Iraq Pulse

Outgoing Iraqi government's policies cause billions of dollars in economic losses

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Article Summary
Abdul Mahdi's resigned government causes billions of dollars in losses to the economy.

Following a vote in the Iraqi parliament Jan. 5, requesting the government to work on expelling US troops from the country, US President Donald Trump threatened Iraq with severe sanctions, which would worsen the already destroyed Iraqi economy.

Although the successive Iraqi governments all had a role in destroying the economy, the government of Adel Abdul Mahdi, the current caretaker prime minister, played a large part due to a series of miserable policies and decisions he adopted since coming to office in October 2018.

The government, which resigned along Abdul Mahdi on Dec. 1, approved a package of economic decisions to ease the ongoing demands-triggered protests that erupted at the beginning of October. Yet experts believe the next government will not go forward with these decisions that will cost the economy huge losses.

The outgoing Iraqi government had vowed to boost the economy, but it failed to create jobs, build new projects or solve the crises that afflicted society. Iraq has weak basic services such as electricity, health care and education.

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Nevertheless, the government issued more than 30 decisions that included employing thousands of people, distributing grants to more than 600,000 people and approving the Pension Law and the Federal Service Council Law.

A source at the Council of Ministers, who preferred not to be named, argued that protests across Iraq rushed the government into making decisions, albeit arbitrary ones that will be substantially detrimental to the economy in the coming years.

The source told Al-Monitor that these decisions aim to tame the protests. “Iraq’s public sector is saturated; the growth rate has reached 400% since 2003 until now. Consequently, Iraq spends billions of dollars annually on the street without reaping any benefits.”

He added, “The cost of the reform packages exceeded $5 billion during the first two months of the protests. Among others, grants were distributed to unemployed youths, residential lands were allocated at low prices to citizens and some measures in the sectors of industry and agriculture were eased. If such amounts were properly spent, this would have reduced the unemployment rate by setting up factories. Iraq is unable to manage its economic crisis.”

International economic organizations do not seem satisfied with the recent Iraqi state’s measures that increased spending. The World Bank indicated in a recent report that current expenditures during the first half of 2019 increased by 28.8% compared to the same period in the previous year, based on an increased bill of wages and subsidies to alleviate social pressures resulting from poor job creation in the private sector.

The source added, “It is clear that the package of decisions will increase expenditures as it aims to incorporate the militias in the security forces and employ large numbers of graduates in ministries and state-owned companies.”

Outgoing Prime Minister Abdul Mahdi had listed to his ministers the accomplishments of his government in the Cabinet session during which he submitted his resignation. He made it seem as if Iraq was a developed country that does not suffer any social and economic problems. “We signed contracts with Germany, France, China, Saudi Arabia and Iran. … Hundreds of suspended projects were put back in business, which means employing hundreds of thousands of people,” he said.

He pointed out that the Iraqi economy was boosted after spending hundreds of billions of dollars, allocating large numbers of lands to citizens and employing people. He added that he fought corruption and that Iraq’s black oil sale revenues will reach $600 billion.

Abdul Mahdi’s statements were not accurate. His government’s policy was based on random spending, by increasing the number of employees and distributing grants that led to a duplication of salaries and failure in organizing the relationship with the Kurdistan Region of Iraq.

The Kurdistan Regional Government (KRG) did not implement the signed oil agreement between Erbil and Baghdad. As of last September, Baghdad gave the KRG $3.4 billion without the latter sending a single barrel of oil to the Iraqi State Organization for Marketing Oil.

The numbers that Abdul Mahdi raised in his resignation speech are mostly inaccurate and far from the reality that Iraqis live in. The $600 billion in black oil annual sale proceeds is an unimaginable figure. Yet no explanation was issued by his office or Oil Minister Thamer al-Ghadban. 

Financial and administrative corruption had surged under Abdul Mahdi’s rule, despite the establishment of the Supreme Anti-Corruption Council. The sale of jobs became public. Even the jobs that the government launched in tandem with the protests and sit-ins denouncing corruption, were sold at $7,000 by some executive officials. What’s more, parliament, the supervisory authority, started defending the corrupt and calling onto the judiciary to release them from prison.

Ammar al-Rubaie, financial researcher at Al-Mustansiriya University, told Al-Monitor, “The Iraqi economy is at a very critical stage. The Iraqi population has increased by 100% since 2003, while services have remained unchanged since the 1980s.”

He clarified that the majority of the protesters are unemployed, while government reforms have served only employees and increased their pensions. “The unemployed so far have received nothing. Among others, the health insurance law and the social security law have yet to be approved. The Iraqi parliament has, however, voted on a bill to cancel the financial privileges of officials. But when the current crisis subsides, this bill will be challenged by a member of parliament and will be reversed. The government of Haider al-Abadi had introduced several reforms but the Supreme Federal Court accepted the challenges against these reforms. The privileges were returned to the officials.”

Rubaie added, “The current government decisions will be canceled by the next government because they will cost the economy billions of dollars in losses annually. Consequently, the next government should resort to investment, privatization of losing government companies and the establishment of housing and other projects to uplift the economy.”

Iraq and the International Monetary Fund had signed an agreement in 2015 to restructure the Iraqi economy by reducing the number of employees and promoting the private sector. But the outgoing government's policy undermined this agreement by increasing spending and not adhering to its terms due to increased oil prices.

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Found in: pensions, grant, iraqi youth, employment, economic reform, iraqi economy, us sanctions, adel abdul mahdi

Salam Zidane is an Iraqi journalist specializing in economics. He has written for several local and international media sources such as Al-Jazeera and The New Arab.

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