On March 3 Iraq’s parliament passed the 2018 budget, which was immediately criticized by the Kurds and pro-Iran Hashd groups. The Kurds had their traditional 17% allocation eliminated, while the Hashd did not get the same pay and pensions as the Iraqi forces as promised for the last two years. Now those dissenting voices have been joined by the International Monetary Fund, the World Bank, and Iraq’s President Fuad Masum.
The International Monetary Fund claimed that the 2018 budget violated the Stand By Agreement Baghdad signed by not giving the Kurdistan Regional Government (KRG) enough funds and not raising non-oil revenue enough. Early versions of the budget bill cut the KRG’s 17%, which it had gotten since 2005 to 12.67%. The final bill included no percentage saying that the three Kurdish provinces would be paid according to their populations, which is what the other 15 governorates get. The budget also cut taxes that were first proposed. That included a 4.8% tax on wages and pensions and reduced a sales tax from 10% to 5%. The IMF’s complaints were first reported by Iraq Oil Report on March 9. The next day Prime Minister Haidar Abadi’s spokesman denied there was any problem. Then on March 11, a parliamentarian allied with the premier admitted that yes, the IMF does have issues with the law. This is a huge threat to Iraq’s finances. This puts the Monetary Fund’s $5.34 billion loan on hold, and could harm future borrowing from other lenders. Iraq relies upon the IMF to help with its budget deficits which ballooned when oil prices collapsed in 2014. The 2018 budget has a projected $10.58 billion deficit. Iraq also just received a series of loan promises to help with rebuilding and economic development at the Kuwait conference.
According to another MP ally of Abadi the World Bank doesn’t like parts of the budget either. Baghdad agreed to cut government spending, but that was only partially achieved. The budget does not include any new government hires, but it does say fired members of the Interior and Defense Ministry would get new jobs. These are soldiers and police who were let go after their collapse in the face of the Islamic State in 2014. This varies across provinces, but in Ninewa alone roughly 12,000 police lost their jobs. Abadi also just issued a decree to give the Hashd the same salaries and pensions as the Iraqi army. The budget includes a clause that allows the cabinet to add money for pay and benefits. Despite various promises over the years to reduce the government’s share in the economy, Baghdad has never been able to resist the urge to dole out jobs and increase the public sector when the opportunity presents itself. That’s especially true because they are used in patronage networks by the ruling parties. This is part of a sad history of Iraq never implementing any reform programs it has worked on with international groups and foreign countries over the years.
Finally, President Fuad Masum has sent the budget back to parliament claiming that 31 points violate the constitution and failed to allocate sufficient money for the KRG. That included not specifying an amount for the Peshmerga, giving money to the Kurdish provinces individually rather than the regional government, having the KRG send its oil exports to the State Oil Marketing Organization without paying the costs of the oil companies producing the oil, and giving taxation powers to the ministries and provinces. The president’s rejection of the law was what Kurdish parties asked for after they boycotted the vote on the bill. Unfortunately for them, the presidency is now a ceremonial position and no longer has the power to veto. That means the budget will go through in a few days despite Masum’s comments.
The prime minister now has two options with regards to the budget. He can either go to court and get parts removed or he can wait for later and have a supplemental budget passed to try to fix some of the problems. Neither is expected anytime soon as parliamentary elections are scheduled for May. The plethora of parties competing this year also means government formation will be long and difficult. He has to take one of these courses, because Baghdad can’t afford to lose the IMF loan and guarantees.
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AIN, “Masum refuses to approve the 2018 budget and sends it back to Parliament,” 3/13/18
Baghdad Post, “Iraq denies IMF rejects state budget,” 3/10/18
Baghdad Today, “Abadi may change paragraphs of the budget that threaten loans from the Kuwait Conference and the country’s relationship with the IMF,” 3/11/18
Bas News, “Kurdistan PM on Budget Bill: We Await Iraqi President to Reject the Bill,” 3/4/18
Habib, Mustafa, “Fraught Funding: New Iraqi Budget, New Rules To Anger and Upset,” Niqash, 3/8/18
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Al Mada, “Abadi is preparing to return 14 thousand policemen in Anbar who left after Daash occupation,” 1/4/18
- “Parliament approves budget law and provincial elections in the absence of Kurds,” 3/3/18
Al Mirbad, “Deputy explains the important paragraphs of the 2018 budget, which was passed today,” 3/3/18
Reuters, “Iraq’s Shi’ite militias formally inducted into security forces,” 3/8/18
Van Heuvelen, Ben, “IMF opposes budget, putting billions in financing at risk,” Iraq Oil Report, 3/9/18