Poor Planning And War Led To Huge Increase In Govt Jobs & Pensions In Iraq

A chart provided by Moody’s Investors Service shows a huge growth in public outlaws for civil workers and pensions from 2014 to 2015. In 2014 salaries and pensions for government workers made up 46% of state spending according to the International Monetary Fund. By 2015 that percentage had increased to 60%. Part of that was due to the war as Baghdad took on paying the Hashd al-Shaabi forces to fight the Islamic State. It was also due to poor planning as the parliament and ruling parties have consistently talked about increasing the number of civil employees to fight unemployment and also to increase patronage networks to stay in power. The main losers in this decision was non-oil investment, which went from 17% of expenditures in 2014 to 10%, and the oil sector that went from 16% to 12%.

Source: Moody's

This large expansion in payments could not have come at a worse time for the Iraqi economy. In 2014 oil prices were plummeting from oversupply on the international market. In January 2014 a barrel of Iraqi crude was selling for $102.37. By December it was down to $56.59 per barrel. That decline continued into 2015 reaching $29.84 per barrel in December. Iraq, which relies upon oil exports for around 90% of its revenue, went from earning an average of $7.0 billion a month in 2014 to $4.094 billion in 2015. It needs roughly $4 billion a month just to pay those salaries and pensions. In August 2015 it dipped below that level when it only made $3.925 billion, and it has been lower ever since then.

That is putting a huge strain on the nation’s finances causing it to raid its foreign reserves, and borrow from domestic banks. By the end of the year the government is expected to have a $17 billion deficit. It has recently gone to the IMF and gotten a three year deal for $5.4 billion in loans and is hoping to get more assistance from other international groups as well as selling bonds. In the meantime some ministries have not been paying their workers, while Prime Minister Haidar Abadi got a marginal 3% pay cut for civil workers. Part of the IMF deal includes Baghdad cutting its public spending, but that’s likely to come in other sectors other than jobs and pensions since those are so sensitive with the public, which is use to a large public sector, and for the elite that relies upon them to maintain their base.

SOURCES

Chmaytelli, Maher, “Exclusive: Iraq plans $2 billion bond sale end 2016 as aid lowers borrowing costs,” Reuters, 6/3/16

Al-Khalidi, Suleiman, “IMF agrees $5.4 billion standby loan for Iraq,” Reuters, 5/19/16

Moody’s Investors Service, “Iraq’s Stand-By Arrangement with the IMF Will Help Liquidity,” 5/23/16

Solomon, Erika, “Iraq’s ability to rebuild is threatened on three fronts,” Financial Times, 4/3/16

Zeed, Adnan Abu, “Iraqi workers protest for wage payment,” Al Monitor, 6/10/15