The Iraqi President ratified the budget for 2019 earlier this week, ushering in Iraq’s largest ever budget. While criticised by some onlookers, the budget is viewed as a springboard for further reforms in 2020.
After months of political deadlock, the Iraqi Parliament finally passed the national budget for 2019, which was ratified by the Iraqi President Barham Salih earlier this week. The size of the budget is $111.8 billion, making it one of the largest ever spending bills in the country’s history, a significant increase from last year’s budget.
The budget was caught at a deadlock between various factions for months and was finally broken after the Iraqi Government reached an agreement with Kurdish factions. The agreement stipulated that Baghdad would guarantee the payment of public sector salaries in the Kurdistan Region, including the Peshmerga, in exchange for the Kurdistan Regional Government (KRG) agreeing to export 250,000 barrels of oil per day (bpd) and transferring all of the revenue earned to Baghdad.
Key among agreement is that the Iraqi Government will not cut its funding for public sector salaries in the Kurdistan Region even if Erbil exports below the 250,000 (bpd) mark laid out in the agreement. Instead, Baghdad will be able to cut part of the budget that is intended for investments and projects in the Kurdistan Region proportional to the amount not covered by Kurdish oil sales.
This was one of the biggest points of contention between Baghdad and the KRG and has been the main barrier towards normalising relations between the two sides. Relations between the KRG and Baghdad were at their lowest points at the end of 2017 when the Iraqi Government took control of Kirkuk and many other disputed areas from the Kurds.
However, with this recent deal and other overtures made by Baghdad to repair relations with the Kurdistan Region, it appears that relations are back on track. This is no doubt a step in the right direction for a country that is in desperate need of national reconciliation after years of conflict and tensions.
Almost $52 billion, nearly half the entire budget, will go towards covering public sector salaries, pensions, and social security. Meanwhile, $27.8 billion will got to investments throughout the country. However, many politicians have noted that the budget does not allocate enough resources to rebuild parts of the country that were devastated by the Islamic State (IS).
The International Monetary Fund (IMF) has calculated Iraq would need more than $88 billion to rebuild those areas. With the Iraqi budget not large enough to cover the majority of the costs that would be needed to rebuild these areas, the Iraqi Government will need to rely heavily on external funding and investment. Foreign investment in reconstruction has already made a positive difference in a number of areas most heavily affected by conflict. The offer by the United Arab Emirates’ (UAE) to fund the costs of rebuilding the iconic al-Nuri Mosque in Mosul are a recent example of this.
Despite this, the budget may do little to solve some of the persistent economic problems that the country suffers from. Operational spending will still take up a larger proportion of the budget than anything else in the budget, with minimal amounts spent in investments that are key to stimulating the economy. On top of this, the budget has been criticised for shying away from enacting long-lasting reforms to the economy and the public sector. However, the Iraqi Prime Minister, Adil Abd al-Mahdi, has responded to these criticisms, saying that this budget will be a springboard for future reforms once the country’s economy is stabilised. He added that the aim of this budget is to lay the groundwork for more substantive reforms to be introduced in the 2020 budget next year.