Iraqi President Barham Salih approved the controversial 2019 budget on Feb. 4. The budget passed the parliament Jan. 23 after long debates over allocations for the Kurdistan Region and southern provinces and amendments that ignored Iraq's obligations under an agreement with the International Monetary Fund (IMF) mandating austerity measures until 2021.
The Iraqi parliament approved draft legislation for the 2019 budget amid objections from authorities in the southern provinces. At 133.1 trillion Iraqi dinars ($112.6 billion), the budget, if passed, would be the country's third largest, behind those for 2013 and 2014. With a 27.8% increase in spending, it would appear to blow up the IMF agreement.
Compared to the 2018 budget, the current one estimates oil exports of 3.88 million barrels per day (bpd), a daily decrease of 8,000. It also assumes a $10 per barrel price increase, which based on the current market would be from $46 to $56. Budgeted oil revenue accounts for 88.8% of total revenues.
Meanwhile tax revenues and fees are set at 6.8 trillion dinars ($5.7 billion), compared to last year's 9.2 trillion dinars ($7.7 billion). The decrease in taxes is evidence in and of itself of the government’s non-compliance with the IMF Stand-by Arrangement to reform the economy.
The IMF-required reforms included raising personal and business taxes to increase state revenue and halting increases to the government payroll. Yet, the 2019 budget provides for a 24.7% increase in state employee salaries, for a total of 43.4 trillion dinars ($36.7 billion). In addition, the state's domestic and foreign debt will increase by 30.87%, to 10.7 trillion dinars ($9 billion).
A source at the Ministry of Finance speaking on the condition of anonymity, told Al-Monitor, “The members of parliament did not discuss the budget bill with the Ministry of Finance.” They also did not consult with the Ministry of Planning and simply amended provisions at will. The source added, “The Iraqi government will file an appeal to the Supreme Court to reverse the amendments and articles added by the parliament.”
In Iraq's budget process, the government prepares a draft budget and sends it to the parliament, which is allowed to offer amendments before approving it and sending it back to the government. If the government is unhappy with the legislative changes, it can approch the courts for resolution.
Ahmad Hama, a Kurdish representative on the Parliamentary Finance Committee, told Al-Monitor, “The Kurds have a few comments on the 2019 budget, but it is fair to them since it guarantees the salaries of [KRG] employees, increases the region’s share [of expenditures] from 12.67% to 13.93% of the total budget and gives the region $2 billion in investment loans.”
Hama also observed, “The 2019 budget resolves some issues ongoing with Baghdad over the years, announcing a fresh start for ties with Baghdad.
One of those issues involves oil. “The Kurdistan Region produces 480,000 barrels of oil per day,” Hama remarked. “Baghdad’s share [from that] will be 250,000 barrels. Added to that, there are 150,000 barrels used within the region for daily consumption, so the region will benefit from exporting 80,000 barrels.” Kurdistan ships both its share of oil as well as Baghad's to market through a pipeline to Ceyhan, Turkey, and then disburses Baghdad its share of the revenue, as per prior agreement.
The government allocated 1 trillion dinars ($846 million) for the petrodollar project allocating a percentage of oil revenues for oil-producing provinces suffering damage from the industry. The regions suffering the most from production and refining receive a higher share of the amount set aside. For example, Basra are to receive 69.2%, Kirkuk 6.3%, and Wasit 4% in the 2019 budget. The Kurdistan Region was excluded. Local authorities can use the money at their own discretion, such as to buy power, send residents abroad for medical treatment and provide other services.
Southern province representatives were not pleased with the budget. They have criticized the draft budget because it does not allocate enough funding to complete stalled projects or quell popular dissatisfaction that eruped in protests last year over the lack of basic services, including potable water and electricity.
Ahmad al-Salayti, speaker of the Basra governorate council told Al-Monitor, “The 2019 budget confiscated the rights of Basra governorate and gave it less than its constitutional right [to petrodollars]. This is particularly crucial since Iraq’s economy greatly relies on Basra.”
Salayti stated, “The main problem is that the budget bill was not yet distributed to the members of parliament, and it was not published on the parliament’s website either [before the vote].” He added, “When we asked some members of parliament, they said that they did not know what they voted on and that the amendment and addition of articles to the 2019 budget was disorganized and random.”
“This is the first time Iraq has witnessed such chaos in passing the budget, which demonstrates the parliament’s negligence toward the Iraqi people,” Salayti remarked. “Basra governorate will appeal to the Supreme Court regarding the budget [if passed], and it will approach the Iraqi courts.”
The draft budget should be sent to parliament and approved before the start of the new year, but it is usually behind schedule, meaning the government conducts public finance without a budget plan. This unaccountability is a major source of corruption. Transparency International’s Corruption Perceptions Index for 2018 gave Iraq a score of 18 out of 100, with 1 being highly corrupt and 100 very clean. Last year, Iraq did not follow its budget to the letter, only implementing 80% of the budget at the most.
Prime Minister Adel Abdul Mahdi has a background in economics and attained office based in part on an economic reform agenda. Yet, his government is repeating the mistakes of 2012 and 2013 by randomly increasing spending without investing in developing production sectors.
Iraq is currently experiencing crises in health, agriculture, industry, education, and energy production. The rate of health expenditures under the current budget is only 2.4%, while agricultural allowances do not exceed 1% and education 3.6%. To be productive, the budget must be aligned with economic realities, not political goals.
It appear that the budget crisis, which began in October, might last another three months as the government makes plans to appeal to the courts over parliament's random amendments and other changes to the draft budget.