Iraq looks to international markets to help finance government

Legislature debates new law to allow foreign borrowing as oil price fall bites

Iraqi Prime Minister Mustafa Al Kadhimi delivers a speech during the vote on the new government at the parliament headquarters in Baghdad, Iraq, May 7, 2020. Reuters

The Iraqi government asked Parliament on Wednesday for authorisation to borrow from international markets and plug what is expected to be a steep budget deficit this year.

Iraq has occasionally resorted to international markets for borrowing since the US-led invasion toppled Saddam Hussein in 2003.

Official media said the legislature on Wednesday heard the first draft of a law to allow the Finance Minister, Ali Allawi, to borrow “from international financial institutions and foreign banks to finance public expenditures”.

A copy of the proposed law said the government was facing difficulty in financing its expenses because of budgetary delays, the coronavirus and a sharp drop in oil prices.

Parliament ordered the government to present the 2020 budget by the end of this month.

Sarkawt Shams, a member of the the Kurdish bloc in Parliament, told The National that the new legislation lacked any curbs that could help to contain Iraq's runaway spending, and gave Prime Minister Mustafa Al Kadhimi wide discretion.

"It is really not a bill but just a couple of lines to allow Kadhimi to freely get loans from whoever he wants," Mr Shams said.

He said he feared that the new borrowing would continue to be spent on salaries, not on investment Iraq badly needs.

Repeated delays in replacing prime minister Adel Abdul Mahdi since street protests forced him to resign in November last year contributed to postponements in passing the 2020 budget.

The authorities, supported by pro-Iranian militias, cracked down on the uprising, killing unarmed demonstrators and committing other violent acts.

A report released by the World Bank in spring said that if oil prices stabilised in the low $30s a barrel, the Iraqi government would need to raise $67 billion (Dh246.09bn) in financing in 2020, equal to 39 per cent of gross domestic product, to cover spending.

The oil price is hovering in the high $30s, having recovered some of its record losses this year.

Iraqi Parliament figures in April showed that a draft $135bn budget for 2020 by the Abdul Mahdi government was calculated based on a projected oil price of $56 a barrel.

They said the budget deficit, forecast at $40bn, could more than double to $85bn this year.

Mr Al Kadhimi said he found state coffers were empty when Parliament approved him as prime minister on May 5.

A  former intelligence chief who is supported by Washington, he this week ordered pay cuts for the Cabinet and general managers in the bureaucracy, as well as Parliament and the presidency.

The country is one of the top five members of Opec, with oil exports providing at least 90 per cent of government revenue.

Most public spending goes on salaries to seven million public employees.

Mr Al Kadhimi said he also ordered the elimination of dual salaries and what he called wages to fraudulent names on the government payroll.

“Solutions to the financial crisis will not be at the expense of limited-income employees, retirees and those who deserve to be on social welfare,” he said.