How Iraq’s oil revenues evaporate

Following the money trail of how ministries spend their budgets is difficult even for well-meaning reformers because there is little transparency and accountability.
Sunday 17/11/2019
Protesters try to pull down concrete barriers during clashes with Iraqi security forces in Baghdad, November 10. (AP)
Growing frustration. Protesters try to pull down concrete barriers during clashes with Iraqi security forces in Baghdad, November 10. (AP)

BAGHDAD - Waves of violent protests have engulfed Baghdad and Iraq’s southern provinces, fuelling the unrest is anger over an economy flush with oil money that has failed to create jobs or improve the lives of young people, who are the majority of those taking to the streets. They say they have had enough of blatant government corruption and subpar basic services.

Oil accounts for 85-90% of state revenue. This year’s federal budget anticipated $79 billion in oil money, based on projected exports of 3.88 million barrels per day at a price of $56 a barrel. Iraq’s economy improved in 2019 because of a rise in oil production and GDP growth was expected to grow 4.6% by the end of the year, the World Bank said.

The fruits of these riches are rarely seen by the average Iraqi because of financial mismanagement, bureaucratic inefficiency and corruption, experts and officials said.

The overall unemployment rate is around 11% while 22% of the population lives in poverty, World Bank estimates state. One-third of Iraqi youth are without jobs.

“One of the main problems is that the oil wealth is spent on the public sector and especially on salaries,” said Ali al-Mawlawi, head of research at al-Bayan Centre, a think-tank in Baghdad.

Iraq’s brand of sectarian power-sharing — called the “muhasasa” system in Arabic — effectively empowers political elites to govern based on consensus and informal agreements, marginalising the role of parliament and alienating much of the Iraqi population in the process.

On the ground, this dynamic has played out through a quota system in which resources are shared among political leaders, with each vying to increase networks of patronage and build support. Leaders have relied on doling out government jobs to preserve loyalty. The tactic has bloated the public sector and drained Iraq’s oil-financed budget, leaving little for investment in social and infrastructure projects.

In the 2019 budget, public sector compensation accounted for nearly 40% of state spending.

With major international oil companies flocking to develop the country’s oil fields, the number of government employees grew three-fold in the past 16 years, Mawlawi’s research indicates.

Offering jobs is a recourse used by Iraqi politicians to quell protests in the past. Iraqi Prime Minister Adel Abdul-Mahdi included thousands of hires in a reform package introduced in October. Experts said this approach perpetuates the problem.

Following the money trail of how ministries spend their budgets is difficult even for well-meaning reformers because there is little transparency and accountability.

In some cases, money is simply not spent because of poor planning and management, said Mawlawi. Last year’s budget ended with a surplus of around $21 billion “not because we had too much money but because we didn’t know how to spend it the right way,” he said.

Often, money earmarked for service projects by the government or international organisations gets spent by ministry officials for expenditures, said an Iraqi official, who requested anonymity because of regulations.

Or the funds are used to pay debts from previous years, the official said, adding: “So when it’s time to sign the contract, they say ‘no money’ because what they have isn’t enough.”

“There are thousands of ways bureaucrats can siphon it off,” the official added.

Crucial projects remain incomplete. School buildings in Basra are crumbling and overcrowded with multiple-shift programmes.

Iraqi leaders have been unwilling to reform the system, which experts said is unsustainable because of limited resources and over-reliance on volatile oil markets.

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