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C O N F I D E N T I A L SECTION 01 OF 03 JERUSALEM 000563 
 
SIPDIS 
 
SIPDIS 
 
NEA FOR FRONT OFFICE; NEA/IPA FOR WILLIAMS/WATERS/LOGERFO; 
TREASURY FOR NUGENT/ADKINS 
 
E.O. 12958: DECL: 02/06/2016 
TAGS: EFIN KBIO KWBG IS
SUBJECT: PALESTINIAN AUTHORITY WILL DISBURSE SALARIES, 
STILL SEEKING FUNDS FOR FUEL, EMERGENCY HEALTH AND 
EDUCATION EXPENDITURES, AND UNEMPLOYMENT AND SOCIAL 
TRANSFERS 
 
 
Classified By: Consul General Jake Walles for reasons 1.4 (b) and (d). 
 
¶1.  (C) Summary and comment: Palestinian Authority (PA) 
Deputy Finance Minister Jihad al-Wazir confirmed February 7 
that he will disburse salaries February 8 since he has 
managed to cobble together almost USD 113 million.  He does 
not yet have enough to cover unemployment, retirement, or 
social benefits, totaling at least USD 3 million.  He also 
needs another USD 72 million for fuel supplies and emergency 
payments of arrears to health and education sector suppliers. 
 He confirmed that he had not received any transfers from 
Gulf states but expected a letter February 8 from Qatar 
confirming its imminent transfer.  Given the uncertainty to 
date over the delayed payment of January PA salaries, the 
local press are reporting reduced domestic consumption and 
that some Palestinians are starting to exchange foreign 
currency savings into Israeli shekels.  Without additional 
external financing, the PA will soon reach the point where it 
cannot pay salaries or cover its outstanding bills.  At that 
point, conditions could rapidly deteriorate and a 
humanitarian crisis could ensure.  End summary. 
 
PA will pay January salaries 
---------------------------- 
 
¶2.  (C) Palestinian Authority (PA) Deputy Finance Minister 
Jihad al-Wazir confirmed February 7 that the USD 54 million 
in clearance revenue transferred by the Israeli government 
was in the PA's single treasury account.  Al-Wazir also 
confirmed that the PA had received a USD 25 million loan from 
Jordan Investment Bank, that is collateralized against 
Palestine Investment Fund (PIF) assets.  Al-Wazir also 
described a number of smaller credit lines (bridge loans) and 
revenue collections that will enable him to disburse January 
PA salaries, totaling USD 113 million, on February 8. 
Al-Wazir managed to cobble together USD 106.33 million for 
the salary payments with the following funding: 
 
-- USD 54 million from clearance revenue that the Israeli 
government transferred; 
-- USD 25 million loan from Jordan Investment Bank 
collateralized against PIF assets; 
-- USD 9.78 million income tax payment from Arab Bank; 
-- USD 2.8 million extension of credit from Palestine 
Investment Bank, against future domestic revenues; 
-- USD 2.8 million extension of credit from Jordan Bank, 
against future domestic revenues; 
-- USD 1.52 million extension of credit from Cairo-Amman 
Bank, against future domestic revenues; 
-- USD 3.26 million in property taxes collected that will not 
be transferred to municipalities; 
-- USD 7.17 million in past excess payments for security 
retirement benefits; 
 
Al-Wazir said he was waiting for a USD 3.26 million advance 
on VAT owed by PalTel and was asking Arab Bank for a credit 
line of USD 3.41 million against the future Qatari transfer. 
 
PA still needs funding for 
unemployment and other benefits 
------------------------------- 
 
¶3.  (C) Al-Wazir stressed that he did not yet have enough 
funds to pay unemployment benefits to roughly 13,000 "former" 
militants and other beneficiaries or retirement and social 
benefits (totaling at least USD 4 million).  He noted that he 
had asked for additional security on the Finance Ministry 
offices in Ramallah and Gaza because he assumes those groups 
may try to attack the Finance Ministry when they realize 
their benefits are not in their accounts.  He would like to 
be able to make those transfers next week.  Al-Wazir added 
 
JERUSALEM 00000563  002 OF 003 
 
 
that President Abbas plans to hold a press conference 
February 8 announcing the formation of a committee to review 
all appointments to the security and civil services since 
mid-2005. 
 
Still seeking funding for fuel 
and emergency arrears 
------------------------------ 
 
¶4.  (C) In addition to still needing funds to pay 
unemployment, retirement, and other social benefits, al-Wazir 
said there was another fuel payment due to the Israeli fuel 
provider Dor on February 10 for roughly NIS 100 million (USD 
21.74 million).  He also needs to pay at least NIS 230 
million (USD 50 million) in emergency arrears to health and 
education sector suppliers, including pharmaceutical 
suppliers.  Those arrears are in addition to NIS 400 million 
(USD 87 million) in non-emergency arrears due to other PA 
suppliers.  Al-Wazir described the outstanding total of 
commercial bank loans at USD 600-700 million.  He joked that 
he may have been able to delay the financial collapse of the 
PA this week but it was likely at the expense of certain 
local commercial banks who are now even more likely to face 
balance sheet problems. 
 
Nothing to date from Gulf; 
not even a letter 
-------------------------- 
 
¶5.  (C) Al-Wazir confirmed that he still did not have letters 
in hand from the Qatari or Saudi governments promising 
transfers of budget support.  However, the PA had heard from 
the Minister of State in the Qatari Foreign Ministry that 
such a letter would be sent February 8.  Al-Wazir noted that 
the PA had heard nothing from Riyadh and he is worried that 
they were playing political games. 
 
¶6.  (C) The office of the Quartet Special Envoy relayed that 
Quartet Special Envoy James Wolfensohn called Saudi Finance 
Minister Assaf February 7, following up on an earlier phone 
call, and urged the Saudis to transfer the promised USD 20 
million to the PA.  Minister Assaf replied to Wolfensohn that 
he had spoken with both the King and the Saudi Foreign 
Minister and was told that the Palestinians should not expect 
USD 20 million from the Saudis. 
 
Effect to date of non-payment 
of salaries 
----------------------------- 
 
¶7.  (SBU) PA employees and their families are already bearing 
the consequences of the delayed payment of January PA 
salaries, according to ConGen contacts and local press 
reports.  Commercial banks in some areas are allowing 
customers overdraft privileges, in some instances capped at 
the amount of the expected salary check.  Money changers have 
reported a steep increase in the number of people changing 
U.S. dollars and Jordanian dinars into Israeli shekels, an 
indication that Palestinians are drawing on their savings to 
meet daily living expenses.  A Gaza laborer interviewed in 
local Arabic language daily Al-Hayat Al-Jadida noted that a 
single PA salary is often the sole means of supporting a 
large, extended family.  In the same article, merchants in 
the West Bank and Gaza reported a steep drop in sales due to 
the shortage of income.  A Gaza merchant stated that, with 
the dramatic decline in the number of workers allowed into 
Israel in recent years, the importance of PA salaries to the 
livelihood of Palestinians and the economy as a whole had 
become increasingly important.  Given the threat of an end to 
international assistance due to Hamas, January 25 election 
victory, many PA employees are worried that delayed payments 
 
JERUSALEM 00000563  003 OF 003 
 
 
will be the norm, according to press reports. 
 
Comment 
------- 
 
¶8.  (C) Al-Wazir has bought the PA a few more days or weeks, 
but the current caretaker government is still very much 
living financially day-to-day or as a World Bank official 
said February 7, "in liquidity crisis mode."  While it 
appears to have managed to pay salaries only a week late, the 
other looming payments, whether fuel or unemployment 
benefits, could cause it still to sink this month.  External 
funding is still a critical need. 
 
¶9.  (C) Without additional external financing, the PA will 
soon reach the point where it cannot pay its salaries or 
cover its outstanding bills.  This could happen while the 
current caretaker government remains in office, or 
immediately after a new, presumably Hamas-led government 
takes over.  Either way, the lack of liquidity in the economy 
will have an immediate impact on living conditions. 
Conditions could deteriorate rapidly, possibly resulting in a 
breakdown in law and order and a humanitarian crisis.  End 
comment. 
WALLES