IS faces budget crunch, killing perks and slashing salaries

BEIRUT -- Faced with a cash shortage in its so-called caliphate, the Islamic State group has slashed salaries across the region, asked Raqqa residents to pay utility bills in black-market American dollars and is releasing detainees for a price of $500 a person.

The extremists who bragged about minting their own currency are having a hard time meeting expenses, thanks to coalition airstrikes and other measures that have eroded millions from their finances since fall. Having built up loyalty among militants with good salaries and honeymoon and baby bonuses, the group has stopped providing even smaller perks: free energy drinks and Snickers bars.

Necessities are dwindling in its urban centers, leading to shortages and widespread inflation, according to exiles and those still suffering under its rule. Interviews gathered over several weeks included three exiles with networks of family and acquaintances still in the group's stronghold in Raqqa, residents in Mosul and analysts who say IS is turning to alternative funding streams, including in Libya.

In Raqqa, the group's stronghold in Syria, salaries have been halved since December, electricity is rationed, and prices for basics are spiraling out of reach, according to people exiled from the city.

"Not just the militants. Any civil servant, from the courts to the schools, they cut their salary by 50 percent," said a Raqqa activist now living in the Turkish city of Gaziantep, who remains in close contact with his native city.

But that apparently wasn't enough to close the gap for a group that needs money to replace weapons lost in airstrikes and battles and pays its fighters first and foremost. Those two expenses account for two-thirds of its budget, according to an estimate by Aymenn Jawad al-Tamimi, a researcher with the Middle East Forum who sources Islamic State documents.

Within the last two weeks, the extremist group started accepting only dollars for "tax" payments, water and electric bills, according to the Raqqa activist, who asked to be identified by his nom de guerre Abu Ahmad for his safety.

"Everything is paid in dollars," he said.

His account was bolstered by another ex-Raqqa resident who, like Ahmad, relies on communications with a network of family and acquaintances still in the city.

Al-Tamimi came across a directive announcing the fighters' salary cuts in Raqqa: "On account of the exceptional circumstances the Islamic State is facing, it has been decided to reduce the salaries that are paid to all mujahedeen by half, and it is not allowed for anyone to be exempted from this decision, whatever his position."

Those circumstances include the dramatic drop in global prices for oil, once a key source of income, airstrikes that have targeted cash stores and oil infrastructure; supply-line cuts; and crucially, the Iraqi government's decision to stop paying civil servants in territory controlled by the extremists.

A Russian-backed Syrian government offensive in Aleppo province, where IS controls major towns including Manbij, Jarablus and al-Bab, is putting pressure on IS. Government troops and allied militiamen have advanced toward the town, considered an IS bastion, leading many militants to send their families to Raqqa.

An exile from al-Bab said low-level fighters there have begun to grumble, and townspeople have overheard Islamic State officials discussing crippling airstrikes on oil infrastructure in Syria and Iraq and the cutoff of supply lines and revenue sources. The resident, who asked only that his first name Oussama be used because he still has family in the city, said dozens of residents of al-Bab have fled, ignoring orders from the extremists.

"You can sense the frustration; their morale is down," Oussama said of the fighters.

A former Raqqa resident now living in Beirut said Syrians abroad are sending remittances in dollars to cover skyrocketing prices for vegetables and sugar.

The resident, whose wife and baby still live in the city, did not want his name used for their safety. One of the other ex-residents, now living in Gaziantep, Turkey, said the road to Mosul was cut off late last year, and prices have risen swiftly -- gas is up 25 percent, meat up nearly 70 percent, and sugar prices have doubled.

In Iraq, where Islamic State has slowly been losing ground over the past year, the Iraqi government in September cut off salaries to government workers within territory controlled by the extremists, after months of wavering about the humanitarian costs paid by those trapped in the region. Iraqi officials estimate that Islamic State taxed the salaries at rates ranging from 20 to 50 percent, and analysts and the government now estimate a loss of $10 million minimum each month. Between the loss of that money -- and the U.S.-led bombing of cash warehouses -- American officials are optimistic that the effect could diminish Islamic State's wealth.

"We are seeing our efforts having some effect on their financial flows. And it's difficult to get a handle on just how much because of the different illicit ways in which they are handling their finances but you've seen the efforts that our military has taken to take out cash storage sites, and I think it is our hope and expectation that that will have demonstrable effects. On what order of magnitude, I think it's difficult to say," said Lisa Monaco, President Barack Obama's counterterrorism adviser.

In the Iraqi city of Fallujah, fighters who once made $400 a month aren't being paid at all and their food rations have been cut to two meals a day, according to a resident. The account of the resident, who spoke on condition of anonymity for fear of death at the hands of extremists, was supported by that of another family trapped in Fallujah that said inhabitants can only leave the city if they pay $1,000 -- a sum well beyond the means of most in the Sunni-majority city that was the first in Iraq to fall to Islamic State in 2014.

IS is also allowing Fallujah residents to pay $500 for the release of a detainee, the family in Fallujah told the AP, saying that they believed the new policy was put in place to help the group raise money -- a system akin to bail.

Mosul residents contacted by AP say IS has begun fining citizens who do not adhere to its strict dress code, rather than flogging them as before. The residents say they believe this is in response to financial problems in part because the group has already confiscated anything valuable, namely cars and other goods that are later resold in Syria.

American officials have said fighters are more constricted in their movements and spending than they have been in months. But the group still controls a vast amount of territory, and they say the Syrian government has made few gains against the extremists themselves. Islamic State, meanwhile, keeps up its deadly combination of threats and payments for anyone wavering in their support.

The Soufan Group, in a Jan. 27 analysis, said the group is looking for alternative funding streams in Libya, where it is under less pressure -- and doesn't face airstrikes. And fighters still get their food baskets and free electricity -- even if, as one of the Raqqa exiles said, they no longer get Snickers bars and energy drinks.

"I don't think this is fatal for IS," said al-Tamimi. "I still don't see internal revolt as what's going to be the outcome. It's more like a scenario of gradual decay and decline."