Iraq Asks World Bank For Help During Financial Crisis

Iraq is facing a dual crisis caused by the Russian-Saudi oil war and the global coronavirus that has collapsed the international oil market which the country depends upon. In response, Baghdad has gone to the World Bank asking for help.

In early April Finance Minister Fuad Hussein held a video conference with the International Monetary Fund (IMF) and World Bank. The United States and British ambassadors took part as well. Iraq also sent a letter to the World Bank asking for $2 billion as part of its covid-19 program. Iraq expects to only get around $500 million however. It also requested that $36 million it already received from the Bank to be diverted from rebuilding to dealing with the coronavirus. When covid first hit Iraq the Health Ministry asked for $5 million in emergency funds but was denied because of the financial crisis. If Iraq does get any funds from the World Bank it will likely be on very strict terms. The Bank loaned money to Iraq during the war against the Islamic State and was supposed to carry out financial reforms and concentrate on reconstruction afterward. It did neither. That was because the budget is based upon political rather than economic factors, and neither reforms nor rebuilding fit the elite’s agenda.

The reason why Iraq is going to the World Bank is because it is the most oil dependent country in the world. With the collapse in oil prices it can’t pay its bills, the largest of which is salaries and pensions for public workers. In March 2020 it earned $2.9 billion from oil exports but needs $3.5 billion a month just for government salaries. Iraq has asked oil companies to cut their budgets, that they may not be paid for six months, discussed minor budget cuts, and dipping into the Central Bank’s foreign reserves. None of those can cover costs but for a few months. It has to get loans as a result, and this is likely the start of a series of negotiations with the World Bank and IMF to acquire them. Iraq knows that the energy market goes through booms and busts but never prepares for the downturns. In fact, it makes the situation worse because when oil prices go up the government greatly increases its public sector which means when petroleum drops the next time it will fall into an even greater deficit. Again, this is due to the Iraqi elite who see the nation’s oil wealth as a means to maintain its power and enrich itself. It is not interested in development or economics which might mitigate these cyclical problems.

SOURCES

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

Al Mada, “The World Bank and the International Monetary Fund are ready to support Iraq in the face of Corona,” 4/6/20

Rubin, Alissa, “Oil Prices Crash, Virus Hits, Commerce Stops: Iraq Is in Trouble,” New York Times, 3/29/20