The Iraqi economy and the crisis of budget approval

The Iraqi economy and the crisis of budget approval

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Researcher Shatha Khalil *

Translated by : mudhaffar al-kusairi

Iraq has been experiencing socio-economic political tensions from 2003 until today, but with varying crises, the most important and most serious of which began last October, from the ongoing street protests that led to the resignation of the Adil Abdul Mahdi government.

It is worth to be noted that the task of the new government is very difficult, with all the question marks and criticism surrounding it, it constitutes half of the real picture of what is happening in Iraq, what will happen to the future of the economy, and the other half, and most importantly, be the reaction of the demonstrators who are the driving force that shakes the streets of the country.

The Iraqi economy today is exhausted and inherited from failed , corrupt and weak governments , controlled by militias, armed groups and religious parties, and the most dangerous is the Iranian influence in Iraq and its control over the militias affiliated with it against the interest of the country, the formation of the next government will be accompanied by more intense external pressure campaigns than ever before, and this what will lead to the ambiguous future vision and ideas for managing the Iraqi economy.

In the chaos that ravages the country, will the new government succeed in building the new Iraq?
The general budget has been not approved, what does it mean:
From a legal point of view, experts point out that the budget instructions for 2019 cannot be continued until 2020, because the budget law is in effect for a period of one year and has full legal implications, whether at the level of spending or budget implementation, and legal procedures indicate that 2020 should be opened with a new budget law that responds and addresses all the problems that occurred in last year’s budget.

As the budget of the current year that was not approved (according to the project proposed by the government) is 162 trillion dinars (135 billion dollars), with a planned financial deficit of 48 trillion dinars (40 billion dollars), including three trillion dinars (2.5 billion dollars) to implement the agreed projects with China, and the government’s delay in sending the draft of the budget in order to include the reform decisions that cost the country more than ten trillion dinars ($ 8.3 billion) will have bad consequences .
Iraqi economists have warned of the dangers of not approving the draft of the budget this year and entering Iraq into the recession in the coming period.

• The budget includes two operational and investment aspects, and delaying its approval means converting the budget into a budget of paying salaries only and canceling investment, and thus high unemployment, and the economic consequences that follow such as entering the country in an economic recession, especially in light of the low demand for oil (the main source of income in the country ) after the crisis of the spread of the Corona virus in China, on the other hand, it will obstruct the development, and the agreement with China will not be implemented, due to the delay of the resigning government in sending the bill to Parliament due to the high deficiency rate.

• A non-reassuring message for investors and postponing investment operations in small, medium-sized projects and large ones that are already stalled. It will also give a negative signal to investors in the private sector to start their investments.

• Failure to approve the budget will create economic stagnation, and if it continues for more than six months, it will inevitably lead to recession, which means that economic losses will be widen to dangerous social joints.

• The risk of recession and its repercussions on the economy and society is very large, as public spending in Iraq constitutes about 45% of the gross domestic product, and that this spending and its high composition via an annual planned budget, have wide positive effects on achieving the real planned growth rates in the national product itself and in particular using the main production forces.
• The most dangerous is severe unemployment, i.e. an increase in the number of unemployed youth of working age who are able to work and find no work. These are the dangers in destroying societies and the low rates of growth, all of which are factors that may lead to further collapse, as the number of the population of Iraq is more than 30 million, and it is expected that their number will reach 50 million within a decade, as more than 60% of Iraqis are under the age of 24 years, and 700 thousand citizens need jobs every year.

• The stumble of planned or new investment spending will lead to an increase in poverty rates due to the annual growth of the population and the workforce that aspires to work and does not find it. Thus, many interrelated interests depending on investment spending especially the new government ones will be stumbled, that ultimately leads to problems in crippling the economy and stopping the investment growth wheel.

The new government and the challenges of reform:
Can the Iraqis be optimistic with the new government, by achieving radical reforms, the government must be strong enough to advance the bitter reality, the ability to control the sources of corruption, and mobilize an elite group of Iraqi officials that respect state institutions and commit to reform and pledge with what they can to fulfill, to reach the desired goals, directing the country’s money and wealth away from the hotbeds of corruption, and towards recovery and reconstruction, as it needs to invest in major infrastructure improvements, especially energy and transportation, in order for the economy to grow.

The development of the private sector should be encouraged without destabilizing the state-owned enterprises, which are the largest source of job opportunities in Iraq, as it suffers from poor performance, to meet the needs of the population.

And the crisis of declining water resources in Iraq to 30% since the eighties of the last century, must take into account the fact that it threatens the whole life in Iraq, where the water supply is facing a decrease that will reach 60% by 2025, which has severe effects on food and electricity production.

And the absence of factors of stability, security, transparency and strong will, which are necessary preconditions for preparing and implementing any program capable of pushing the Iraqi economy forward, and as is known, the Iraqi economy depends, to a large extent, on oil, which provides about 90% of government revenue, but Allocating 70% of the budget to pay the wages of public sector employees who are less productive, the World Bank has estimated that productivity for every Iraqi employee is embarrassing and very low and reaches 17 minutes a day.

As for the Iraqi educational system, too, is suffering from a lack of funding, as the education, construction and health sectors get only about 8% of the budget, and millions of Iraqi children do not go to school and instead go to permanent unemployment.

The lost wealth in the Iraqi border outlets must be controlled, and the imports of the outlets must be controlled, where officials asserted that their imports amount to more than 15 trillion Iraqi dinars annually, which is a large amount, but the problem that arises in this sensitive issue is that up to the sum of these imports not exceeding one trillion dinars only, and this means the largest percentage of these imports leaking into the pockets of militias, gangs, and political forces that control and manage them, and if the government controls this file and manages it properly, it will provide financial revenues that can be invested in solving the problems of society.

Conclusion… The dialogue remains open to several questions about the possibility of the new government in reform, in light of the continuing unrest and the method used in managing crises, where Iraq needs a man to pull the socio-political and economic reality from the bottom of deterioration and corruption, to build it again.
Economic Studies Unit

Rawabet Center for Research and Strategic Studies