Posted on 10 January 2015.
This article was originally published by Niqash. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
The Kurdish Plan To Take Out International Loans: Financial Folly?
The past year has done much damage to the economy of Iraqi Kurdistan. And late in 2014 the government of the semi-autonomous region decided it might be a good idea to borrow money from international lenders in order to make some repairs. However, as local economists and financiers point out, there are still a lot of unanswered questions to address before any such plan can go ahead.
Despite the fact that the government of the semi-autonomous northern region of Iraqi Kurdistan and Iraq’s federal government in Baghdad recently came to something of an agreement on their outstanding financial arguments about oil and money, the Iraqi Kurdish still want to try and borrow money from outside of the country.
Toward the end of last year, the Iraqi Kurdish government approved a draft law that would allow the region to bring more money through lending. Even if the dispute between Iraqi Kurdistan and Baghdad was resolved, the region would still need extra money in order to catch up with all the damage done by what was described as a months-long “financial blockade” of Iraqi Kurdistan.
However the draft of this law was never forwarded to the Iraqi Kurdish Parliament and there is plenty of controversy still around it. Some of these are legislative, other issues are political and still further issues have been brought up by the private lenders that the Iraqi Kurdish have approached.
Iraqi Kurdistan’s Deputy Prime Minister, Qubad Talabani, has said that after lengthy discussions and legal consultations the region’s Cabinet had agreed that Iraqi Kurdistan could apply for international loans. However, he also noted, that getting permission from the region’s Parliament would take some time.
Posted in Banking & Finance
Posted on 03 January 2015.
By Mustafa al Kadhimi for Al Monitor. Any oppinions expressed are those of the author, and do not necessarily reflect the opinions of Iraq Business News.
On Dec. 23, Iraq’s Cabinet approved and submitted the 2015 federal budget to parliament. This development occurred following months of study to review and reduce the initial budget’s large deficit, which Finance Minister Hoshyar Zebari estimated at $40 billion.
Iraq’s government has certainly tried to address the deficit in the version that was approved on Dec. 23, in which the budget reached 123 trillion Iraqi dinars (nearly $100 billion). Yet, in the end, all of these attempts cannot address Iraq’s budget crisis for 2015 or the following years, given the nature of the Iraqi economy, which mainly depends on oil production, as well as the ongoing failure to achieve alternative economic mechanisms.
The sharp decline in oil prices, which reached $70 per barrel in December and are expected to continue falling, was enough to plunge Iraq into a real financial crisis, according to deficit rate estimations, which in 2013-14 were based on an estimation of nearly $80-$90 per barrel.
Posted in Politics
Posted on 30 December 2014.
Iraqi State Budget 2015- It Deserves Careful Reading But Needs Serious Revision
By Ahmed Mousa Jiyad.
The first reading of the draft law for budget 2015 by the Federal Parliament was done on 25 December at a presence of only 229 members of the Parliament. According to the parliamentary procedure the first reading entail reading the full text of the draft law without discussing or debating its contents.
The draft law was referred to the Finance and Legal Committees of the Parliament for examination and prepare opinion that would be delivered during the second reading.
The parliament adjourned and will reconvene on 7 January 2015.
Until the commencement of the second reading the above two Committees, other parliamentarians, experts and interested public have to examine thoroughly the draft budget and express opinion before tabling the draft law for voting and adoption.
Please click here to download Ahmed Mousa Jiyad’s full report.
Posted in Ahmed Mousa Jiyad, Blog, Oil & Gas
Posted on 24 December 2014.
By John Lee.
Iraqi Finance Minister Hoshyar Zebari (pictured) has taken a brutally realistic stance on the passing of Iraq’s 2015 budget, Reuters reports. Zebari has previously been frank about the challenges Iraq faces and the war economy situation the country is now in.
The Finance Minister noted how,
“The strategy was to present a real budget – to engineer our budget according to our actual revenues so that we will be able to meet our top priorities.”
Such frankness is a good thing if we follow the logic that a good politician manages the expectations of the public and is realistic about the challenges ahead. If we look at the last administration for example, we saw several promises by the former PM that Iraq’s problems such as the electricity crisis or the security crisis would end within “months”.
Previous budgets had also been based on the expectation of a high oil price, a risky strategy.
Nonetheless, like so many other oil dependent nations, Iraq has been hit hard by the collapse in oil prices, although the IMF recently reported the country’s economic contraction would be less than originally forecast, just half a percent according to one estimate. As such, the 2015 budget comes in at $103 billion (123 trillion dinars) running a deficit of 23 trillion dinars.
On the positive side, the 2015 budget cements the recent interim Baghdad-Erbil oil agreement, which some analysts hope could form the basis (if not the ultimate solution) to Iraq’s oil revenue dispute.
And the Abadi administration has a mixture of confidence tinged with concern about the challenge ahead. Oil Minister Abdel Adel Mehdi has noted how the current financial squeeze could provide an opportunity for genuine public sector reform, a key objective of the Abadi government.
Posted in Politics
Posted on 03 December 2014.
By Omar al-Jaffal for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
Sana al-Khafaji, an employee in Iraq’s Ministry of Construction and Housing, was surprised by the $100 deduction from her monthly salary paid by the Iraqi government, following news about an expected government austerity plan to be adopted by Haider al-Abadi’s government to reduce the waste of public funds and compensate for the substantial expenditures of the previous government.
The state of austerity that Iraq is about to face is also caused by a drop in crude oil prices and the multifront war against the Islamic State (IS) in several provinces north and west of Baghdad.
In an interview with Al-Monitor, Khafaji predicted an [even] higher salary deduction. “This is what we hear every day,” she said, but the deduction from her salary was made on the amount received as a bonus and not from her fixed basic income.
Rumors are being spread across Iraq that the continuation of the war on IS will surely lead to a salary deduction of government officials who make up around 4 million public employees. This will also result in a hiring freeze of new employees.
However, the economic adviser to Prime Minister Haider al-Abadi, Mazhar Mohammed Saleh, denied any knowledge of salary cuts of civil servants in the ministries.
Saleh told Al-Monitor, “The implementation of an austerity plan will not be easy to interpret and we cannot foretell the situation in a short period.”
Posted in Banking & Finance, Construction & Engineering, Public Works
Posted on 27 November 2014.
By John Lee.
Finance Minister Hoshiyar Zebari said he will soon present his proposed 2015 budget to Cabinet, based on an oil price of $70 per barrel.
The Minister said:
“We are proposing a budget of $100 billion. This is projected …
“We have based our projections on about $70 a barrel. This could fluctuate. You have no assurances or guarantees.”
The government was not able to present a 2014 budget.
(Source: Arab News)
Posted in Oil & Gas, Politics
Posted on 16 October 2014.
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)
Posted in Blog
Posted on 14 October 2014.
By John Lee.
The Financial Times reports that a looming fiscal crisis is threatening to limit Iraq’s ability to finance its war against the Islamic State insurgents.
This is despite the country having large oil revenues, billions of dollars in reserves and surplus funds left from unexecuted projects.
In recent years, expenditures have “skyrocketed“, with the public payroll, and food and energy subsidies, taking up 70 percent of the public budget. In addition, as much as $500 million is needed every month just to feed the 1.75 million internal refugees who have been displaced in the war.
Baghdad also owes billions of dollars to the Kurdistan Region. The situation is not helped by the fact that parliament has yet to agree a budget for this year, at a time when oil prices have dipped below $90 a barrel.
Ashraf Abdelaal, the economic affairs officer for the UN mission to Iraq, told the FT:
“The IMF and the World Bank will not give Iraq one dollar until the budget has been approved … Credibility in the Iraqi system does not exist any more.”
(Source: Financial Times)
(Austerity image via Shutterstock)
Posted in Banking & Finance, Security