Iraq’s deep financial troubles, explained

Iraq’s public-sector employee salaries were delayed for the second time in six months amid an economic emergency in the country. The Ministry of Finance announced on Tuesday that it will start distributing the unpaid salaries for the month of September on October 7, but noted that “the financial pressure in the country will continue”.

Iraq’s deep financial crisis is rooted in corruption, mismanagement, unreliable crude exports and the expenses spent on the war against Daesh. It has become a daunting challenge for the country’s Prime Minister, Mustafa al Kadhimi.

Crushing oil prices

Iraq is largely dependent on oil exports, which accounts for more than 60 percent of its economy. But shaken by the protests and impacts of the coronavirus pandemic, Iraq’s economy is hit by low oil sales, with its revenue sinking alongside crashing global oil prices. 

Monthly nationwide exports raised to 3.049 million barrels per day (bdp) in September, with increased crude loadings from Turkey and the federal and Kurdistan regional government, but oil sales are still at near six-year low, according to the Iraq Oil Report.

The ministry said in a statement that it “is obligated to fulfill its legal obligations despite the severe shortage of revenues facing the country, and looks forward to cooperating with the House of Representatives and the relevant authorities in order to develop quick solutions to address the current economic and financial crisis,”

Extremely high government official salaries

About 6.5 million of Iraq’s 39 million-strong population work either in the public sector or are retired government employees. The monthly salaries of state employees add up to $ 5.5 billion. While public employees are the key to finance the Iraqi economy, income from crude sales fund around 90 per cent of its government budget, which includes salaries. 

But some say that low oil demand is not the only reason why the government is struggling to pay salaries to its workers.

The high salaries of senior Iraqi officials have circulated on social media, causing some to blame them for depleting the state’s budget. According to an objection request filed after the decision to suspend his retirement pay, former Iraqi President Ghazi Ajil Al Yawer receives a monthly pension of 61.6 million Iraqi dinars ($51,000).

Emergency borrowing

Before announcing the statement regarding the wages on October 7, the finance Minister Ali Abdul-Amir Allawi told pro-government media that payment of salaries is dependent on the emergency borrowing act that needs to be approved by the parliament.

Allawi said this step would “ease the current financial deficit in the country,” causing what Prime Minister al Kadhimi called during a TV interview, an economic crisis never seen before. 

But many in parliament oppose the draft law, with concerns that the emergency financing act could lead to bankruptcy. The Finance Committee of the Iraqi parliament said in a statement that the government is trying to throw the ball in the court of the Committee of Financial Experts, and the salary payment is the responsibility of the government. 

“The Minister of Finance supposed to submit a reform paper within 60 days of approving the Internal Borrowing law on 24/6, we're surprised with a request for a new loan," the committee said in a statement. 

In a following statement that promised salary payments, the Finance Ministry said “the task force led by the ministry has completed the draft for economic reform,” stating that it is in the process of finalising the 2021-2023 budget.