The government has sent a bill to parliament that seeks to regulate public expenditures due to the decline in revenue caused by the drop in oil prices and the COVID-19 pandemic

Austerity knocks on the door of the Iraqi Parliament

photo_camera AFP/HUSSEIN FALEH - The Prime Minister of Iraq, Mustafa al-Kazemi

On 21 December Iraq's current executive, led by Mustafa al-Kazemi, former director of the Iraqi Intelligence Service, approved a series of reforms aimed at mitigating the effects of the COVID-19 pandemic, including the fall in oil prices owing to lower demand, which was also caused by the pandemic. All this in view of the tension experienced on the country's streets just before the start of the pandemic.

The main reforms presented by al-Kazemi aim to achieve a fiscal deficit of 72 trillion Iraqi dinars (some 42.75 billion euros at the current exchange rate) rather than the 100 trillion dinars which, according to the finance minister, Ali Allawi, would be reached without the current reforms. The aim is merely to increase the liquidity of the public sector, which has seen its revenues shrink. Some 95 percent of public revenues come from income generated by the oil trade, which accounts for 90 percent of Iraq's exports.

The Parliament is expected to approve this project, which is based on an estimated 93.19 trillion dinars (about ?52.1 billion) in public revenue and 164.206 trillion Iraqi dinars (about ?91.804 billion) in expenditure.

The reform includes the deduction of 40% of the salary of the president, the prime minister and all members of parliament, according to article 20 of the text. It also establishes different brackets for the collection of income tax. Thus, those individuals who receive more than 307 euros will contribute around 2.8 euros; 5.7 euros for those who receive more than 335 euros; 14 euros for those who earn 419 euros; and up to 391 euros for those with higher incomes of more than 5,588 euros.

An important public sector

In October 2019 Iraqi citizens took to the streets to demonstrate for an end to political corruption and to demand measures to alleviate the high levels of unemployment in the Middle East country.

The then president, Adel Abdel Mahdi, who stepped down from power in November that year, promoted public job offers for young people aged between 18 and 35 in October and attempted to alleviate the demands of the demonstrators. According to EFE, 110 000 places were opened in the Ministry of Electricity. However, many have not been paid for months due to lack of resources and corruption.

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In spite of this, the government's bill has risen, and mostly involves a service sector that accounts for just over 50 percent of the gross domestic product. The state is responsible for 4.5 million active employees, 2.5 million retirees and 1 million people receiving subsidies. According to this data, provided by the EFE agency, around a quarter of the population depends on public resources.

The problem therefore lies in the collection of the revenue needed to meet this mass of obligations. According to Reuters, 95% of Iraq's income is from oil. And the fall in demand, which led to a drop in the price of a barrel of oil - Brent's barrel fell from 57 to 16 dollars - has reduced the country's income.

All this is added to the 20 percent devaluation of the Iraqi dinar in mid-December, from 1,190 dinars to the current 1,450. Measure taken, according to Allawi, to reactivate the private sector, local production, and avoid the explosion of the budget deficit.

The International Monetary Fund welcomes steps towards the adoption of such a budget. The head of the International Monetary Fund mission in Iraq, Toker Mirzoyev, added the need for a "fundamental reorientation" of Iraq's economic policy in order to maintain economic stability following the events generated by the pandemic.

The measures have met with a certain amount of rejection in Iraqi society. Since the bill submitted by the executive on 29 December entered into force, Parliament will hold an open debate during January and perhaps a little in February until it reaches a resolution on the budget for 2021. Although the vice-chairman of the House of Representatives' legal committee, Muhammad al-Ghazi, has already told INA that the law would never be passed in its current form.

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