Between Oil and Coronavirus, Iraq Has a Political Money Problem

Prime Minister al-Kazemi cannot enact reforms while the elites are nesting on the budget, and is now facing a renewal of popular protests

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Iraq's new Prime Minister Mustafa al-Kadhimi meets with Former Iraqi Prime Minister Adel Abdul Mahdi in Baghdad, Iraq, May 7, 2020. Picture taken May 7, 2020
Iraq's new Prime Minister Mustafa al-Kazemi meets with predecessor Adel Abdel Mahdi in Baghdad, May 7, 2020. Credit: Iraqi Parliament Media Office/ Reuters
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

The coronavirus pandemic has only been getting worse in Iraq. After it appeared that authorities had managed to reduce the rate of new cases, at least according to official figures, the pandemic has again reared its head. Hundreds of new infections a day have prompted the government to reimpose a curfew on some of the country’s cities. But if up to now the coronavirus successfully put a stop to the mass demonstrations that had marked the first months of the year, the protests have now resurfaced, along with the virus.

This week thousands of protesters have gathered in the governates of Najaf, Dhi Qar and Al-Muthana, as well as in the capital, Baghdad, with the same slogans and signs that had been stashed away for many weeks. Protest tents were reestablished in the centers of the cities. Gangs of thugs dispatched by “unknown individuals” landed their blows on demonstrators.

The new government that had just been formed and approved by parliament following many months of efforts is now facing a compound threat. It has to reimpose the heavy restrictions required to curb the COVID-19 outbreak and also scrounge up loans and financial assistance to fund the government’s ongoing operations. The national budget for 2020 has still not been approved, due to the prior absence of a regular government, while the new government has not managed to outline a new spending plan.

A massive deficit, in the range of about $20 billion, will only widen this year, according to a World Bank report. The economy has already contracted by more than 9.7 percent, in contrast to 4.4 percent positive growth last year. The low price of oil, which supplies more than 90 percent of the country’s revenues, has created a deep financial hole, and it’s not clear when or how it can be filled at a time of massive unemployment.

The public sector employs about 60 percent of the country’s workforce. This comes after the government boosted the number of people it employs by 80 percent between 2007 and 2012. But now it is facing the prospect that it might be unable to pay about $3 billion worth of salaries for June and July.

Iraqi demonstrators burn tires to block the road, during a protest in Najaf, June 8, 2020. Credit: ALAA AL-MARJANI/ REUTERS

About four months ago, outgoing Prime Minister Adil Abdul-Mahdi was presented with an economic reform plan that included major salary cuts, the layoff of thousands of public-sector employees, aid to the private sector and an effort to stamp out corruption. The plan was stuck in a drawer in the prime minister’s office and has never seen the light of day.

Iraqi economists expect the government to present an $85 billion budget that includes an optimistic projection of $60 billion in revenues. The International Monetary Fund is expected to chip in several billion more. U.S. President Donald Trump has also promised financial assistance to the new Iraqi prime minister, Mustafa al-Kazemi, without specifying an amount or the nature of the support, while tax receipts, fees and oil revenue are slated to complete the revenue side of the budget.

But judging by March and April oil sale figures, it is apparent that even such hopes are hanging by a thread. In March, Iraq sold $2.98 billion worth of oil, but by April the figure had plunged to $1.4 billion, not only due to low world oil prices but because of a glut on world markets. Many customers have cut their purchases as a result of the coronavirus pandemic, while the oil war between Saudi Arabia and Russia did the rest.

Overcoming the economic crisis and instituting a reform plan, even a partial one, will require the prime minister to garner the support of the parties and movements that make up his government, each of which has its own interests and public and political leverage. That could scuttle any step that would curb the funding that they get in the budget.

So for example, a suggested 70 to 80 percent reduction in benefits that judges, members of parliament, diplomats and other senior officials receive on top of their salaries would be expected to spark a backlash, because each official, who is appointed based on a formula related to communal background or party affiliation, represents a power base. Any cut therefore has not only personal significance but also damages the prestige of the party or movement that appointed the official.

But without curbing senior officials’ salaries, it would be difficult for the prime minister to carry out across-the-board cuts in the wages of lower level civil servants, or to cut pensions or require workers to set aside a portion of their pay in savings. If in usual times – to the extent that there have been such periods in Iraq since the Gulf War – cuts to salaries or to government ministry budgets, which are also allocated based on a communal or organizationally based formula, have been virtually impossible. The same is true now as the protest movements demand early elections based on a new election law.

Such a law, if passed, would provide more equal representation, put more young people in parliament, provide for a more fitting level of presentation by women and minorities, but most importantly, it could break the monopoly of the elites that have been running the country.

During such a period, it’s difficult to imagine government ministers or party heads agreeing to forgo the scraps of the budget that are at their disposal to buy votes. At such a sensitive juncture, the prime minister is expected to go head-to-head with the thousands of demonstrators who have no confidence in the new government. They are demanding a real plan to combat corruption, the return of money stolen from the public purse and the creation of hundreds of thousands of jobs for the unemployed.

But even if by some miracle, there is agreement over a new election law and elections are held in accordance with a plan acceptable to the protest movements, any government elected would still have to resolve the country’s economic crisis at a time when the traditional donor countries need every dollar they can hold onto to stabilize their own economies.

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