Iraqi lawmakers vote on the federal budget at the parliament
headquarters in Baghdad, Iraq, June 11, 2023 [photo credit: Iraqi
Parliament Media Office]
The budget released
on 11 June was set at US$153 billion and it was based on oil prices of
US$70 per barrel. Given the volatility of the market that decision
seems, putting it kindly, somewhat naïve. Granted, post the Russia
invasion of Ukraine prices had peaked
at US$123 in March 2022. Prices slumped, rallied briefly in June last
year and since then have steadily declined to hover around that US$70
mark.
In its February assessment of the economy the IMF noted that the fiscal deficit of the non-oil GDP had widened from 45 percent to 63 percent and went on to say:
With gradually declining global oil prices, both fiscal and
external current account balances are expected to turn into deficits
over the medium term, resulting in renewed financing pressures, drawdown
of foreign exchange reserves, and exhaustion of fiscal savings. This
outlook is subject (to) additional downside risks related to a faster
decline in oil prices, social unrest, escalation of geopolitical
tensions, and realization of contingent liabilities, notably in the
electricity sector.
As one participant at the round table, casting doubt on the
competency of the budget, wryly noted “what happens when oil goes to $50
a barrel?”
The al-Sudani government is at pains to point out that it has a
campaign in place to address endemic corruption with 52 summonses being
issued in May against former cabinet ministers and serving deputy
ministers and governors. The selling of ministerial and other senior
government posts has, the government claims, now been halted. The
catchphrase doing the rounds is ‘you can’t stop 20 years of corruption
in 20 months.’ The mood at the round table was sceptical this government
would fare any better than its immediate predecessor at slaying the
beast of corruption that continues to devastate the economy and erode
development potential going forward for this energy rich nation.
One sign that things are not going in the direction the government
claims is the fact that in the budget Iraq’s already hugely bloated
public sector is set to swell with the addition of more than half a
million new jobs. One contributor suggested that the figure could be
600,000 only to be corrected. It is, in fact, 739,000, prompting the
comment that the government’s solution to ongoing street demos was to
give the protesters jobs.
Amidst the general gloom there are some rays of good news. With a
more secure country and capital, foreign investors are signalling
renewed interest coming thus far primarily from Qatar, Türkiye and the
UAE. China, too, is engaged and Egypt, Italy and Germany are sniffing
around. In fact the same day as the round table the Qatari emir
was in Baghdad to sign a deal aimed at developing projects worth US$9.5
billion. Included is the building of two power plants that will
generate 2400 megawatts.
However it is worth caveating that it is in the energy sector that
some of the worst corruption occurs. “The mother of all corruption hides
behind subsidies to energy, costing $30 billion in lost revenue and
another $30 billion in lost opportunities,” was the comment from one of
the participants.
One contributor pointed out the powerful presence of Iran in the sector. Despite its vast hydrocarbons resources Iraq is dependent on Tehran
to import gas and when, as is frequently the case, it falls behind in
payments the gas supply is threatened by curtailment creating even more
misery for ordinary Iraqis whilst further damaging the economy.
A US$17 billion project undertaken in partnership with Shell
to use gas capture from flaring in southern Iraq to generate
electricity is being built by an Iranian company with ties to the IRGC.
In its investigation of the deal the FT
noted “Tehran-based Mapna Group… is entitled to 78 per cent of the
revenue from electricity sales, according to documents seen by the
Financial Times and three people involved in the contracts.” The article
notes that the US is concerned “with the role that Hassan Danaeifar, a
former Iranian ambassador to Baghdad and former member of the country’s
Revolutionary Guards, has played in lobbying Baghdad on behalf of
Mapna.”
Whether outside foreign investment can free Iraq from the shackles,
economic and otherwise, that Tehran has imposed, remains an open
question. Certainly that is the direction of travel most Iraqis would
like to see taken. But as the Chatham House roundtable showed there is
little indication thus far that the al-Sudani government has much
appetite for a challenge direct or otherwise of the Iranian regime’s
tight hold.