Iraq Passes 3 Yr Draft Budget Which Has Major Issues

(AP)

Iraq’s cabinet passed a new draft budget that raises serious questions about the country’s finances. For the first time, the budget is for three years which may not work given the up and down history of the oil dependent economy. It also includes a huge deficit something previous government’s have struggled to deal with.

 

In March Iraq’s cabinet passed the largest budget in the nation’s history. It is for 197.82 trillion dinars, $152.17 billion. Previously the biggest budget was in 2019 for 133.1 trillion dinars, $112.6 billion.

 

The draft bill is heavy on operational spending as usual and light on investment. There is 150.27 trillion dinars, $115.59 billion, allocated for operations which covers things like government salaries and pensions which is always the largest part of the budget. There is just 47.55 trillion dinars, $36.58 billion, for investment.

 

The reason the operational budget is so large is because the ruling parties packed the draft bill with all kinds of new jobs. That includes 74,000 new positions for people with degrees, 122,000 contract workers at the Electricity Ministry and 200,000 lecturers at the Education Ministry being made full time employees. Every time a new budget is drafted, especially when oil prices are high the ruling coalition adds thousands of new positions which are then dished out as patronage to maintain power and to rob the state. As one analyst told Al Aalem, spending so much on public employees is a waste of money because they are barely productive and a burden upon the government.

 

The huge jump in spending is accompanied by a large deficit. The draft budget is short 64.1 trillion dinars, $49.3 billion, another record. The previous largest deficit was 2019’s 27.5 trillion dinars, $23.3 billion. The Financial Management Law says the deficit can be no more than 3% of the GDP which is around 15 trillion dinars. This could open the draft budget to a lawsuit, but if the ruling parties agree upon it that’s unlikely to happen. Members of parliament’s financial committee have said they want to reduce the deficit, but there is only so much they can do since the parties are committed to boosting spending. 

 

A sign that the elite have come to a general consensus about the draft bill is the fact that the long standing dispute between Baghdad and the Kurdistan Regional Government (KRG) might finally be resolved at least in the short term. Prime Minister Sudani announced that the KRG agreed to deposit all of its oil revenue into a new bank account. The budget also includes Kurdistan exporting almost all of its oil for Baghdad. In turn, its assumed the Kurds’ independent oil industry will be acknowledged and they will receive 12.6% of spending. As a sign of good faith Sudani sent 400 billion dinars to the KRG although a lawsuit has been filed against it. Before the government has been working in the courts to declare the KRG’s oil deals illegal. That may now be dropped to assure the passage of the budget. The Kurds are also desperate for regular monthly payments from Baghdad because it has been in a financial crisis since 2014 when they announced they would export oil independently and PM Maliki cut off sending money as a punishment.

 

Besides the deficit there are other problems with the budget. One is that the budget is for three years. Iraq is the most oil dependent country in the world. That means its economy ebbs and flows with the global energy market. Right now prices have stabilized after a big increase resulting from Russia’s invasion of Ukraine. Prices may drop in the future causing an even larger deficit. The government has struggled with that problem in the past with parliament trying to block borrowing money internationally. On the other hand there might be a crisis which makes prices go up and the governing coalition will want to increase spending. Sudani said he hoped a three year budget would provide financial stability but given the country’s past that may not work.

 

The draft budget now goes to parliament which could lead to some major changes.

 

SOURCES

 

Al Aalem, “The biggest budget … has serious consequences and its inability to break the law,” 3/14/23

- “The government circumvents the law .. What is the secret of its insistence on sending 400 billion dinars to Irbil?” 3/9/23

 

Al Buratha, “Al-Sudani: We agreed with Irbil to deposit all oil revenues in one account,” 3/13/23

 

Iraq Oil Report, “Cabinet passes draft budget with record spending and new KRG framework,” 3/14/23

- “CORRECTED: Baghdad court annuls three more KRG contracts,” 10/26/22

 

Al Mada, “Parliament is waiting for the budget to arrive early next week and is not satisfied with its deficit,” 3/14/23

- “Parliamentary Finance: The new appointments will raise the total salaries to 60 trillion dinars,” 1/18/23

 

Mahmoud, Sinan, Al Taher, Nada, “Iraqi cabinet approves $152 billion budget bill for 2023 to 2025,” The National, 3/13/23