After months of political negotiations and four days of voting, Iraq’s parliament has finally approved the largest budget in the country’s history. The draft bill for the 2023 document was initially approved by the cabinet and received the green light from the legislature in June 2023. Experts believe that the planning and swift approval of this financial plan represents a telling achievement of the country’s current administration.
The adopted budget amounts to a staggering 198.91 trillion Iraqi dinars, equivalent to US $153 billion. However, it has a deficit of 64.36 trillion dinars. Projected oil revenues are estimated at 117.25 trillion dinars, while non-oil revenues amount to about 17.3 trillion dinars. It is important to note that the financial document is based on an assumed oil price of $70 per barrel (oil prices exceeded $80 at the end of July) and assumes that daily exports of crude will amount to 3.5 million barrels, including 400,000 from the Kurdistan Regional Government (KRG). It also plans to set the dinar-dollar exchange rate at 1,300 to 1.
Supporters of the new budget argue that it will have a positive impact on Iraq’s entire social safety net. This includes spending on government food rations, among other things, and significant funds have been allocated to critical infrastructure projects. In addition, the implementation of this financial document is expected to increase the number of civil servants by 600,000 to 1 million, which is quite a lot for the country. The proposed budget not only represents an important milestone for Iraq, but also signals the government’s intention to maintain a similar level of spending in the years to come. The administration of Mohammed Shayya’ Sabbar Al-Sudani plans to repeat this fiscal approach in 2024 and 2025, emphasizing its commitment to progress by avoiding a long and fruitless budget debate in the next two fiscal years.
By approving such record-high spending, the Iraqi government aims to meet pressing social needs, boost infrastructure development and promote economic progress. Hisham al-Rikabi, an adviser to the Iraqi Prime Minister, said after the passage of this crucial document that Iraq will “experience exceptional days of development thanks to the full implementation of the government program.” However, skeptics believe that despite this approach, increased government spending could be a risk factor for the country.
The positive decision to approve such high budget expenditures was favorably influenced by the fact that the so-called oil agreement was finally reached between the governments of Baghdad and Erbil. It gives the Iraqi State Organization for Marketing of Oil (SOMO) the authority to market and export crude oil produced from fields controlled by the Kurdistan Regional Government (KRG). The pact was an important turning point following the Iraqi Supreme Court’s decision to abolish the Kurdish oil law, which previously allowed Erbil to develop its oil sector on its own.
With the adoption of this financial document, it is now confirmed that the KRG will receive its share of 12.67 percent of the budget. The 13th article of the budget addresses various critical issues, including the pace of Kurdistan’s oil exports and the submission of non-oil revenues to the state treasury in accordance with the KRG’s Financial Management Law. At the same time, the budget stipulates that the sale of Kurdish crude on the domestic market will be handled by SOMO, and the law prohibits Kurds from extracting oil in Kirkuk and Nineveh. It also establishes a provision to collect all revenues from the sale of Kurdish oil into a special bank account to be controlled by the KRG prime minister under the supervision of the federal government in Baghdad.
Under Article 14, the Prime Minister of Iraq has been given a practical role in the governance of the KRG. This allows the Prime Minister to directly allocate funds to pay salaries or meet the needs of any governorate (province) in the KRG whose leadership may express concerns and whose population may engage in protests. Beyond the financial implications of the budget, this provision means greater efforts by Baghdad to establish direct channels of communication with officials in Sulaymaniyah and, in turn, address security concerns and negotiate a border agreement. Thus, the budget not only reflects the official economic component but also facilitates a comprehensive dialog between the two entities. The agreement reached on oil sales and the distribution of budget shares demonstrates an important milestone in the relationship between Baghdad and Erbil. However, in addition to this, a new balance is expected on the Baghdad-Sulaymaniyah and Erbil-Sulaymaniyah routes.
The positive decision to pass the budget this year has given Prime Minister Mohammed Shayya’ Sabbar Al-Sudani’s government the opportunity to repeat the same approach next year and in 2025, allowing for a parliamentary vote on potential amendments. However, careful consideration is required to ensure the sustainability of Iraq’s financial structure, especially in light of increased public spending. In this context, Dr. Mazhar Muhammad Salih, the financial advisor to the Iraqi Prime Minister, emphasizes that updating the budget for the next fiscal years will save Iraq from a fiscal vacuum. However, in a scenario in which oil prices could fall, Iraq could face serious consequences due to the growing budget deficit. As we know, due to the US occupation in Iraq, unjustified and in violation of all international laws and norms, Iraq has not yet restored many previously thriving industries and agriculture. In addition, it was the fierce occupation that led to the establishment of the original cells of Daesh (ISIS/ISIL, banned in Russia) on Iraqi territory, which then merged with Syrian units.
The new budget law makes significant changes, including the introduction of obligations to obtain tax registration certificates for all businesses, including small businesses, and stricter audit measures. In addition, new taxes have been imposed on various sectors, including electronic devices such as cell phones. While these measures may have the effect of reducing the purchasing power of Iraqi citizens, the fiscal document also includes provisions aimed at supporting the real economy through other financial instruments. For example, debtors, including fellahs (peasant farmers) with debts up to 200 million dinars, will receive a three-year grace period without interest.
As public wage costs continue to rise, Iraq’s financial structure becomes more vulnerable. The country’s heavy reliance on oil revenues further exacerbates the problem, as higher oil prices are needed to sustain spending. This situation increases the risk of accumulating more debt, which could have long-term consequences for the economy. Adding to these concerns is Iraq’s rapidly growing population, which is projected to increase from the current 43 million to about 75 million by 2050, adding to the strain on resources and public services. It may be recalled that the number of Iraqis, including those living abroad, was only 16.5 million in the 1989 census.
To address these challenges and ensure a sustainable financial future, experts believe that it is essential for the Iraqi Government to adopt comprehensive strategies. This could include diversifying the economy, reducing dependence on oil revenues, and exploring alternative sources of income, such as the “Development Road and Al-Faw Port” projects. In addition, implementing effective fiscal policies, encouraging investment in non-oil sectors and promoting entrepreneurship can help stimulate economic growth. At the same time, it will ease the burden of government spending, as already 37 percent of the Iraqi labor force is employed in the public sector, in addition to the 3.5 million Iraqis currently receiving pensions.
Shafaq News notes that while the current budget presents both opportunities and challenges, it also serves as a reminder of the need for prudent financial management and forward-thinking economic planning. By addressing these challenges directly, Iraq can pave the way to a more sustainable and prosperous future, able to meet the needs of its growing population while promoting sustainable development. These factors will undoubtedly help the Republic of Iraq to take its rightful place on the world stage, as it had in the past.
Victor Mikhin, Corresponding Member of the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook”.