DOES HAMAS HAVE A CASH FLOW PROBLEM IN GAZA?

S E C R E T JERUSALEM 000276



SIPDIS



NEA FOR FRONT OFFICE AND NEA/IPA; NSC FOR KUMAR; TREASURY

FOR MOGER/KNOWLES; PLEASE PASS TO USAID FOR ANE/MEA: BORODIN



E.O. 12958: DECL: 02/11/2020

TAGS: ECON, KPAL, KTFN, PGOV, EFIN, PTER, GZ, EG, QA

SUBJECT: DOES HAMAS HAVE A CASH FLOW PROBLEM IN GAZA?



REF: A. CAIRO 177

B. 08 JERUSALEM 1682



Classified By: Consul General Daniel Rubinstein for reasons 1.4 b, d



1. (C) Summary. Hamas was more than a week late in paying

January salaries and, according to Post's Gaza contacts, has

not yet paid those salaries in full. While most contacts

report that Hamas faces a liquidity crisis, they disagree on

the cause. Hamas reportedly relies heavily on foreign

assistance to support its budget, and the current cash flow

problem is most likely a result of Egyptian anti-smuggling

efforts. Gaza-based contacts report that Hamas is cutting

costs and increasing its internal revenue collection, through

taxes and fees. The amount of extra revenue that these

efforts can generate is limited, however. Gazans speculate

that recent real estate investments may also have tied up

some of Hamas's available cash. End summary.



Making Payroll?

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2. (S) According to Post contacts in Gaza, Hamas was late in

paying January salaries to civil servants on its payroll, and

has not yet paid those salaries in full. While Hamas salary

payments are typically available on the first day of every

month, employees of the de facto Hamas government did not

line up at post offices or the Islamic National Bank (the two

institutions that Hamas uses to disburse salaries) until

February 8 when, according to contacts, Hamas paid low-level

employees with salaries up to NIS 1,500 (USD 400) per month.

On February 11, Hamas began paying half-salaries for

mid-level employees. Yousef Shaath (a Gaza-based manager at

the Palestinian Agricultural Relief Committee) told Econoff

that while he was picking up his exit permit at the Hamas-run

"Ministry of Interior," he overheard an employee complain on

the phone that his salary was late and he would only receive

a portion of it. The employee further complained that this

was at least the third month he had received only a

"portion."



3. (SBU) According to press reports, Hamas has more than

34,000 employees on its payroll who receive USD 16 million in

monthly salaries. Comment: While we understand these

figures to include security forces, our contacts claim no

insight into Hamas military structures and cannot confirm the

status of salary payments to security personnel. Reports of

Hamas's total wage bill vary widely. End Comment.



Hamas's Cash Flow Problem

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4. (S) Post contacts uniformly commented on Hamas's lack of

liquidity, but interpret the nature and depth of the problem

differently. All agree that Hamas relies heavily on external

funding to cover its expenditures, particularly salaries.

Gazan businessman Yaser al-Wadeya said that he met with the

Hamas "Minister of National Economy," Ziad al-Zaza, who

claimed that Hamas collects USD 3.5 to 4 million every month

through fees and taxes within Gaza, though its monthly

expenditures are USD 25 million. The shortfall is met by

funding from outside Gaza, al-Zaza reportedly said. For

instance, according to al-Wadeya, employee salaries at

Hamas's "Ministry of Education" -- except those receiving

salaries from the Palestinian Authority (PA) in Ramallah --

are covered by Qatari donations.



5. (C) In addition to continued Israeli restrictions,

contacts attribute the liquidity problem to tighter Egyptian

security measures on its border with Gaza, including

increased interference with smuggling operations. Gaza

contacts note that Egypt has also cracked down on the travel

of Hamas officials outside Gaza by restricting their access

through the Rafah crossing. In particular, Egypt reportedly

no longer tolerates "Hamas VIP bags," a reference to

suitcases of cash transported across the Rafah border into

Gaza. Our contacts believe current inflows of cash are

generally restricted to the tunnels.



6. (S) Bassam Nasser, a Gaza-based NGO employee, told

Econoff that he believes money can easily pass through the

tunnels, but the cash flow has been disrupted elsewhere.

Other contacts also report that trade flows through the

tunnels remain robust. Nasser speculated that Egypt has been

effective in countering bulk cash smuggling within its own

borders, thus making it unavailable to smuggle through the

tunnels into Gaza.



7. (C) Another Gaza contact reported rumors that Hamas has

sufficient funds to pay full salaries for six months, but

that it is protecting its fiscal position by holding back on

payments. By cutting some salaries, Hamas may be able to

stretch the payments out over the full year without external

funding.



8. (C) According to a local contact, Fatah Central Council

member Nabil Shaath and Hamas authorities agreed last week to

allow some PA-salaried employees, who had stopped reporting

to work, to return to their civil service jobs in Gaza.

Hamas will apparently then terminate the contracts of those

who had been hired to replace the absent PA employees.



9. (S) Ahmed Alfarra, a Gaza-based board member of the

Palestinian IT Association, believes that money continues to

flow into Gaza and that Hamas is more stable financially than

it appears. He reports that Hamas has increased its real

estate investments inside Gaza, partly explaining its

shortage of cash, and described recent bids on properties by

Hamas brokers at well above market prices. Alfarra

speculated that purchasing real estate is a sustainable

investment for Hamas, a money laundering scheme, and/or part

of strategy to strengthen its financial position (or physical

presence) in Gaza as a bulwark against future events.



10. (C) Palestinian bankers claim the delay in salary

payments is proof that Hamas cannot borrow from the formal

financial sector in Gaza.



Internal Revenue

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11. (C) Several contacts report that Hamas is both cutting

costs and increasing collection of revenue from inside Gaza.

They noted that the potential benefit to Hamas is limited due

to the current economic situation.



12. (C) According to multiple contacts, municipalities in

Gaza are stepping up the collection of electricity and water

bills. Hamas-run ministries also charge fees for various

services, like the issuance of official documents. The

first-time "registration" fee for a car is USD 12,000, and

one contact reported that 40 new cars were recently imported

from Egypt. Gazans must also pay an annual fee to renew

their car or motorcycle registration. New traffic signs are

being installed, and traffic laws are being aggressively

enforced by the police. For an infraction, according to a

Gazan contact, police typically confiscate a driver's license

or car documents and require the driver to retrieve his

documents at a police station, where he will likely pay a

penalty fee. In one anecdotal account of more rigorous

traffic controls, a man who used his van to transport

children to school was confronted by Hamas authorities and

instructed to register his van as a school bus, and then pay

the requisite taxes.



13. (C) Local NGOs report that Hamas is demanding income

tax, with payments in cash in order to bypass the official

banking sector. A Gaza contact reported that one NGO

deposited a tax payment for Hamas on February 10 at the post

office, deducted from staff salaries. Another contact said

that Hamas now demands private schools to pay taxes based on

tuition fees, and threatens to shut down schools for

non-compliance. Other contacts have commented on increased

taxes and fees on Gazan businesses.



RUBINSTEIN