If Iraq didn’t face enough challenges already, the slump in the price of crude oil is another unwelcome development for the new Abadi government to deal with.
At a current price of $81.78, the benchmark West Texas Intermediate (WTI) crude is down nearly 25 percent from its June high, driven in part by a strong US dollar and weak Chinese demand.
This comes at a time when Iraq needs all the funds it can get to bolster its defences and eventually eliminate the existential threat from the Islamic State.
As difficult as it will be, Iraq’s parliament must finally agree a budget for this year based on the unpalatable reality that it is now facing.
It must also bite the bullet and accept that in order to fund the war for its survival, public sector cuts will be needed in 2015, and that it may have to run a budget deficit.
A devaluation of the Iraqi dinar is one possible consequence of a budget deficit, but this would also help the balance of payments and leave Iraq in a more competitive position.
Ignoring the budget problem won’t make it go away.
(Flag image via Shutterstock)