Tuesday, June 20, 2023

Iraq’s 2023 Budget Ends KRG’s Independent Oil Exports While Threatening The Economic Future Of the Country

(AP)

In June Iraq’s parliament passed the 2023 budget. It is the largest in history with the largest deficit as well. It includes Baghdad’s control of the Kurdistan Regional Government’s (KRG) oil exports. It also adds hundreds of thousands of new government jobs which are impossible to sustain and will drain the state’s coffers for years. The Iraqi government is unconcerned because the budget is a political not an economic document.

 

The 2023 Iraqi budget is the largest ever at 198.9 trillion dinars or $153 billion. The deficit is estimated at 64.36 trillion dinars. The operational budget that goes towards wages, pensions, etc. is for 133.22 trillion dinars or $102.5 billion while the investment budget is 49.35 trillion dinars or $37.9 billion.

 

Almost all that money will come from oil revenues. The budget is based upon an average of 3.5 million barrels a day in oil exports including 400,000 barrels a day from the KRG at $70 per barrel. Iraqi oil has sold for an average of $75.24 per barrel the first five months of the year.

 

The passage of the budget was held up over a dispute between members of the Coordination Framework and the KRG. That was settled in favor of the Framework. The KRG’s oil will be sold by the State Organization for Marketing of Oil (SOMO) and then deposited in a bank in Baghdad. The budget also says that KRG oil can be used for exports or domestic refining. This could cause problems for oil companies in Kurdistan because refining doesn’t bring in the same profits as foreign sales. If there is a dispute between the two sides a joint committee will meet and if there is no resolution the KRG’s budget will be cut. This effectively ends the KRG’s independent oil exports. Initially Kurdistan was hoping that selling its own oil would support its independence effort but that failed. It never reached the figures it hoped for and sold at heavily discounted rates because of the risks involved in selling oil without the permission of the central government. Baghdad retaliated by cutting off monthly budget payments which handicapped the Kurdish state. It was unable to pay its government workers as a result. That led the region to turn to loans and advances on its oil sales from oil traders which put it into a huge and growing debt. That’s what led the KRG to agree to the budget. It can’t sustain itself without money from Baghdad.

 

The divisions between the Patriotic Union of Kurdistan (PUK) and the Kurdistan Democratic Party (KDP) also allowed for an interesting article in the budget. It says provinces within the KRG can petition the central government for separate monthly payments if the region is not giving it its fair share of money. This was pushed by the PUK who has accused the KDP of cutting its share of the budget. it also means that the KRG will not have final say over the finances of the region.

 

The bigger issue is that the budget adds hundreds of thousands of new government workers which are unsustainable. Ferhard Alaaddin an advisor to Prime Minister Sudani wrote an editorial in Asharq Al-Awsat claiming 655,000 new public employees were due to previous agreements. The 2021 budget for instance said that 400,000 contract workers would be made permanent. The 2022 emergency spending bill said that 35,000 Hashd al-Shaabi who’s contracts had been terminated would be re-hired. A 2022 deal said 71,000 university graduates and 39,000 healthcare professionals would be employed. A 2022 order said 104,000 workers who’d lost their contracts would be brought back. Alaaddin didn’t mention that another 150,000 positions will be given to the provinces to fill, The state cannot maintain so many workers added each year. Every time oil prices drop the country falls into crisis because of them. Yet this is what happens with nearly every budget. That’s because the political parties dish out these jobs as part of their patronage networks. They don’t care about the financing because they don’t understand economics nor do they care. They are only concerned about staying in power and these jobs are an essential part of that.  

 

SOURCES

 

Al Aalem, “After the largest wave of appointments to the state … the army of the unemployed is still threatening its existence,” 6/13/23

 

Chalk, Chenar, “President Barzani welcomes federal budget bill approval,” Rude, 6/13/23

 

Hussein, Mohammed, Dourian, Kate and Van Heuvelen, Ben, “Parliament passes budget after gutting KRG revenue guarantees,” Iraq Oil Report, 6/13/23

 

Mahmoud, Sinan, “Iraq’s parliament passes record $153 billion budget with focus on infrastructure,” The National, 6/11/23

 

Rasheed, Ahmed and Azhari, Timour, "Iraq approves record $153 ban budget including big public hiring,” Reuters, 6/11/23

 

Rodgers, Winthrop, “Iraq parliament approves more federal control over Kurdish oil revenues,” The National, 6/11/23

 

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