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Iraq record budget hands Baghdad greater control over Kurdish oil

By AFP - Jun 12,2023 - Last updated at Jun 12,2023

Oil prices up with Iraq violence in focus (AFP file photo)

BAGHDAD — Oil-rich Iraq's parliament on Monday approved a record $153 billion a year budget plan that boosts spending on infrastructure and public sector jobs in the war-scarred nation.

The three-year financial plan also hands the federal government in Baghdad greater control over lucrative oil exports from the northern autonomous Kurdistan region.

After months of wrangling and several late-night sessions, lawmakers agreed on a 198.9 trillion dinar ($153 billion) budget for this fiscal year, and the same amount in 2024 and 2025, subject to future amendments.

With annual revenues projected to reach $103.4 billion, based on an oil price of $70 per barrel, the fiscal plan bloats Iraq's budget deficit to over $49.5 billion, more than double the figure in 2021.

Energy sales account for about 90 per cent of income for Iraq, a country still struggling to emerge from decades of war and insurgency and plagued by rampant corruption.

Lawmakers approved the bill after months of wrangling over its components in a country long accustomed to budget delays.

Much of the new spending pays for wages in Iraq's huge public sector.

Economist Ahmed Tabaqchali estimated a wave of recruitment would create 600,000 more public sector jobs, with wages and pensions accounting for more than $58 billion a year.

Tabaqchali, a visiting fellow at the London School of Economics' Middle East Centre, warned that this could be unsustainable.

"The vulnerability for Iraq is, should oil prices decline, that would mean that you would have to cut spending, and since you can't cut fixed expenditures, you'll have to cut on investment," he told AFP.

 

Kurdish oil wealth

 

Much debate focused on the Kurdish regional government, which had for years earned billions by exporting oil via Turkey without the Iraqi federal government's approval.

Those operations ceased in March after international arbitrators recognised Baghdad's exclusive right to manage the exports.

Baghdad and the Kurdish regional government agreed in April to grant the federal government greater control over Kurdish crude exports.

Under the budget, 400,000 barrels per day will be shipped from Kurdistan to Baghdad, with revenues going to a central bank account overseen by Baghdad.

Meanwhile 12.7 per cent of Iraq's public spending will go to Kurdistan.

The budget also sets aside $37.9 billion for infrastructure investment, labelled a priority by Prime Minister Mohammed Shia Al Sudani in a country where basic services have long been sorely lacking.

Most spending is financed through energy exports, but experts have warned Iraq it must wean itself off its overdependence on oil.

The International Monetary Fund said last month that "a significantly tighter fiscal policy is needed to strengthen resilience and reduce the government's dependence on oil revenues while safeguarding critical social spending needs".

 

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