12/02/2010: DOES HAMAS HAVE A CASH FLOW PROBLEM IN GAZA?
S E C R E T JERUSALEM 000276
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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.
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. [Text removed by Aftenposten] 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
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
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.
[Text removed by Aftenposten] 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, [text removed by Aftenposten]. For
instance [text removed by Aftenposten] 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) [Text removed by Aftenposten] 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. [Text removed by Aftenposten] 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
8. (C) [Text removed by Aftenposten]
Hamas will apparently then terminate the contracts of those
who had been hired to replace the absent PA employees.
9. (S) [Text removed by Aftenposten] believes that money continues to
flow into Gaza and that Hamas is more stable financially than
it appears. [Text removed by Aftenposten] 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. [Text removed by Aftenposten]
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.
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.