Iraq’s parliament authorised the new government to borrow up to $5 billion (Dh18bn) from abroad after the fall in oil prices caused a financial crunch.
The vote on Wednesday came a few days after international rating agency Fitch forecast the economy to shrink 9 per cent this year and debt to skyrocket.
The agency said public debt would rise to 80 per cent of gross domestic product in 2020-2021 from 47 per cent last year.
Iraqi MP Jaber Al Jaberi said pressure to pay government salaries prompted parliament’s overwhelming approval of the borrowing, despite misgivings about increasing the nation’s debt.
"Borrowing is the easy way. Sooner or later it will lead to an economic collapse," he told The National.
The parliamentarian, who represents the Sunni province of Anbar, said salaries and pensions cost the government $5bn a month, compared with $2bn of oil revenue in May.
Mr Al Jaberi said Prime Minister Mustafa Al Kadhimi should have forcefully signalled his intention for reform by taking decisive measures against corruption and ending the reign of militias.
Fitch said oil price declines have limited Iraq’s “ability to respond to the fiscal crisis”, pointing out that oil comprises 50 per cent of GDP and 90 per cent of government revenues.
The short-worded borrowing bill said the money raised from debt in foreign currency has to go towards development.
Parliament also authorised the government to borrow 15 trillion dinars on the local market, equivalent to $13bn.
The bill passed with 168 votes in favour out of 186 members who attended the session.
The coronavirus pandemic has largely curbed attendance in the 329-member parliament over the past few months.
Under the 2005 constitution, enacted after the toppling of Saddam Hussein two years earlier in the US-led invasion, the legislature has to approve all government borrowing.
Post-Saddam era governments accumulated debt, mostly locally, but legislative approval became difficult in the last five years, partly because parliamentarians demanded more rewards for their constituencies.
Mr Al Kadhimi, a former intelligence chief backed by the United States, does not belong to a political group.
Even before he became prime minister last month, he had to placate an array of groups in parliament, the most powerful of which are allied with Iran.
He courted this week Moqtada Al Sadr, a Shiite cleric who has been the kingmaker in Iraqi politics for the past decade.
The secular prime minister paid condolences to Mr Al Sadr to mark 21 years since the killing of Mr Sadr's father, Ayatollah Mohammad Sadiq Al Sadr.
Mohammad Sadiq, who identified with Iraq’s downtrodden Shiites, was the victim of “Saddamist treachery”, Mr Al Al Kadhimi said.
The lot of the people whose cause he championed has improved little, despite the Shiite ascendency since 2003, at the centre of which has been his son.
With Iraq struggling financially, the country’s politico-religious power brokers accepted Mr Al Kadhimi to come and repair the mess.
They remain wary about giving him too much control, the huge borrowing authorisation notwithstanding.