Government Expenditure Reduction Strategies: What Policies Does the Government Have Available for Fiscal Consolidation

The budget serves as the Palestinian Ministry of Finance’s (MoF) practical plan to achieve the economic, financial, and social objectives outlined in the development plans. The budget structure comprises three main categories of financial tools: 
- Public expenditures, encompassing spending on goods and services, wages, salaries (including simi-salaries and non-salaries), net lending, social services, security, and current, development, and investment expenditures.
- Public revenues (derived from various local and external sources, including tax and non-tax revenues, fees, and profits).
- Deficit management strategies, including net lending, revenue collection, external assistance, and domestic and external borrowing to bridge the financing gap.

 The Palestinian budget encounters various internal constraints and negative structural developments. One significant constraint is the allocation of a considerable portion of the current expenditure (two-thirds), reaching 68% in recent years, to the health and education sectors. The security sector alone accounted for as much as 28% of public expenditure, receding to around 22%, thus further limiting spending on other sectors such as the agriculture sector, while sectors like health, education, and security have been prioritized.

Despite the persistent policy of reducing expenditures over the past decade, the challenges of managing current and operational expenditures, controlling net lending, and implementing necessary structural changes remain unresolved. One of the significant challenges is the burden posed by uncontrolled net lending, which puts a strain on the budget. Furthermore, there is an urgent need to reform development expenditures, which have historically heavily relied on external funding sources. These challenges facing managing the public budget are further exacerbated by the continuous Israeli procedures and the substantial withholding of clearance revenues by Israel for different security pretexts.