The failure to diversify the resources of Iraqi economy, which depends on oil to a large extent led to more problems facing macroeconomic and social problem of unemployment stands on top of those problems, in addition to inflation and the deficit of balance of payments and low economic growth.
And these problems are emerged due to poor recruitment of oil revenues in order to achieve economic diversification of activating the productive sectors of such as transformational industrial , agricultural, tourism, etc., in order to build the tax base, which increases the effectiveness of diversifying public revenues.
Among the necessary means to address the economic problems is to prepare a general balance in both its current and investment plan for spending and revenue, to be able to cope with those problems, according to the philosophy of the state and its plan to intervene or not, if the state adopts a capitalist system, the principles of the state are limited to the traditional functions of external defense and interior security and achieve justice between the citizens and the budget to be less effective in addressing social and economic problems, and if they adopt the principles of the socialist system the budget will be in more face to it.
However, plans investment its laws in Iraq are heading now and turn toward a market economy and its laws, but it does not have the mechanism of a real experience for the success of this approach.
Despite the fact that all public budgets since 2004 has prepared with a planned deficit ended with real surplus as a result of ignorance in the planning and poor performance – as the real percentage of completion in the implementation of all previous current budgets did not exceed 70% of the planned ones.
Earlier ,2017 budget was also prepared the same mistakes as the Iraqi Council of Representatives approved on 7/12 project of the country’s budget law for 2017 under the financial crisis experienced by Iraq as a result of lower oil prices and the growing expenses of the war against Daesh , the Council voted by majority on the financial budget items after semi consensus on its provisions with the exception of the item on a share of the Kurdistan region. The deputies of the State of Law coalition, led by the Vice President of the Republic article Nuri al-Maliki objected to the region’s share and demanding slashing to 13% on the back of a long dispute between Baghdad and the Kurdistan Region on the export of oil, but was voted 17% for the region , provided that the Prime Minister agree to exchange these allocations from the Ministry of Finance.
The total value of the budget approved by the government about 95 billion dollars, and anticipated deficit of $ 20.5 billion. And the budget figures were based on expected price for a barrel of oil at $ 45, and the export amount of 3.6 million barrels per day of crude from within oil exported by the province of Kurdistan and the agreement made on the late of the last year states that the regime to hand over 550,000 barrels of oil a day to the federal government in exchange for receiving its share of the budget.
But Kurdish officials say the Baghdad does not comply with the agreement and the province does not receive financial dues, forcing him to sell oil independently of Baghdad, to meet the growing expenses due to the war against Daesh and sheltering hundreds of thousands of displaced people and refugees.
the head of parliamentary bloc of the Kurdistan Democratic Party Ahmed Muhsin al-Sadoun said his bloc did not attend the voting session, but have objections from the beginning and see that the budget, which was approved did not meet its demands.
He stressed that the passing of the budget did not solve the outstanding issues between the federal government and the Kurdistan Region , including oil exports, and added that the budget did not allocate enough funds for the salaries of government employees and fighters of the peshmerga in Kurdistan. The Kurdistan Regional Government announced that it would not be binding on the federal budget law if the observations and reservations were not taken into consideration by legislation. The government of the regime says it needs a month to (733) million dollars to pay salaries, and not the 264 million dollars that have been identified to the draft budget.
Iraq, which depends on the sale of oil revenues to cover about 95% of the expenses that the drop of the barrel price to less than $ 40 will lead to a lack of oil revenues to be paid in addition to the expenses of the war against Daesh and to more loans, which could result in additional financial burden as a result of benefits In addition to the future economic and political dependency.
The 2016 budget included a large fiscal deficit, because the deficit was about $ 25 billion. It has already been warned by a report issued by the International Center for Development Studies, based in London, that the Iraqi budget deficit is clearly threatens the Iraqi oil sector. According to the report, if the deficit exceeded $ 50 billion in Iraq , it would be at risk of bankruptcy in 2017, and the inability to pay its employees’ salaries. In regard to the proposed solutions to cover the deficit in the public budget, deputies of the Finance Committee said that it «will be made via the International Monetary Fund and the World Bank and the Islamic Bank for Foreign and loans and the issuance of treasury bonds.
Through accurate reading of the federal budget for the year 2016 could be the following markings: –
According to Article 1- b: revenues from crude oil export are calculated on the basis of the average price ($ 45) per barrel. Note that crude oil prices of the actual export is much lower. And it mentioned in the same paragraph: that the rate of export of crude oil from the South and the North is estimated at (3.6) million barrels per day, while the quantity exported actually exceeding that amount (500,000) barrels per day. And it is included in the same paragraph also: Including the amount of (3.6) the amount of barrels exported (250,000) barrels of oil per day from the amount of oil produced in Kurdistan note that the regime exports (600,000) barrels of oil per day except for the amount of (300 000) exporting barrels of oil per day from Kirkuk. And it stated in Article-2-II-b:
The federal minister of finance is authorized to continue in taking loans to cover the actual deficit of the federal general Budget or for other purposes included in this law despite achieving a surplus equal (172 trillion Dinar) nearly for years (2004-2014) and more than 15 trillion dinar of a surplus of a budget of 2015. And for the purpose of compensating for the decline of oil crude prices exported and the increase for the need to find out alternatives , the government sought to reduce some taxes according to the article 24 –b in the budget 2016 which was existed in the budget of 2015 including all types of cars in which the percentage of tax was reduced from 15% to 5% , and cigarettes and alcoholic drinks from 300% to 1oo% .
At the same time when the government should to seek to repeal some of the unnecessary expenses and rationalizing the others, it has increased some operational allocations in the budget of 2016 as follows:
|Ministries|| operatiional allocations
to the budget of 2015
|The increase of operational allocations to i the budget 2016||The difference|
|Presidency of the Council of Ministers||1355||2051||696|
|National Investment Commission||10||16||6|
|Labour and Social Affairs||1547||1556||9|
|Construction and Housing||961||1018||57|
|Higher Education and Scientific Research||2733||2801||68|
|Billion Iraqi dinars||7518|
The question, after reviewing the table above, is: Where did go the previous surplus of budgets amounted (7518) billion Iraqi dinars, and why the government is complaining about the fiscal deficit, and do not work on correcting errors contained in the articles of budget in line with the requirements of the stage.
The Prime Minister Haider al-Abadi said : “The oil revenues planned for 2017 amounted to 68.4 trillion Iraqi dinars, and non-oil revenues of 11.6 trillion dinars,” noting that “the price of a barrel of oil to budget in 2017 was estimated at $ 42.
He added that the estimated value of the loan to fill part of the planned deficit of 5.6 trillion dinars, indicating two trillion dinars allocated from the share of the cabinet to support the farmers.
The deputy chairman of the parliamentary Committee Faleh al-Sari, said that “the appointments in the budget of 2017 will be in the four ministries only, the interior, defense and health and education,” noting, “it was stopping all other appointments in ministries.”
The Member of Parliament Hanan al –Fatlawi said that the budget was built on the mistaken speculation , including: the assumption of a large speculative deficit such as assessing compensation of employees’ salaries by 39 trillion deficit while the real exchange 20 trillion, and identified the provinces of 400 million dinars, and did not get a quarter of the amount, and Fatlawi confirmed that the increase of taxes on employees is a crime against them, surprising the allocation of the necessities of goods increased by 22% and the country in a state of austerity.
Among speculative mistakes according to Fatlawi, the allocation of government an emergency reserves to budget by 2016 with 112 billion while it did not spend to the Ministry of Education $ 75 billion for the printing of school textbooks and this reserve did not help the school students, calling to cancel the emergency allocations; because it will open the door to corruption!
Financial advisor to Haider al-Abadi , mudhher Mohammed Saleh, revealed that the expenditure for the year 2017 less than the total 2016 budget by 5%, and 86% of oil revenues from total revenues, adding that the state in a status of austerity and increase deductions from employees’ salaries from 3% will reach to 4.8% to support the displaced people and the crowd People with doubts of arrival of these amounts to its rightful place, which has carved out for it, and this is evidence that the budget suffered a large deficit and it is supposed the employee participation of it to bridge the deficit, and the direction of the state towards increasing borrowing either from income or from abroad to cover the deficit and the worst of borrowing is the misuse of borrowed amounts.
From the above we conclude that Iraq’s oil wealth began to lose its value in the Iraqi budget, not the absence of the surplus that was achieved by the oil wealth before 2013 only making the Iraqi economy suffers the problem of debt. The trend towards diversification of the Iraqi economy, which requires reducing the proportion of oil revenues to other revenues such as taxes, fees and public sector earnings and revenues of capitalism and manufacturing revenues and earnings of the agricultural sector and others.
Translated by : Mudhaffar Alkusairi
Rawabet Center for Research and Strategic Studies