68The <strong>National</strong> <strong>Early</strong> <strong>Recovery</strong> <strong>and</strong> <strong>Reconstruction</strong> <strong>Plan</strong> <strong>for</strong> <strong>Gaza</strong> <strong>2014</strong>SECTION 6: FINANCING REQUIREMENTS AND MECHANISMS6.1 Overview of Current Fiscal SituationThe Palestinian Government has made significant <strong>and</strong> continued ef<strong>for</strong>ts to improve its fiscal per<strong>for</strong>mance through revenuere<strong>for</strong>ms <strong>and</strong> expenditure limitations. In 2013, on account of these measures, the fiscal deficit declined by 2.7 percentage pointsto 13.9 percent of GDP. However, the Government’s fiscal position remains extremely fragile, highly reliant on donor support,<strong>and</strong> highly dependent on economic <strong>and</strong> political relations with Israel. By the end of 2013 public debt, including arrears <strong>and</strong>clearance revenue advances, had reached $4.6 billion, close to 40 percent of GDP.The total budget <strong>for</strong> <strong>2014</strong> was $4.4 billion, comprising 92 percent recurrent <strong>and</strong> 8 percent development expenditure. Even be<strong>for</strong>ethe <strong>National</strong> Consensus Government was <strong>for</strong>med, expenses on <strong>Gaza</strong> comprised almost 40 percent of the budget, comprisingpayments of salaries <strong>for</strong> public-sector workers; coverage of non-wage bill items like health referrals, medical supplies, <strong>and</strong> socialassistance; <strong>and</strong> coverage of fuel <strong>and</strong> net lending expenses <strong>for</strong> electricity <strong>and</strong> water. Disbursements amount to approximately$120 million on a monthly basis or $1.44 billion annually.2013 (Actual) <strong>2014</strong> (Projected) % ChangeUSD m USD m %Gross Revenues 2,687 2,923 9%Total Net Revenues 2,443 2,752 13%Total Expenditure <strong>and</strong> Net Lending 3,903 4,110 5%Of which <strong>Gaza</strong> expenditure 1,440 1,440 -Current Balance (1,460) (1,358) -7%Development Expenditures 197 316 60%Total Balance (1,657) (1,674) 1%In its September <strong>2014</strong> report to the AHLC, the IMF described the near-term fiscal outlook as challenging in any scenario, withoutaccounting <strong>for</strong> the spending needed <strong>for</strong> <strong>Gaza</strong> reconstruction. It <strong>for</strong>ecasts a fiscal gap of approximately $350 million <strong>for</strong> <strong>2014</strong>,accounting <strong>for</strong> 16.5 percent of GDP, assuming that overall donor financing will reach $1.5 billion.The July/August assault in <strong>Gaza</strong> has provided an unprecedented shock to the Government’s already strained budget position.The <strong>National</strong> Consensus Government is faced with a recovery <strong>and</strong> reconstruction bill that is equivalent to the entire <strong>2014</strong> budget,13 times the <strong>2014</strong> development budget, <strong>and</strong> over 20 times the 2013 development budget. In the absence of external support,incurring the cost of reconstruction would imply not being able to meet recurrent expenditures in the West Bank <strong>and</strong>/or up to adoubling of the existing public debt, neither of which is practically or politically possible.Given the scale <strong>and</strong> urgency of the challenge, the Government has no choice but to reach out to the international community <strong>for</strong>support with this momentous task.The Government sees the investment in <strong>Gaza</strong> as an investment in stability <strong>and</strong> the viability of a future Palestinian state. Whilst <strong>Gaza</strong>’srebuilding will be costly in the short- to medium -term, the Government’s vision <strong>for</strong> <strong>Gaza</strong> is one of sustainability <strong>and</strong> self-sufficiency,where <strong>Gaza</strong> is an integral driver of the Palestinian economy <strong>and</strong> where it contributes to the fiscal position of the Government.
696.2 Summary of <strong>Recovery</strong> <strong>and</strong> <strong>Reconstruction</strong> CostsThe total costs of the reconstruction ef<strong>for</strong>t are estimated at $4 billion, of which $414 million is required <strong>for</strong> immediate relief, $1.2billion <strong>for</strong> early recovery, <strong>and</strong> $2.4 billion <strong>for</strong> the reconstruction of <strong>Gaza</strong>. Financing <strong>for</strong> the immediate relief <strong>and</strong> early recoveryphases is required immediately; financing <strong>for</strong> reconstruction projects will be required in 2015, 2016, <strong>and</strong> <strong>2017</strong>.Summary Costs by Sector <strong>and</strong> Sub-SectorSector Sub-SectorReliefPhase(USD m)<strong>Early</strong><strong>Recovery</strong>Phase(USD m)<strong>Reconstruction</strong>Phase(USD m)Total(USD, m)Social Protection 230 8 80 317SocialHealth <strong>and</strong> Psychosocial Support 14 159 45 218Education <strong>and</strong> Higher Education 1 45 75 121Civil Society 0 4 41 45Sub-total 245 215 241 701Infrastructure & EnvironmentRubble & ERW 0 20 14 34Energy 0 32 153 185Water, Sanitation <strong>and</strong> Hygiene 40 80 116 236Housing <strong>and</strong> Shelter 129 143 910 1,182Governmental Buildings <strong>and</strong> Other Public Infrastructure 0 51 97 149Border Crossings 0 5 50 55Roads 0 0 70 70Environment 0 1 0 1Sub-total 169 332 1,411 1,911Agriculture 0 194 257 451EconomicIndustry <strong>and</strong> Manufacturing 0 75 284 359Trade <strong>and</strong> Services 0 130 77 207Employment 0 62 7 69Promoting Investment 0 20 130 150Sub-total 0 481 754 1,235Operational Capacity of Central Gov. Institutions 0 113 0 113GovernanceOperational Capacity of Local Government Institutions 0 31 0 31Rule of Law <strong>and</strong> Human Rights 0 1 6 7Implementation <strong>and</strong> Coordination 0 12 20 32Sub-total 0 157 26 183TOTAL 414 1,184 2,432 4,030
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