Iraq's parliament on Monday approved a 2023 budget of 198.9 trillion dinars ($153 billion) that sets out record spending on a growing public wage bill and development projects to improve services and rebuild infrastructure ruined by neglect and war.
The budget deficit is estimated at a record 64.36 trillion Iraq dinars, more than double the last budget deficit in 2021, according to a budget document and lawmakers.
It only took over six months and a scolding from the United Nations' Security Council, but they finally passed a 2023 budget. Sinan Mahoud (THE NATIONAL) adds:
But analysts said far too much money will be spent on salaries, including allocations for hundreds of thousands of new jobs. They said Iraq will not be able to afford this spending outlay if oil prices fall below $70.
The operational expenditure stands at 133.22 trillion dinars (about $102.5 billion) while investment expenditure will be 49.35 trillion dinars ($37.9 billion). The remainder of expenditure will mainly go to debt servicing.
It is based on an assumed average oil price over three years of $70 a barrel, with an average daily crude oil output of 3.5 million barrels, including 400,000 from the Kurdistan region.
The government of Prime Minister Mohammed Shia Al Sudani is planning to repeat it next year and in 2025, although parliament will be able to vote on amendments. Iraq’s fiscal year usually starts on January 1.
On June 12, it passed a generous budget through the parliament – the biggest in Iraq’s history – which is supposed to fund its plan to expand essential services, such as electricity and water provision and build new infrastructure and housing in major cities. But these initiatives are by far not enough to address the severe political, socioeconomic and climate challenges the country is facing.
Those necessitate major reforms in the political and economic sectors, which the government does not have the mandate to undertake. Sooner or later, the suppressed political crisis will resurface.
Last year, the Western sanctions imposed on Russia over its invasion of Ukraine, combined with oil supply shortages, caused a surge in oil prices, with the average price per barrel reaching $100.
This resulted in handsome profits for energy exporters, including Iraq, which saw its oil revenues jump from $75.5bn in 2021 to $115bn in 2022.
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It is crucial to note that Iraq’s financial stability is heavily dependent on the price of oil, which is an unstable factor. The country also has a significant budget deficit, estimated at $49bn in the 2023 budget. In the event of a decline in the price of oil, the country would face significant financial difficulties which could quickly translate into political instability.
Furthermore, the current state of affairs – while appearing positive to some observers – is exacerbating Iraq’s major problems. Pouring money into armed groups only strengthens them and further weakens the state. It makes it that much more difficult – if not impossible – for the government to get back monopoly over the use of force in the country.
Other methods include investing in renewable energy plants, recycling more, financing green companies and startups that are involved in renewable and green energy, agriculture, conserving water and upgrading old irrigation methods, and preserving the country’s biodiversity, as well as reducing Iraq’s carbon dioxide emissions.
When it comes to these important fields, the development of domestic, knowledge-based industries has arguably become an urgent necessity, rather than a welcome add-on.
It is worth noting that, as a developing country, Iraq has disproportionately experienced the impacts of loss and damage caused by climate change. This is why it is important to point out that tackling the climate crisis requires all countries, especially the developed ones, to take action. This means that poorer countries need support in order to adapt to and address the climate crisis.
In the long term, if some of the damage from climate change, such as water scarcity and a lack of agricultural resources, continues to increase in Iraq to the extent that freshwater resources are depleted, this will have an impact on national security and political stability. Such devastating impacts can also lead to a decrease in human health.
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