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Cash flow in the Gaza Strip

About the author

Sami Abu Shamalla is a political and economic analyst in Gaza. He is a senior lecturer of economics at Gaza Community College of Applied Science, holds an MA in financial management and is enrolled in the PhD programme at Utara University in Malaysia.

He is the former manager of the International Easy Forex in Gaza, and has written two academic books; the first in financial management and the second in business correspondence.

Since the Israeli offensive against Gaza in 2008-2009, the cash flow situation has been aggravated to the extent that the economic cycle in the Gaza Strip has ground to a halt. Almost all economic sectors, mainly banking, trade and housing, have been entirely crippled. In effect, a suffocating humanitarian crisis in the wake of the war on Gaza is imminent.

Sami Abu Shamalla is a political and economic analyst in Gaza. He is a senior lecturer of economics at Gaza Community College of Applied Science, holds an MA in financial management and is enrolled in the PhD programme at Utara University in Malaysia. He is the former manager of the International Easy Forex in Gaza, and has written two academic books; the first in financial management and the second in business correspondence.If you happen to go into one of several banks in Gaza, you might see the following scene recur hundreds, if not thousands of times daily:

Customer : I want to withdraw five hundred dollars from my account

Bank teller: I can give you the sum in Israeli Shekel.

Customer: But my money is in dollars!

Bank teller: I am afraid we do not have any foreign currency in this bank.

Customer: OK, what is the exchange rate?

Bank teller: 3.76 per dollar

Customer: But in the market, it is 3:98

Bank teller: This is the rate in our bank

Customer: But this means I am losing 110 shekels, and this is not fair.

Invariably this leads to a heated argument between the customer and the bank which can only end in either an undesirable transaction for the customer or a big punch-up.

Financial crisis

The cash crisis in the besieged Gaza Strip, as hinted above, is not an isolated phenomenon, but part of a crippling financial crisis intricately connected to other humanitarian crises the Gazans have been undergoing since the 2006 election. This is a problem that cannot be described let alone explained outside its context. In fact, the late Israeli offensive on Gaza was only one phase in what has been a comprehensive war on the Palestinian people and all the elements that are essential for a viable state to be established, together with a thriving Palestinian economy.

To the outside world, the 2008- 2009 war on Gaza was a mere military operation that ended up causing horrendous casualities, including the massacre of civilians, the destruction of thousands of houses, and eventually the displacement of hundreds of thousands of Palestinians. In fact the war on Gaza was a calculated stage in a systematic Israeli campaign against the Palestinian economy in general, and the economic life of the Gaza Strip in particular. In the wake of the war, lasting 22 successive days, the Gazan population opened their eyes to see the full scale of the catastrophe that awaited them. Apart from the shocking toll of fatalities and hopeless condition of thousands of badly injured people, the Gazans were shocked by the devastation of their economic life. Several public economic sectors were entirely paralysed. As a result, unemployment sharply increased, prices soared and commodities, essential as well as luxury, went missing from the local markets. The initial estimate of loss due to the destruction of the infrastructure and basic amenities came to 1.9 million American dollars (USD). However, the most recent report prepared by UNRWA has revealed that the real losses were much larger: final estimates according to this report amount to USD 4 billion. The banking and the construction sectors were the most badly affected, and the ongoing problems of liquidity and cash flow along with the unavailability of construction materials are reducing the Palestinian economy to a standstill.

Liquidity and cash flow problem

In fact the banking sector in the Gaza Strip has been assailed from three distinct directions. The first concerns liquidity and cash flow. The second has to do with the provision of credit. And the third is the increasing lack of credibility of the banking sector in the wake of the world financial crisis.The Israeli occupation has deliberately and systematically aggravated the first problem in several ways. As the Israeli shekel is the main currency Palestinians use in their daily transactions, the occupation has frequently and intermittently stopped the supply of the shekel, each time creating a real crisis in day-to-day transactions. Prices soar and the real value of foreign currency, mainly the dollar and the Jordanian dinar (the currency used by Palestinians for their investments and savings) accordingly plummet.

It is worth mentioning that the monthly requirement on the part of Gaza's banks for the Israeli shekel is 50-100 million shekels; these cover the salaries of public sector employees and the needs of the market. As for the other two types of currency, the Gaza market needs 6-8 million Jordanian dinar (JD) and 16-18 million American dollars per day. Six months ago, the Israelis simply withheld the supply of the shekel and would not allow it in unless the Egyptians and Ramallah's government intervened. According to the Palestinian Monetary Authorities (PMA), the Israelis have allowed only 450 million shekels and 94 million JD since the beginning of 2009. This, many Palestinian economists point out, has not helped in solving the problem of cash flow. Nowadays, however, the Israelis have switched tactics: they allow the shekel to come in but withhold any foreign currency. This problem has been significantly worsened by tunnel trading - a natural consequence of the blockade that has been imposed on Gaza since Hamas took over.

The deliberate shortages in either currency, and in effect, cash flow in Gaza banks and its marketplace do not lie within the jurisdiction of the Israeli financial authorities, but rather within the responsibilities of the military. The security cabinet and the so-called defence ministry are in charge of banning any foreign currency from entering a besieged Gaza. The Israeli pretext is that Palestinians are using this money to smuggle in commodities through their tunnel trading. So far, under the pressure of UNRWA and some NGOs working in Gaza, the Israeli authorities have allowed only limited amounts of foreign currency in. UNRWA has managed to bring in about USD 10-12 million on a monthly basis to cover the salaries of its employees, while the NGOs were able to secure USD 3-4 million to fund their humanitarian operations.

Another related reason for the scarcity of liquidity and cash flow is the drastic economic situation resulting from the 3-year siege imposed on Gaza by the Israeli occupation forces. The Palestinians in the Gaza Strip are totally reduced to consuming rather than producing. The economic cycle has been entirely suspended. There is neither production nor is there any export activity. Accordingly the scarce amounts of foreign currencies that were formerly allowed in have been spent on consumer commodities brought through the thousands of absurd tunnels that link the Gazans with their Egyptian brothers. In this sense hard currency travels one way. The estimated money spent on goods imported through tunnels is about USD 200 million per year. This factor, added to those mentioned above, spells the death of the banking system in Gaza.

Gaza banking services

Indeed the banks in Gaza are on their way to being totally defunct, only currently operating in shekels at 40 % of their capacity. At present, the total available foreign currency in Gaza banks is a mere two million Jordanian dinar and USD 5 million. This combination can keep the banks operating for about seven hours. Almost all Gaza banks are partially unable to provide the public with banking facilities. As a result, all the Jordanian banks operating in Gaza have totally suspended their banking services because of the high level of risk involved in any investment. Furthermore, most of the loans required by the Gazans are for consumer spending, and this in itself is a great risk to the banking sector. Their inability to extend their services to the Palestinian public in Gaza has greatly discredited these banks. They are unable to give loans, or even bring in money for the NGOs operating in Gaza. For instance, UNRWA asked for USD 181 million for humanitarian relief work. They wanted to compensate those whose houses were destroyed in the war and to provide the destitute with the wherewithal to buy food. They wanted to rehabilitate and fix up many of UNRWA's amenities and premises that were destroyed in the war. The dollar funds for such operations exist, but Gazan banks are unable to channel these funds to where they are needed.

Gaza banks and the international financial crisis

Gazan banks were greatly affected by the international financial crisis. Many Gazans and even Palestinian expatriates investing in Gaza have already withdrawn their assets for fear of collapse. As a consequence many of these banks are about to close down, leaving the Palestinians vulnerable to the crazy financial black markets. Then Palestinian investors have been dragged into the unruly business ventures called the tunnel trade. They were forced into this by the relentless closures of the border crossings into and outside Gaza. Of course such a situation will never help any effort to reconstruct post-war Gaza. All pledges, then, to reconstruct the Gaza Strip remain part of an international rhetoric which is awaiting breakthrough to lift the siege imposed on this small geographical entity - the most densely populated place in the world

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