It took four months, six tries and many other delays before Iraq’s 2021 federal budget bill passed on March 31 after intense negotiations.
The current bill aims to address the country’s challenges in the face of growing unemployment, delays in the distribution of wages, pensions, widespread corruption and falling oil prices. The government is now tasked with implementing the bill ahead of the October elections in the country.
“It’s better to have an imperfect budget than not to have one,” Bilal Wahab of the Washington Institute told Al-Monitor. “The COR (Council of Representatives) was initially reluctant to put a budget on the Prime Minister [Mustafa al-] The cession of Kadhimi, but it would have cost them dearly in an election year.
How did we get here?
The Iraqi parliament did not approve a budget last year. Meanwhile, the county’s economic crisis has deepened, fueled by the coronavirus outbreak and falling global oil prices. Iraq is home to the world’s fourth largest oil reserve and depends on oil revenues to finance around 95% of its national budget.
As Iraq’s energy sector has been hit, the country has struggled to pay the nearly $ 5 billion in monthly fees for public wages and pensions. In November, Baghdad was forced to spend a $ 10 billion emergency expense bill this would allow the cash-strapped government to borrow from international markets and local banks in order to pay government employees whose salaries had been delayed for months.
By December, in a bid to close a growing fiscal inflation gap, Baghdad devalued the dinar by nearly 24%, from 1,182 dinars to the US dollar to 1,457. It was the first devaluation of the currency by the Iraqi government in decades. Some lawmakers criticized the move, arguing that it would have a big impact on the country’s poor citizens, as traders took advantage of the devaluation to sharply raise the prices of basic commodities.
In the same month, the Iraqi cabinet approved a 2021 draft budget of 150 trillion Iraqi dinars (about 103 billion dollars). The draft has been sent to parliament for approval.
But disputes over the oil share and non-oil revenues of the Kurdistan Regional Government (KRG) delayed the vote. Sunday, despite a last minute deal Between Erbil and Baghdad, parliament failed to pass the bill for the fifth time as political blocs grappled with the dollar’s exchange rate and the inclusion of foreign loans.
Frustrated by the prospect of another year without a federal budget, the Council of Representatives on March 30 asked parliamentarians to attend a special voting session on March 31. This session resulted in the approved federal budget for 2021 of approximately $ 89 billion. The budget deficit is estimated at around $ 20 billion.
“The shock and crisis This approach will not lead to a conclusion, so let’s start working in the service of our people, ”Kadhimi tweeted after the vote.
What’s in the 2021 Federal Budget?
Ultimately, the approved budget protected the devaluation of the dinar. To settle the Erbil-Baghdad disagreement, the Kurdistan region will receive its 12.67% share of the budget when it remits the revenue from no less than 250,000 barrels of oil per day at the price set by the State Organization for marketing of oil at 45 dollars. per barrel.
Erbil will provide non-oil revenue to the Treasury and will also have to repay a 5 trillion dinar ($ 3.4 billion) loan he received from the Trade Bank of Iraq at around 50 billion dinars ($ 34 million). ) per month over seven years, Samir Hawrami, spokesman for KRG Deputy Prime Minister Qubad Talabani told Snwr Majid of Rudaw.
Other articles approved in the bill include a call for the state’s Media and Communications Commission to compel mobile phone companies to pay the financial obligations they owe, including fines, over the course of of the first semester of the current year. The National Pensions Authority is also required to pay end-of-service bonuses and accumulated leave to ex-servicemen, although this amount does not exceed 10 million dinars ($ 6,800).
The budget also calls for compensation for the families of the thousands of people killed or missing in Mosul between 2016 and 2017 during the battle to reclaim the city from Islamic State.
“We now have the privilege to implement a way that secures the interests of citizens and rebuild the nation and take the highest measurements to support low-income classes, provide employment opportunities for our young people and fight corruption, ”Iraqi President Barham Salih tweeted.
The current challenge for lawmakers is to implement the bill before the general election on October 10. But much of the budget wording remains unclear, questionable, or subject to political interpretation, as a detailed breakdown has yet to be released. To meet its total budget of $ 89 billion, for example, Iraq would have to produce more oil than its OPEC + quota allows or expect the price of a barrel to rise above $ 60. For much of 2020, Iraq struggled to meet this quota.
Iraq continues to face major structural challenges which the budget seeks to address. In October, the country adopted the White Paper, a government-drafted policy document that called for emergency financial reform. It described measures to combat serious decades-old challenges who face it, ”the government wrote in a press release.
The executive branch attempted to incorporate some of these principles into the draft budget, including protection from the devaluation of the dinar and increasing non-oil revenues. To deal with unemployment problems, the budget calls for the addition of 300,000 people to the public payroll, an addition that could be seen as a political maneuver to appease young voters ahead of the October elections.
But not all of the White Paper’s recommendations have been incorporated. The budget approved by parliament has changed considerably from the original draft. Some articles of the draft budget have been deleted entirely, notably Article 20 which deals with the income tax proposals and describes the salary cuts for the three presidencies, ministries and employees.
The Iraqi government now plans to file a formal complaint against the budget rewrite with the Federal Court over some of the changes imposed by Parliament, according to an Iraqi official who spoke to Al-Monitor on condition of anonymity . Challenges exist with cutting taxes and forcing the government to employ thousands of laid-off workers.