Wednesday, June 17, 2020

Iraq’s Parliament Refuses Budget Cuts During Economic Crisis

(Reuters)

Iraq is facing the worst economic crisis since 2003. It started with the price war between Russia and Saudi Arabia that oversupplied the world market. Then the coronavirus epidemic greatly affected demand. As the most oil dependent country in the world Iraq found itself between a rock and a hard place. The new government of Prime Minister Mustafa Kazemi is struggling to cope.

On June 9 the cabinet passed a resolution making a 10% cut to salaries and pensions for public employees. It said this was only for the higher level officials, but apparently it cut much deeper into the government workforce. This decision would only make a marginal difference in Iraq’s huge budgetary problems. The state depends upon oil sales for over 90% of its revenue. In May it only earned $2 billion, $1.4 billion in April, and $2.9 billion in March versus an average of $6.5 billion in 2019. That compared to the $1 billion a month it needs to pay oil companies, the $3.5 billion a month for salaries, and another $1 billion for pensions not to mention services and investments. The cabinet’s decision therefore would barely make a difference in this gigantic budget deficit.

The next day parliament reversed the order. It voted to restore full pensions. It also refused to impose any new taxes which might offer new revenue streams to the government. June 12 the state run banks announced that pensions could pick up the money deducted from their last payment. This reflected the general opinion of politicians and officials that Iraq is only facing a temporary crisis. A member of parliament’s finance committee for example told the press that the government made some mistakes in its policies and everything would be fine. This has been the mindset of the ruling elite since it took power in 2005. It knows that the oil industry goes through booms and busts, but never plans for the downturns. Worse is that it always expands spending when oil prices go up meaning it will face ever increasing problems when oil prices inevitably decline. That’s because Iraq has a large deficit in strategic planning. Baghdad has always drawn up plans, usually with international help, but never implements them. The core reason for this dilemma is that the elite have no problem with oil dependency because they control the state’s resources and use them for their own gain.

SOURCES

Iraq Oil Report, “Government scrambles for solutions as Iraq faces financial free fall,” 4/7/20

Al Mada, “The government floundering to provide salaries for employees after oil and Corona flu,” 3/28/20
- “Parliament rejects retirement deductions and criticizes the decision,” 6/10/20

NINA, “Advisor to the Prime Minister: Reducing 10% of the salaries of higher grades without compromising the lower grades and those with limited income / expanded,” 6/9/20

Sotaliraq, “Parliamentary Finance: The crisis is temporary, and the budget will rely on private borrowing,” 6/7/20

Al Sumaria, “Government banks invite retirees to receive the amounts that have been deducted from their salaries,” 6/12/20
- “Retirement Fund announces the return of 99% of the deductions,” 6/12/20

Van Heuvelen, Ben, Otten, Cathy, and Lando, Ben, “Iraqi economic crisis looms as oil prices collapse,” Iraq Oil Report, 3/11/20

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