Iraq approves record $153bn budget for infrastructure and job creation

Iraqi parliament has given the green light to a historic budget of 198.9 trillion dinars (US$153bn) for 2023, with the aim of addressing the nation’s increasing public wage bill and funding development projects to enhance services and rebuild infrastructure damaged by years of conflict and neglect. The budget, which covers 2023, 2024, and 2025, is the largest in Iraq’s history.

Mahmoud Abdelwahed, reporting for Al Jazeera from Baghdad, stated that the budget allocation will target various objectives, including reforms, infrastructure, development plans, and job creation. Shakhwan Abdullah Ahmed, Deputy Speaker of the Iraqi Council of Representatives, emphasised the necessity of securing basic services, rehabilitating infrastructure, providing employment opportunities, reconstructing affected areas, and alleviating the suffering of displaced individuals.

The budget aims to create tens of thousands of public sector jobs, as the country, which has been plagued by decades of war and sectarian conflict following the 2003 US military invasion, seeks to improve services and restore damaged facilities. Iraq has one of the fastest-growing populations globally, with projections indicating a doubling from 43 million to approximately 80 million by 2050. The nation’s economy is predominantly state-led, with high unemployment and frequent protests over the lack of jobs and public services.

However, concerns have been raised about Iraq’s growing fiscal deficit, which is estimated at a record 64.36 trillion Iraqi dinars (US$49bn), more than double compared to the 2021 budget. Ahmed Tabaqchali, a visiting fellow at the London School of Economics Middle East Centre, estimated that about 600,000 new employees would push the total cost of public wages and pensions to over 76 trillion dinars (US$58bn). Tabaqchali warned that increasing this type of expenditure would raise vulnerability, necessitating higher oil prices and leading to further borrowing.

The budget’s approval was delayed due to political instability and disputes among lawmakers. The budget is based on an oil price of US$70 per barrel and projects oil exports at 3.5 million barrels per day (bpd), including 400,000bpd from the semi-autonomous Kurdish region. Analysts have expressed concerns about the anticipated oil revenue, given Iraq’s near-total reliance on oil revenue and the fluctuating crude prices and production levels in response to global demand.

The International Monetary Fund (IMF) cautioned in a May 31 note that the increasing public wage bill would contribute to rising deficits and financial pressure unless oil prices saw a significant increase. The IMF emphasised the need for a tighter fiscal policy to bolster resilience and reduce the government’s dependence on oil revenues while protecting critical social spending requirements.

The approved budget also addresses longstanding issues between Iraq and the Kurdish region, with the latter’s oil revenues set to be deposited in an account overseen by the Iraqi central bank. Previously, Iraq had no control over the Kurdish region’s oil revenue expenditure, which exported crude via Turkey despite Baghdad’s objections. However, Kurdish officials were forced to negotiate with Baghdad after Turkey halted crude exports in April following an international arbitration ruling that deemed them unlawful. Under an agreement signed between Baghdad and Erbil in April, Iraq’s state-run marketing company SOMO will have the authority to market and export crude oil produced from fields controlled by the Kurdish region.