Check against delivery
Ladies and gentlemen,
It is my pleasure to welcome you to this AHLC meeting in New York, and continuing our tradition we convene at the United Nations. Let me thank Under-Secretary General Lynn Pascoe for hosting this meeting at the UN, and extend a special welcome to Prime Minister Salam Fayyad, Deputy Foreign Minister Daniel Ayalon, EU High Representative Catherine Ashton and Quartet Representative Tony Blair.
Let me also welcome Australia as a new participant in this group. Australia has today signed a 5-year framework agreement of a value of 120 million Australian dollars with the PA.
We convene this meeting of the AHLC in a turbulent regional context and with changes unfolding in the Palestinian landscape. We know that the Palestinian cause and quest for statehood will be on the political agenda here in New York in the coming days and weeks. Many of us will be engaged in that process – the political process – aiming for negotiations towards a lasting peace and end of conflict based on a two-state solution.
This afternoon, however, the framework for our deliberations is the AHLC, the donor support group to the Palestinian Authority. My ambition as AHLC chair is to keep focus on our core task and fulfil what we have set out: Our core mission is to assist the Palestinian Authority in completing the building of institutions, in persevering in the Palestinian reform process, and in ensuring a long-term viable economy.
The two processes – that I have called the top-down process of final status negotiations and the bottom-up process of helping building viable institutions – are of course linked. The one can hardly be sustained without the other. Ideally the two should converge, and ideally we should have been in a position – here this month – to declare that solid, transparent and accountable institutions stand ready as the parties conclude the negotiations on the outstanding final status institutions.
This convergence is not happening. This we regret, all the more so because our process – led by Prime Minister Fayyad and supported by the AHLC – is about to deliver. It is all the more important that we focus fully on taking stock of this effort – to determine where we stand, how objectives have been met and what challenges lie ahead.
Let me recall some key events from these last four years.
When a new government was formed in the West Bank in 2007, the PA, together with the international donor community, started to rebuild key institutions. Funding was pledged at the donor conference in Paris in December 2007, and the donors delivered on their commitments over the following three-year period. Major reforms were implemented by the PA, and the Government of Israel responded by gradually easing its restrictions on access and movement of goods and people.
At our meeting here in New York two years ago, we acknowledged the political programme put forward by the Prime Minister, which aimed at completing the building of the institutions needed for a Palestinian state to function and prosper.
This plan, together with the stated ambition to negotiate an end to the conflict constituted the political framework for turning the two-state vision into reality. They offered the much-needed political horizon and gave momentum to the AHLC’s efforts to mobilise the donor community in a coordinated effort.
Looking back today, we can confirm that the efforts to build robust state institutions and revive the Palestinian economy stand out as an international success story. When we met in Brussels last April, under the auspices of the High Representative Cathrine Ashton, we welcomed the assessment by the World Bank, the IMF, and the UN that the PA is above the threshold for a functioning state in the key sectors they studied, and that Palestinian institutions compare favourably with those in established states.
In recent years, we have witnessed unprecedented progress in the quality and functioning of these institutions, high levels of growth, restoration of basic living conditions and security in the West Bank, and improved hope for the people. This is a remarkable achievement made possible by the concerted action of Palestinians, Israelis and donors.
However, although the quality of the institutions is now undisputed, the reality on the ground is highly complex. Not only because there is political and diplomatic stalemate on the negotiation track, but also because the effect of the occupation on the ground severely hampers the functioning of the economy. And finally because the clear signs of donor fatigue complicates the balance sheet of the Palestinian economy.
We can read the immediate result on the ground, as presented to us today by the World Bank, the IMF and the UN:
The Palestinian economy is showing a significant slowdown of growth in the West Bank. This slowdown is due to continued fiscal retrenchment, reductions in aid from donors and a consequent liquidity crisis, as well as the lack of further major easing of Israeli restrictions.
Gaza’s output continues to recover with a high level of growth, but from a repressed level, following the easing of the import control regime in mid-2010. Since then, more changes have been made to the access regime into Gaza than to that into the West Bank.
According to the World Bank, the acute fiscal crisis, accompanied by declining economic growth, threatens to undermine the gains in institution-building that have so painstakingly been made over the past several years.
So this dear friends, I believe is the backdrop.
At this meeting of the AHLC, we need to look ahead. We will address the approach by the PA and Prime Minister Fayyad to facilitate the transition from substantial external funding of recurrent costs to economic independence. The Prime Minister stated that the PA finds itself compelled to accelerate the pace of an already strong fiscal adjustment effort.
In order to achieve fiscal sustainability and economic viability in an orderly and manageable process, we believe the following measures are required:
Donors must provide predictable funding for budget support, both for the remainder of 2011 and for the whole of 2012. This will pave the way for shifting assistance from budget support to investment funding from 2013.
VAT collection in Israel on trade between Israel and the PA must be improved, and regular transfers of the clearance revenue must be ensured.
Although we understand the security concerns – we fully do – the access and movement regime in the West Bank and Gaza must be further dismantled to allow for increased public and private investments as well as development of infrastructure in the West Bank and Gaza.
Without further and more radical measures, the Palestinian economy simply cannot become viable, no economy can prosper under such conditions.
Referring to the reports to this meeting, I would like to add that donors should not accept that their contributions are used to finance the costs incurred by a continued closure regime.
The PA must continue exercising strong fiscal discipline and control, as well as further tighten public spending during the transition period.
The PA must increase its domestic revenues by broadening and tightening its taxation base and collection mechanisms. And I would like to add that donors should not support tax evasion with aid money.
Prime Minister Fayyad has also asked us to consider reviewing the current practice of VAT exemption on donor-financed projects. This is in line with current discussions among donors in the OECD/DAC.
In Norway we welcome this debate in the OECD, as we are firmly committed to improving the management of resources and tax administration, and to fighting illicit financial flows.
So ladies and gentlemen,
We have reached a critical juncture. I feel that we are at the end of a road that we have travelled together. If AHLC members now pull back individually – for example because of a lack of inspiration when faced with a top-down process that is not delivering as expected – then our common project will not only stall, it may fall apart.
2011 shows such signs of retraction and we should not let that happen.
If the PA does not succeed in its fiscal discipline and austerity measures, if Israel holds back clearance revenues and discontinues its efforts to ease restrictions on access and movement, if donors reduce or stop their contributions, then we will see that the current crisis will escalate – with consequences far beyond red figures on the balance sheet.
On the other hand, if all of us, collectively, stay the course for an extra mile, we may not only have assisted the PA to successfully sustain what they have accomplished through much hard work - supported by us – as they have built their institutions, but also to attain fiscal sustainability and economic viability.
This, I believe, is the bargain offered us by the Prime Minister and we will hear the details.
I call on the AHLC to continue its efforts to accompany the PA through the challenging transition ahead. This is the only way we can secure the success that we have achieved so far.
So with these words we will open the discussion.