Iraq Prepares Austerity Budget
Prof. Sabah Alnasseri says Iraqi Prime Minister Haider al-Abadi is planning to cut social sector employment as collapsing oil prices, corruption, and the anti-ISIS campaign will leave the government short on revenue
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.
Last month, the Iraqi cabinet approved a draft budget of $102.5 billion for 2015 based on projected oil prices of $60 a barrel and a projected deficit of $19.1 billion. But oil prices have dropped further to $50 this month. And with the projected deficit, as well as the controversy surrounding the budget, will the Iraqi government be able to honor its constitutional agreement to provide the autonomous Kurdistan region with its full 17 percent of the budget?
We will deal with this question and much more with our next guest, Sabah Alnasseri. He’s joining us from Toronto, Canada. Professor Alnasseri teaches at the Department of political science at York University.
Thank you so much for joining us, Sabah.
SABAH ALNASSERI, ASSOC. PROF. MIDDLE EAST POLITICS, YORK UNIV.: Thanks for having me, Sharmini.
PERIES: So, Sabah, let’s start with why the draft budget wasn’t approved in the first place.
ALNASSERI: Right. I mean, first of all, the irony is is the Islamic State released its budget on January 15 for 2015 with $2 billion and $250 million surpluses–and, again, so much to the U.S. degradation of Islamic State–whereas the Iraqi state doesn’t have a budget now.
And the problem is–actually, there are multiple problems. The first one is the oil-producing and gas-producing provinces, they wanted $5 premiums on each produced barrel of 150 [cubic (?)] gas, but they get only $2. So that’s one of the problems and one of the conflict fields.
The second one, there was a critique from this so-called religious institution on some aspect of the draft, especially concerning the social issues.
The third conflict, of course, there are some accusation among political forces that the central government, or at least al-Abadi government, gave too much concession to Kurdistan, considering it’s only one region of Iraq compared to other regions.
The fourth conflict, of course, you have different ministries, and these ministries, with their cliques and clan, each one of them want to have big share of the budget. But as we said, almost 50 percent of the budget goes to these four ministries. Now, with this endemic corruption in these different institution, I assume there’ll be a fight over the percentage of the budget going to different institutions and how this will be spent.
And, again, the fifth problem was that the budget was based on $60 per barrel in December. Now it’s way below than 54 barrels. Again, there are some demands that the budget should be revised according to the realistic estimation of the oil prices, and there is no indicator that the oil prices will increase within the next few months and so on.
So these are some of the conflict fields around the budget and why it’s not approved. And I hope or I assume that the budget might be approved by the end of January. But, again, even if it’s approved, this will not solve the problem.
PERIES: Sabah, so give us some idea of the controversy surrounding the budget and why this budget share with the region of Kurdistan government is constitutionally guaranteed.
ALNASSERI: Well, first of all, as I said last interview, the cabinet approved the budget draft on December 23, 2014. But the draft is not approved by the parliament yet. Yesterday’s session of the parliament, there was no item on the agenda discussing the budget draft still discussed within the so-called finance committee of the parliament.
But maybe before talking about the budget draft we should talk about the context within which the draft is discussed. And what do we see? We see multiple crises. And if we look at the last developments, the first thing is we don’t have a budget from 2014. Due to the conflict between the al-Maliki government, Kurdistan, and other political rivals of al-Maliki, there was a depletion of the Iraq reserve and monies from the Iraqi Development Fund, an account at the Fed in New York, from $10 billion to $3 billion.
And a second thing. Since the attack and occupation of Islamic State since 2014 and the bombing of the so-called coalition of the willings led not only to the death of 10,000 of civilian and the internal displacement of over 2 billion Iraqis, people losing their jobs, their incoming, increasing the unemployment and their misery, but also due to the occupation of a more than 1 million hectare land by Islamic State, especially of wheat crops, which create and will create a food crisis, or at least would increase the prices for food–. On the other hand, we still suffer from the endemic corruption, the dysfunctional institutions and conflict and rivalries among different political elites, clans, and cliques within the states and between the central government and the provinces, not only with Kurdistan, but other the provinces.
So if we look at these multiple crises, then we can discuss the significance of this budget draft and what possible problem and conflict would arise from this budget draft.
PERIES: So, Sabah, then give us some context to the 17 percent allocated in the Constitution to the regional government of Kurdistan and why this came about and whether the government will be able to deliver on that constitutional guarantee.
ALNASSERI: Right. I mean, this agreement between Kurdistan and the central government was actually the precondition for the budget draft. Without solving the problem with Kurdistan, it was almost impossible for al-Abadi government to draft the budget.
So one of the thing is the problem with al-Maliki government and the non-transfer of salaries and so on to Kurdistan is you have a lot of people, especially now in Sulaymaniyah, province of Sulaymaniyah, public employee going on strike because they didn’t receive their salaries since October 2014. And there were conflict around the percentage of the oil-producing Kurdistan, how much of this oil would be regulated and controlled and operated by Kurdistan and how much would be going to the central government.
So the deal struck by Kurdistan and the central government anticipate that 17 percent of the budget will be transferred to Kurdistan based on the 17 percent of oil production that Kurdistan contribute to Iraq–and 83 percent, roughly, is produced actually in the south, in Basra.
But that’s not only 17 percent. We will talk about this when we talk about the draft. If you look at the amount of oil, according to the new agreement and the budget draft, that is produced in Kurdistan is 250,000 barrel from the Kurdistan region today and 300,000 from Kirkuk. So that means altogether 550,000 barrel of oil per day Kurdistan’s allowed to produce, and this will go to the central government. Anything beyond that–and that’s the problem which is not actually clarified in the budget draft and in the agreement–anything beyond that, it’s not clear who will benefit from that, how it’s going to be used, or is it going to be consumed within Kurdistan. What about the oil already exporting, especially now, stored at the Ceyhan in Turkey?
So there are other payments and transfers, which are not really fixed. And that would create problems, because the agreement–based on the good faith on both parts or anyone of departments interpret the agreement different ways. This would cause a conflict and, again, struggle over revenues and resources.
PERIES: Right. And then you were saying–what else is in the draft?
ALNASSERI: Right. So first of all let’s look at the budget, anticipate the budget. And this budget was estimated in December 2013, taking into consideration the price of oil at that time, which was $60 per barrel, which is not realistic anymore, and it is changing almost every day.
So, based on this estimation, the budget was estimated by roughly $104 billion. And [incompr.] billions the estimated revenue of the state, mostly based on oil. So there’s almost 20 percent deficit anticipated in the budget for 2015. And as I said, this estimation and the calculation of the budget is not only not realistic due to the falling and collapsing, actually, oil prices of the world market, but due to other problems. If you want me to refer to these problems in the draft, I would be more than happy to.
PERIES: Yes, yes, definitely.
ALNASSERI: The other resources that the state is anticipating at least to cover some 13 percent of the budget are customs and taxes–indirect taxes on, I don’t know, cell phones, new cars, tourism, traveling, etc., and the other one custom revenues. But if you look on both cases, you will see–if we look at the customs, what do you see? You see mostly the major trade routes of Iraq are either controlled by ISIS, especially going to Syria or Jordan or Turkey, or there is an endemic corruption and organized crime and smuggling. So the revenue anticipated are not realistic.
On the other hand, indirect taxes, again, based on the assumption that increased employment and increased income, etc., which is not the case–there’s an economic crisis, and there’s increased unemployment, and a decrease in demand, due to the uncertainties and low incomes. So even these estimation are not accurate. This will–again, will–not only the collapsing of oil prices, but also this revenue and state revenue will not materialize, which would make the budget deficit even greater than 20 percent.
PERIES: Right. So with these impediments in place in order for the government to deliver on what is a reasonable expectation on the part of Iraqi people to be provided with some services and guarantees of life and livelihood in employment, how is it going to compensate for this larger deficit you’re projecting?
ALNASSERI: Right. So one of the issues this draft’s trying to resolve–but, actually, I would say it would create more problem, which is the relationship between the southern government and the provinces. So what the budget now anticipate is to increase the premium for the oil-producing and gas-producing provinces from $1 per barrel a day to $2. That means 100 percent increase. It anticipate an increase in the oil production in Basra, which is, I would say, unrealistic due to technical and other problems. So the anticipation that the oilfields in Basra would increase the oil production 2015 is unrealistic.
The second problem is that these provinces, especially the resource-rich provinces, are not only in Kurdistan, but also in the South, are pushing for more autonomy when it comes to revenues, investment, government, etc., which would make [clear (?)] problem to population-rich provinces, yet resource-poor provinces, like in Western and Northwestern of Iraq, which would create conflict among these provinces on the one hand, and between these provinces and the central government.
Now, with the war going on against ISIS and the news of agricultural land and some trade routes and, again, the economic crisis and the increase of unemployment, it is surprising to see that almost 50 percent of the budget will go to four ministries, which is the interior, defense, oil, and finance. That means the social security, all of the ministries of the state are underfinanced in a way. So I can’t see how the government will finance these social project infrastructure and so on with these economic crises as the anticipated budget deficit.
PERIES: Now, Sabah, the budget allocation seems a little peculiar in terms of the mission of any state is to really service its people, but the allocation seems to be for oil and for defense and very little for ordinary people.
ALNASSERI: Right. Right. As I said, I mean, the first problem is, you see, Iraq in the last few years, they have enormous surpluses from oil revenue. But contrary to these GCC countries, the Gulf countries, who–these countries created sovereign wealth funds, and they used these investments, especially in a time of crisis. Iraq didn’t have such a fund.
And the second thing is, as I said, since the oil prices are collapsing and the estimation of revenue from customs and taxes is unrealistic, that harsh reality, which the Iraqi–the people will face is austerity measure–cutting salaries of public employee, which is the biggest sector of employment in Iraq, about 6 million people working in the state institutions. So they will face harsh austerity measures. And since the budget draft, there’s a provision empowering the minister president to borrow money and at least to close the gaps and holes in the deficit, of the anticipated bigger deficit. That will also create a burden on the population and will increase taxes. And a third problem: of course the central bank will probably use the reserve, the foreign currency reserve, which means that it will contribute to the inflation of the Iraqi currency. And, again, it will hit the people everyday lives hard.
So that’s why I think this budget draft will create much more problems and instabilities and exacerbate the economic crisis more than the current situation.
PERIES: Sabah, I want to thank you so much for joining us and explaining these very important issues to us in understanding what’s really going on in Iraq through the prism of the budget.
ALNASSERI: My pleasure. Thanks for having me.
PERIES: And thank you for joining us on The Real News Network.
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