The structural economic crisis in Iraq and its political consequences have continued. This was blatantly manifested in the government's failure to secure employee salaries. According to the statements of Mazhar Mohammed Saleh, the financial adviser to the Iraqi government, "Iraq's revenues currently amount to approximately 4 trillion Iraqi dinars per month, while we need 7 trillion to cover expenses and salaries". The matter was politically reflected in the worsening of relations between the Kurdistan Region and the Iraqi Parliament, which were already tense due to a dispute over oil export revenues.
Delay in the payment of salaries
In light of this crisis, Iraqi employees faced severe financial hardship after the payment of salaries has been delayed for two consecutive months, despite Parliament's announcement at the beginning of November 2020 that the salaries of employees for the coming months would be available. In early November 2020, a source in the Ministry of Finance announced the suspension of salaries for all employees and self-financing companies, which are supposed to be financially independent according to the Companies Law.
The government and Parliament exchanged blame for the delay in the payment of salaries. While the government considered that the reason for the delay was Parliament’s failure to pass the Fiscal Deficit Financing Law that allows the government to borrow, Members of Parliament (MPs) blamed the government for failing to find alternative sources to compensate for the deficit and resorting instead to borrowing, which threatens to dry up the state’s financial reserves. In the same context, the government faced many objections from Parliament regarding its draft development plan and the financial ceiling that it demands. What Sarwa Abdul Wahid, the former MP of the Kurdish Change Bloc, said constitutes an example of this trend, namely that the Kadhimi government will use those funds in the upcoming elections and for personal purposes.
In the light of this economic crisis, a World Bank (WB) report issued in November 2020 warned that the coronavirus pandemic and the collapse of oil prices will push 5.5 million Iraqis into poverty. Furthermore, the gross domestic product (GDP) shrank by 9.6 percent, the Iraqi economy shrank at a rate of 6.8 percent, and the revenues of the Iraqi government declined by 47.5 percent during the first half of 2020.
Approval of the borrowing law amidst Kurdish objection
In its session held on 12 November 2020, the Council of Representatives (CoR) voted on the Fiscal Deficit Financing Law or the so-called "Borrowing Law" submitted by the Finance Committee after the government was forced to comply with the terms of the CoR by reducing the value of the loan from 41 trillion to 12 trillion dinars, provided that 20 percent thereof would be earmarked for investment projects. The Fiscal Deficit Financing Law guarantees the continuation of financing the salaries of employees and pensioners, the ration card and the social protection network, in addition to other necessary expenditures until the end of 2020, pending the submission by the government of the 2021 budget, which is expected to include additional borrowing requests that may be faced with Parliament opposition. The spokesman for the CoR Speaker indicated that Parliament has added to the plan to finance the fiscal deficit a programme to provide the rights of contractual workers and the amount to finance the construction of the Faw Grand Port.
However, the adoption of the Borrowing Law, which took place despite the withdrawal of the Kurdish Bloc’s MPs, led to a severe crisis between Baghdad and Kurdistan. The Law stipulates determining the Region’s share of the total actual spending or current expenditures and investment projects, on the condition that the Region pay its share of the exported oil and in the quantities determined by the Iraqi Oil Company (SOMO). In the event of non-compliance, the Region would not receive the dues. For its part, the Kurdistan Regional Government said that it had fulfilled all constitutional obligations and is demanding to secure the Kurdish people's dues.
The former president of the Kurdistan Region of Iraq and the leader of the Kurdistan Democratic Party (KDP) Masoud Barzani described the decision in a statement as "a stab by the Shiite and Sunni blocs in the back of the people of Kurdistan". In addition, the head of the KDP Bloc in the Iraqi Parliament Vian Sabri indicated in a statement to Kurdish media outlets that the financing law is "racist", accused the Shiite blocs of plotting against Kurdistan, and warned that the Speaker of Parliament and a number of other MPs promised to postpone the paragraph on the Kurdistan Region but this promise has been circumvented.
At the same time, and in an unprecedented move, some Kurdish MPs who are not affiliated with the KDP and who are opposed to the way it administers the Region have called for payment of the salaries of the Region’s employees directly by the federal government without handing over those sums to the regional government, even as statements were issued by some leaders of the Patriotic Union of Kurdistan (PUK) blaming the KDP for the current crisis, reflecting the split in the Kurdish position. Concurrently, 150,000 employees in the Kurdistan Region, most of them from Sulaymaniyah, signed a plea that they be linked directly to Baghdad and receive their salaries directly from the federal government, which is opposed by Erbil on the grounds that it would undermine its constitutional independence in managing the affairs of the federal region.
In order to de-escalate this disagreement and reach sustainable solutions, Parliament Speaker al-Halbousi issued a decision to form a committee headed by Mohammed Shiaa al-Sudani MP and the membership of a number of other MPs to discuss the outstanding issues between the two sides and find solutions to them in accordance with the Constitution. However, that Committee is not expected to be able to achieve major breakthroughs, given that it is a parliamentary committee and does not have the powers to negotiate with the executive authorities in Baghdad and Erbil.
It is noteworthy that since the nomination of the current Prime Minister Mustafa al-Kadhimi in May 2020, the Kadhimi government has transferred 268 million dollars per month to the regional government without requiring it to pay all its dues. This agreement helped the Region meet most of its monthly obligations, which include the 710 million dollars needed to pay the salaries. If the new law is implemented, the Region will face a huge crisis. The US researcher Michael Knights mentioned that assuming that the Region will sell 400 thousand barrels per day at a price of nearly 33 a barrel, this means that the Region must give up 396 million dollars of oil revenues per month, and three quarters of the non-oil revenues, which would lead to a decline in the Region's income from 764 million dollars to 293 million dollars a month, which means that the Region would experience a record deficit and a huge financial crisis. It seems that the Shiite blocs were politically motivated to embarrass Prime Minister Kadhimi, having interpreted his concessions to the Kurdistan Region as an attempt to ensure the support of the Kurdish actors for him after the elections.
The dilemma of the salary crisis revealed a dangerous situation of mismanagement and lack of planning in the Iraqi state apparatus. This was reflected in a statement by the Iraqi Minister of Planning Khaled Battal that he and the Minister of Finance do not know the number of employees in the Iraqi state. He emphasised in a recent interview with the Iraqi Media Network (IMN) that the number in circulation of one and a half million employees is incorrect, and that the real number exceeds four million. The Minister of Labour and Social Affairs Adel al-Rikabi revealed that there are 400 thousand beneficiaries of social care who are not eligible, indicating that there are more than 450 thousand foreign workers who are not registered with the Ministry, who have entered Iraq in different ways. Thus, the Iraqi financial crisis is mainly manifested in the state’s failure to manage funds in the previous budgets, lack of transparency, and administrative and financial corruption.
EPC | 12 Jan 2021
EPC | 31 Dec 2020
EPC | 30 Dec 2020