The Iraqi parliament has approved a budget of 198.9 trillion dinars ($153 billion) for 2023, which will see a record amount spent on rising government wages and development projects to improve services and rebuild infrastructure ruined by neglect and war.
Al Jazeera’s Mahmoud Abdelwahed, reporting from Baghdad, said Monday that the approved budget is the largest in the country’s history, running for three years — 2023, 2024 and 2025.
“This amount is allocated for various purposes, including reforms, infrastructure, development plans and job creation,” said Abdelwahed.
Deputy Chairman of the Iraqi Council of Representatives, Shakhwan Abdullah Ahmed, said in a statement: “Basic services must be secured, infrastructure must be restored, employment and work opportunities must be provided, the affected areas must be reconstructed and to the suffering of displaced persons.”
The budget aims to create tens of thousands of public sector jobs as the country, ravaged by decades of war and sectarian strife in the aftermath of the 2003 US military invasion, looks to improve services and rebuild war-damaged facilities .
The country has one of the fastest growing populations in the world, expected to double from 43 million to about 80 million by 2050, while most of the economy is state-led, with high unemployment. The country has seen regular protests over the lack of jobs and public services.
“Many people here, especially in Baghdad, are optimistic about the approval of this budget. They are hopeful that the infrastructure destroyed by years of neglect and wars will finally be maintained by this budget and hopefully more jobs will be created,” said Al Jazeera’s Abdelwahed.
Growing budget deficit
But many observers have expressed concern over Iraq’s burgeoning budget deficit, estimated at a record 64.36 trillion Iraqi dinars ($49 billion), more than double compared to the 2021 budget, according to a budget document and lawmakers.
Ahmed Tabaqchali, a visiting fellow at the London School of Economics Middle East Centre, estimated the number of new hires at around 600,000, which he said would increase the total cost of government salaries and pensions to more than 76 trillion dinars ($58 billion).
“The more you increase these kinds of expenses, the more you become more vulnerable. The price of oil just needs to get higher and higher to support spending, which is crippling and will lead to more and more borrowing,” he said.
The budget was delayed by instability and political bickering.
“It has gone on too long because of political bickering between legislators as each bloc in parliament wants to put the interests of their regions first,” said Abdelwahed.
The budget is based on an oil price of $70 a barrel and estimates oil exports at 3.5 million barrels per day (bpd), including 400,000 barrels per day from the semi-autonomous Kurdish region, lawmakers said.
Analysts have expressed concerns about expected oil revenues as crude oil prices and production levels fluctuate with global demand given Iraq’s near-total dependence on oil revenues.
The International Monetary Fund said in a May 31 note that the rising wage bill would contribute to widening deficits and financial pressures, barring a sharp rise in oil prices.
Iraq needed an oil price of $96 to break even, it said, while the price averaged $71.3 in May.
“Significantly tighter fiscal policy is needed to strengthen resilience and reduce government dependence on oil revenues while safeguarding critical social spending,” the IMF said.
Long-standing problems between Iraq and the Kurdish region
First Deputy Speaker of Parliament Mohsen al-Mandalawi stressed in a statement “reducing spending and increasing non-oil revenues to maximize state revenues” in the agriculture, services and reconstruction sectors.
The budget is also taking steps to address longstanding issues between Iraq and the Kurdish region, with oil revenues to be deposited into an account supervised by the Iraqi central bank.
Iraq previously had no say in how oil revenues were spent by the Kurdish region, which unilaterally exported crude oil via Turkey despite Baghdad’s objections.
But Kurdish officials were forced to negotiate with Baghdad after Turkey halted crude oil exports in April when an international arbitration ruling deemed them illegal.
According to an agreement signed between Baghdad and Erbil in April, state-owned Iraqi marketing company SOMO will be authorized to market and export crude oil produced from fields under its control of the Kurdish region.