Wednesday, April 7, 2021

Iraq Dumps Economic Reform And Fiscal Responsibility With 2021 Budget

(Buratha News)
The combination of upcoming elections and rising oil prices led Iraq to pass the largest budget in its history with the largest projected deficit as well. The government has never been fiscally responsible in recent years and always expands the government when the energy market goes up.

 

At the end of March parliament passed Iraq’s 2021 budget. It has 129.9 trillion dinars in spending ($89.65 billion) and a deficit of 28.6 trillion dinars ($19.77 billion). There is 100.38 trillion dinars ($69.23 billion) for the operational budget which covers things like public salaries, pensions and services, and 29.61 trillion dinars ($20.42 billion) for investment. It is based upon 3.25 million barrels a day in oil exports selling for $45 per barrel. Iraqi oil is currently going for over $60 per barrel so the deficit could shrink. It could also grow because the budget predicts 20.15 trillion dinars ($13.9 billion) in non-oil revenues which is double what Iraq has earned over the last three years. In the middle of 2020 the energy market collapsed and Iraq entered into the worst economic crisis since 2003 because it is the most oil dependent country in the world. It couldn’t pay its bills and had to dive into its foreign reserves. This led to talk of economic reform, something the government has never been serious about for most of its existence. With petroleum recovering in 2021 and elections scheduled for the winter that has all been thrown out the window. Hence the largest budget and deficit in history.

 

The draft budget was actually even larger. Originally it stood at 165 trillion dinars ($113.2 billion). At the time Finance Minister Ali Allawi claimed it addressed the country’s long term economic problems even though it was evidence of the exact opposite. It did include minor moves to increase revenues such as a progressive income tax on government workers and their pensions and consumption taxes. The income tax was dropped from the final document. In February parliament’s finance committee trimmed spending by around 30 trillion dinars ($20.5 billion). That showed some restraint although the cutting of the income tax meant there was little effort to change the overall system.

 

The main hang up over the passage of the bill was also resolved. That was the dispute between the Kurdish regional government (KRG) and Baghdad. In the end the Kurdish parties agreed that the KRG would export 250,000 barrels a day for Baghdad, turn over half its border revenues, and resolve its debts to the central government in ten years. This was a major dispute which dragged out the vote on the budget for weeks. The bill allows the central government to cut funding to the KRG if it doesn’t follow the document. That’s always a possibility as the regional government has not followed the last several budget agreements.

 

Last Al Mada reported on some of the provincial allocations. The KRG’s three provinces are to get a total of 10.9 trillion dinars. That’s followed by 3.2 trillion for Baghdad, 1.3 trillion for Dhi Qar, 1.1 trillion for Babil, 867 billion for Diyala, 757 billion for Najaf, 732 billion for Diwaniya, 704 billion for Karbala, 653 billion for Wasit, 478 billion for Maysan, 376 billion for Muthanna, 124 billion for Ninewa, 95 billion for Anbar, and 68 billion for Salahaddin. Budgets for the governorates used to be loosely based upon populations. That’s no longer the case as politics have now taken over. Muthanna has the smallest population but has the fourth least budget. Dhi Qar on the other hand has faced the longest running protest movement. In response, the government has promised it increased spending hence it has the third largest provincial budget. Diyala is controlled by Badr and hence gets the fifth largest expenditure. The Sunni political parties lost much of their standing during the war against the Islamic State and continue to suffer from divisions. Many factions have now tied themselves to the Shiite parties as a result as very junior partners. Their lack of power is shown by the fact that Ninewa, Anbar and Salahaddin have the smallest budgets. Ninewa by the way has the second largest population after Baghdad.

 

Provincial Budgets vs Population Size

1. KRG 10.9 tril

2. Baghdad 3.2 tril #1

3. Dhi Qar 1.3 tril #5

4. Babil 11 tril #6

5. Diyala 867 bil #9

6. Najaf 757 bil #12

7. Diwaniya732 bil #14

8. Karbala 704 bil #16

9. Wasit 653 bil #13

10. Maysan 478 bil #17

11. Muthanna 376 bil #18

12. Ninewa 124 bil #2

13. Anbar 95 bil #8

14. Salahaddin 68 bil #10

(No figures given for Basra or Kirkuk)

 

Iraq’s economic history has shown since the 1930s the government’s policies have made the country more, not less dependent upon oil despite announcements to the contrary. The 2021 budget is the latest example of that. It has the largest spending ever on the assumption that the oil market is recovering. This will greatly increase the already bloated state which earns over 90% of its revenue from petroleum. There is no real effort to diversify the economy or reform it. It is a political document that goes back to business as usual.

 

SOURCES

 

Abu Omar, Abeer and Al Ansary, Khalid, “Iraq Approves Smaller Budget Plan, Assuming Oil at $45 a Barrel,” Bloomberg, 3/31/21

 

Ali, Sura, “Iraqi parliament slashes projected budget deficit by more than half: finance committee,” Rudaw, 1/30/21

 

Al Hurra, “After months of controversy, the Iraqi parliament approves the 2021 budget after increasing it,” 4/1/21

 

Hussein, Mohammed, Tahir, Rawaz, Porter, Lizzie, Van Heuvelen, Ben, and Lando, Ben, “UPDATE: Iraq passes 2021 budget with record deficit and new oil deal for KRG,” Iraq Oil Report, 4/1/21

 

Al Mada, “The Budget Law requires the government to terminate agency positions before the middle of the year,” 3/31/21

- “The budgets of the provinces are varied: Ninewa, Salahaddin, and Anbar received a quarter of Diyala’s money,” 4/4/21

- “Discussions for the 2021 budget reach advanced stages: Two options for salary deductions,” 1/30/21

 

Middle East Monitor, “Iraq parliamentary committee approves reducing the budget,” 2/5/21

 

NRT, “Council Of Representatives Passes Budget Article On Kurdistan Region Share,” 3/31/21

 

Tabaqchali, Ahmed, al-Shadeedi, Hamzeh, al-Saffar, Ali, “The National Budget: Short and Medium-Term Prospects,” Institute of Regional & International Studies, February 2021

 

Zidane, Salam, “Iraq’s reform budget heads to parliament,” Al Monitor, 1/27/21

 

No comments:

This Day In Iraqi History - Jun 19

  1914 Germany and Britain asked Ottomans for oil concessions in Mosul and Baghdad provinces 1935 UK Ambassador to Iraq ...