Since the oil prices dropped as a result of the coronavirus pandemic, issues regarding Iraq's financial obligations have begun to escalate, in light of the complete dependence on oil revenues to pay salaries and activate the economy. Making matters worse is Iraq’s commitment to reduce its share of oil exports within the April OPEC agreement.
In light of the expected salary deductions by the government, and the current financial crisis that has led to a delay in paying salaries in the majority of government departments, tenants are beginning to experience an emerging crisis, not only for commercial shops and institutions but for residential housing as well.
Basem Khamis, professor of financial policy at the College of Administration and Economics at the University of Baghdad, told Al-Monitor, "Deducting salaries means decreasing the overall demand of the Iraqi market, which indicates that the economy is entering into a recession. We have witnessed this recession with a decrease in the total consumption and an increase in savings in anticipation of the expected salary deduction.”
Khamis explained the link between the deduction of salaries and the housing sector, saying, “The housing sector will be affected if salaries are reduced, as employees will no longer apply for housing loans and the demand for housing will drop. The housing sector is directly linked to the construction sector, which is a key sector in the economy because it generates work for other major sectors. Any deterioration in the housing sector will mean lower levels of per capita income, which leads to a decrease in the speed of money circulation and thus an economic downturn. The economic catalyst is consumption, and any disruption to consumption will lead to strangling the local economy or the business cycle.”
The housing crisis in Iraq is complex, as it is not only limited to the need for housing in light of the large population growth and high rates of immigration to the city, the faltering development and the high extinction rate of housing, but rather extends to the quality of housing and location. Residents who found housing in good areas — with access to public services and a proximity to commercial centers and government institutions — are reluctant to settle in remote areas. Generally, they do not have the means to buy real estate in good areas, which pushes them to build on the land of their parents, causing a negative change in the urban fabric, raising pollution rates due to logging and putting pressure on the already damaged infrastructure and services.
According to Sabeeh Lafta Farhan, an urban planning expert, the ever-increasing slums built on agricultural lands will continue, too.
Member of parliament Hazim al-Khalidi stated in May 2019 that Iraq requires 2,700,000 housing units, with an annual need of 250,000 housing units.
Over the years, many buildings in Baghdad have been constructed randomly, without taking into account the necessary infrastructure and instructions of the municipality and urban planning. They lack elevators and access to natural light and ventilation.
Meanwhile, amid the different curfews imposed in Iraq since the coronavirus outbreak, some landlords exempted tenants from paying rent during the first two months of the crisis, while others reduced the rent or insisted on collecting it. But the housing situation must change should the coronavirus crisis continue.
A woman from Baghdad who did not give her name told Al-Monitor that her landlord had threatened to evict her family from a small apartment in a quiet area in Baghdad unless they pay the rent, which they have not been able to for two months. Her father is a cab driver who could not work over the past couple of months due to curfews and lockdowns and was late in paying the rent. “Who will cover our rent? My father is the only breadwinner in our family. The government imposed a curfew and did not take into account those who depend on daywork. It neither stopped landlords nor did it help us,” she said.
Some hold the government greatly responsible for the current social panic, as it is yet to come up with a clear plan for reducing the salaries. In the meantime, employees have fallen victim to rumors and fake news on social media.
Al-Monitor reviewed four different salary deduction tables, some of which talk about limiting the deduction to special grades, the three presidencies and the parliament, while other tables did not mention parliamentarians but included stopping payment of multiple salaries, and converting the salaries granted to the former Rafha camp residents into one salary and not for all family members. Other tables tackle so-called ghost employees or the tax deduction imposed on the salaries of retirees and others.
A private source told Al-Monitor on condition of anonymity that the government has prepared three drafts, all of which await parliament approval.
Perhaps the government delay in taking a decision is justified; not only does it need parliament's approval, but the lack of a unified database prevents it from knowing the exact number of ghost employees and those with multiple salaries. For this purpose, Prime Minister Mustafa al-Kadhimi instructed all ministries and government institutions during the special session June 7 to provide the Ministry of Planning with detailed information on the number of employees, their grades and salaries.
Iraq’s financial crisis, the budget deficit and the inability to pay salaries will eventually lead to a recession, which may begin in the housing sector, an important sector in the economy. Should the recession actually occur due to low consumption, social problems may evolve into political threats that could plague the country and its already fragile stability.