PA BARELY MAKES JULY SALARIES THANKS TO THE UAE

C O N F I D E N T I A L JERUSALEM 001449 SIPDIS NEA FOR FRONT OFFICE; NEA/IPA FOR GOLDBERGER/SACHAR; NSC FOR PASCUAL; TREASURY FOR ROSE/HAJJAR E.O. 12958: DECL: 08/07/2018 TAGS: ECON EFIN KWBG PGOV IS SUBJECT: PA BARELY MAKES JULY SALARIES THANKS TO THE UAE AND A LOAN REF: JERUSALEM 1372 Classified By: Consul General Jake Walles, for reasons 1.4 b and d ¶1. (C) Summary: The Palestinian Authority (PA) paid salaries in the West Bank and Gaza on August 7, thanks to a transfer of USD 42 million from the UAE and a USD 80 million commercial bridge loan taken against future income. However, the PA did not pay the usual NIS 1000 each to employees still owed back wages. The PA's cash situation worsened when the GOI unilaterally deducted an additional NIS 70 million (USD 20 million) for electricity from the monthly clearance revenue transfer. Gaza banks disbursed partial payments to local account holders and loaned each other money in an effort to manage low cash levels. End Summary. UAE Makes PA Salaries Possible This Month -------------- ¶2. (C) The PA paid July salaries to public sector employees in the West Bank and Gaza on Thursday, August 7. The PA was able to make its approximately NIS 540 million (USD 150 million) payroll thanks to contributions from the UAE (USD 42 million) and the EC (USD 23 million). However, the PA also needed to take a USD 80 million loan from the Arab Bank. The loan was taken against the initial payment expected later this month from new mobile telecom provider Wataniya (reftel). Ministry of Finance DG Mazen Jadallah said that part of the Arab Bank loan was needed to pay off loans taken last month from other banks, who required payment from the PA before they would process salary payments this month. ¶3. (C) The PA received NIS 220 million (USD 62 million) in clearance revenues from the GOI this month (reflecting revenues collected in June, minus deductions for electricity, water and sewage provided to the West Bank by Israeli utilities). PA Customs Head Hatem Yousef told EconChief on July 30 that the PA had agreed with the GOI on NIS 60 million in deductions for water, electricity and sewage costs, only to be told later that an additional NIS 70 million (USD 20 million) would be withheld for electricity costs. Yousef said that he had been told the unilateral withholding was done at the direction of the GOI Minister of Finance. ¶4. (C) Given the lower levels of budget support and clearance revenue, the PA does not have enough cash to pay wage arrears this month. (Note: The PA has been paying NIS 1000 each month to employees owed back wages from the period of the Hamas government and the NUG. Under a deal struck with its employees' union to end strikes earlier this year, Prime Minister Fayyad agreed to complete repayment of all wage arrears by October 1. In 2008, the PA has paid more than USD 200 million to its employees in arrears. End Note.) Jadallah told EconChief on August 7 that the PA would likely make the arrears payment in the middle of the month when/if it receives additional budget support. We also understand that the PA is accumulating private sector arrears and has failed to fully fund Ministries' non-wage operational needs in recent months. Gaza Cash - Partial Payments -------------- ¶5. (C) PMA Governor Jihad al-Wazir reported on August 7 that he had ordered Gaza banks to disburse only partial salaries, given low levels of NIS liquidity in Gaza. The PMA also coordinated loans between Gaza banks in order to cover those (Cairo Amman and Arab Bank) with the lowest cash levels. Gaza account holders were told to return after the weekend to collect the rest of their salaries. Al-Wazir hopes the GOI permits additional NIS into Gaza or that enough cash flows back into the banks (as people pay debts and merchants deposit funds) to allow for additional withdrawals next week. Looking Ahead -------------- ¶6. (SBU) The PA is counting on the Wataniya payment to cover the loan taken this month and expected contributions from the UK (USD 30 million) and Kuwait (USD 80 million) to enable its next salary payment. WALLES