By Dana Almubaied*

In the West Bank and Gaza, Local Government Units (LGUs) have a long history - some were created as early as the second half of the 19th century.  With increasing political and geographical fragmentation over the last two decades, LGUs have gained paramount importance providing services to the local population, particularly in areas where the relatively young Palestinian Authority was politically, geographically, and fiscally constrained.  The services commonly provided by LGUs range from solid waste collection, street sweeping, water supply, street lighting, to road and school maintenance. LGUs are home to 74 percent of Palestinian citizens and function as an important level of representation and accountability. Despite their importance and significant number of functional assignment, LGUs’ revenue assignments chronically fall short to cover expenditures. LGUs are heavily dependent on user fees, e.g., for water and electricity services, comprising between 60 and 70 percent of own revenues. LGUs do not have reliable and sufficient tax revenue assignments to finance general operating expenses and non-revenue generating services, such as road maintenance. Fiscal space is very limited, affecting LGU’s capability to finance capital investments. In 2012, municipal revenues represented only 3.9 percent of GDP and municipal expenditures 3.3 percent, while Village Council (VC) revenues amounted to a meager 0.6 percent of GDP.  

The central government does not provide municipalities with formal and regular fiscal transfers to supplement the shortage of own source revenue.  Currently, the only reliable source for capital expenditure funding for municipalities is through the Municipal Development and Lending Fund under the Municipal Development Program (MDP). In the medium-to-long term, municipalities will need to improve their financial management performance to mobilize additional sources of capital funding, but also improve operational efficiency.

The World Bank continues to support West Bank and Gaza municipalities towards their institutional strengthening and improved service delivery. This support comprises analytical advisory activities that aim to improve municipal finance performance and strengthen accountability and transparency in the use of public funds. A series of Municipal Finance Technical Assistance has been conducted since 2006. The Bank also provides a performance-based investment grant to municipalities through the ongoing MDP. To address the critical service delivery capacity gap in VCs which have not benefited from the MDP, a new Program for Results operation is currently under preparation to strengthen viable VCs and joint service provision arrangements.

The upcoming Municipal Creditworthiness Academy is a critical and integral piece to the Bank’s support to the LGU sector.  Representatives from 15 municipalities will be participating to this 5-day training, to be held in Amman from May 24-28, 2015. Findings and recommendations from the Academy will help informing refinement of capacity development packages currently provided under MDP, and assist municipalities to improve their ranking in the MDP performance assessment, including enhanced revenue collection, improved financial management systems and strengthened accountability and transparency in the use of public funds. Each municipality participating in the Academy will produce customized Action Plans based on a municipal financial self-assessment designed to meet their specific development objectives. Municipalities will also be able to explore resources and investment partners beyond traditional sources of concessional funding.