   Develop comprehensive communications strategy – covering all areas of communications.
•   Develop of system and process client opinion surveys – to measure client and public attitudes towards
    the PPA
•   Develop communications training plan for PPA management and staff.




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Annex VIII: Education standardized assessments
Table 1 Administration of Standardized Assessments


                  Type of




                                                     2011
                                                            2012
                                                                   2013
                                                                          2014
                                                                                 2015
                                                                                        2016
                                                                                               2017
                                                                                                      2018
                                                                                                             2019
                                                                                                                    2020
                                                                                                                           2021
                                                                                                                                  2022
                                                                                                                                         2023
                                                                                                                                                2024
                                                                                                                                                       2025
                                                                                                                                                              2026
                                                                                                                                                                     2027
                                                                                                                                                                            2028
                              Subject       Grades
                   Test

                            Math        Age 15
                 PISA       Reading     (majority                                                                                 ✓                    ✓                    ✓
                            Science     grade 10)
 International




                            Math        8 (4+8
                 TIMSS                               ✓                                                                                   ✓                           ✓
                            Science     in future)

                 EGRA       Reading     2                                 ✓                                                                     ✓

                            Arabic
                 LaNA                   4                                                                                                ✓
                            Math

                 NLSA       Arabic      4+10                ✓             ✓             ✓             ✓                           ✓             ✓             ✓             ✓
                                        until 2016
                 NLSA       Math                            ✓             ✓             ✓             ✓                           ✓             ✓             ✓             ✓
                                        5+9
                                        since 2017
                 NLSA       Science                         ✓             ✓             ✓             ✓                           ✓             ✓             ✓             ✓
 National




                 NLSA       English     6                                                             ✓

                            Digital
                 NLSA                   10                                                            ✓
                            Skills
                            Stream
                 Tawjihi              12             ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
                            Dependent

 ✓ Indicates assessment has taken place
 ✓ Indicates assessment is planned to take place in the future
Note:1) The Tawjihi examinations cover the subjects that students have selected as part of the academic stream.
The academic stream options in the 2021-2022 school year were scientific, humanities, entrepreneurship and
business, Sharia, and industry. 2) PISA assesses 15-year-old students, regardless of grade. In the West Bank and
Gaza, the majority of 15-year-old students are in grade 10.
Source: Interviews with MOE and CERD.


Results from 2011 student learning data in the Learning Adjusted Years of Schooling (LAYS) index110 also
show (along with results from PISA) that learning outcomes in the West Bank and Gaza are comparable

110 LAYS is a measure that combines quantity and quality of education into one metric, accounting for the fact that similar durations

of schooling can yield different learning outcomes. To do so, the latest test scores from International Large-Scale Assessments
(ILSAs) that countries participated in are used. In the case of the West Bank and Gaza, data from TIMSS 2011 is used. By using the
LAYS index, the analysis includes a far larger pool of countries and – despite not being directly comparable in terms of the learning
being tested – the ranking of students in the West Bank and Gaza appears not to have changed substantially over time, making it
another useful measure of education quality.



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with – and in some cases even better than – countries that have similar levels of GDP per capita.
Furthermore, among MENA countries, the West Bank and Gaza achieves above average results and is
outperformed by only a small number of countries, each with a GDP per capita that is significantly higher.
Figure shows that the quality of education in the West Bank and Gaza (with a LAYS score of 8.5) is
comparable to countries such as Argentina (LAYS score of 8.5), Jordan (8.1), Iran (8.4), and Moldova (8.5),
despite the West Bank and Gaza having a lower GDP per capita. Palestinian students score higher than
those in Morocco (LAYS score of 6.5), Tunisia (6.9), and Lebanon (6.7), all countries where GDP per capita
is also higher. In the MENA region, only Bahrain (LAYS score 9.8), Oman (9.2), Qatar (9.3), and the UAE
(9.8) outperform the West Bank and Gaza and each has a GDP per capita that is significantly higher.
Comparing learning outcomes in countries with similar levels of GDP per capita also shows that the West
Bank and Gaza is performing well as it has a higher score than Angola (LAYS score 3.6), Cote d’Ivoire (4.5),
Honduras (6.3), India (7.2), Nigeria (5.0), and the Philippines (7.8).

Figure 1 Association between Educational Outcomes and GDP Per Capita

                                          14


                                          12                                                                                   Singapore
                                                                                                                    Finland
   Learning-Adjusted Years of Schooling




                                                                                            Vietnam              Israel
                                          10
                                                                                                     Albania
                                                                                               Moldova              Bahrain UAE
                                                                                  Uzbekistan              Turkiye Oman          Qatar
                                                                                         Jordan
                                           8                           West Bank and Gaza           Iran Argentina
                                                                                                 El Salvador
                                                                                Philippines Jamaica
                                                                         Nepal       India
                                                                             Nicaragua Tunisia
                                           6                                          Morocco Lebanon
                                                                         Honduras Ghana
                                                                                        Namibia
                                                                      Cameroon Nigeria
                                           4       Mozambique               Cote d'Ivoire
                                                        Afghanistan
                                                                                Angola

                                           2


                                           -
                                               6    7                 8               9               10                  11            12
                                                                            GDP Per Capita PPP

Note: Education as a share of GDP is taken as the average from 2012-2022 in cases where at least five years of
data are available and the log of GDP per capita is used.
Source: Authors’ calculations based on World Bank Human Capital project (HCP) and UNESCO UIS (2020).


The West Bank and Gaza’s performance in terms of LAYS score is commensurate to its expenditure on
education as a share of GDP, although the correlation between country’s spending on education as a
share of GDP and learning outcomes is weak. Figure shows that the West Bank and Gaza nevertheless


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falls on the trend line. Other countries that have similar shares of education spending and similar learning
outcomes are Argentina, Jamaica, Oman, Türkiye, and Uzbekistan. Viet nam is an example of a country
with a slightly lower share of education spending (4.5 percent), that has higher education quality (LAYS
score 11), far higher than the West Bank and Gaza. In contrast, a country like Ghana that also has a similar
share of education spending (4.7), performs far below the West Bank and Gaza (LAYS score 6.0). The
distributions, trend and position of the West Bank and Gaza are similar when measuring education
expenditure as a share of all government expenditure.

Figure 2 Association between Educational Outcomes and Expenditure on Education

                                          14


                                                            Singapore
                                          12
                                                                                                        Finland

                                                                                Vietnam        Israel
   Learning-Adjusted Years of Schooling




                                          10                         Albania
                                                       UAE Bahrain
                                                                      Qatar            Oman Uzbekistan
                                                                              Turkiye
                                                                 Iran     West Bank and Gaza       Moldova
                                          8                    Jordan                  Argentina
                                                                         El Salvador
                                                               Philippines
                                                                                           Jamaica
                                                                       Nepal India                   Tunisia
                                                                             Nicaragua
                                          6            Lebanon                         Morocco
                                                                                                 Honduras
                                                                                   Ghana
                                                                                                                      Namibia
                                                            Cameroon
                                          4                       Cote d'Ivoire            Mozambique
                                                                       Afghanistan
                                                              Angola

                                          2


                                          0
                                               0   1    2         3         4         5        6              7   8   9         10
                                                                         Education as a Share of GDP

Source: Authors’ calculations based on the Human Capital project (HCP) and UNESCO UIS (2020).




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