Iraqi government breathes a sigh of relief as it secures pay of salaries

Baghdad needs approximately $4 billion a month to finance the salaries of millions of employees.
Wednesday 27/05/2020
An Iraqi customer pays with Iraqi dinar banknotes in the capital Baghdad. (AFP)
An Iraqi customer pays with Iraqi dinar banknotes in the capital Baghdad. (AFP)

BAGHDAD –This week, Iraq’s petroleum industry gave Prime Minister Mustafa al-Kadhimi renewed hope, securing his government desperately needed funds to pay government salaries.

Planning Minister Khaled Battal Al-Najem acknowledged Tuesday that the new government received a treasury containing “some scrap,” a common term used by Iraqis to describe small amounts of money.

The Iraqi government needs approximately $4 billion a month to finance the salaries of millions of employees and retirees and provide social assistance programmes.

Informed Iraqi sources said that the country’s oil revenues accumulating since the beginning of March are expected to reach just $5 billion at best, far below the needed $12 billion needed for salaries and other obligations.

The sources added that the prime minister had received promising Arab and international pledges of financial support to help overcome the country’s economic crisis.

Government employees breathed a sigh of relief when it was announced that May salaries would be paid in full after the government had floated the possibility of deductions.

Iraq relies on oil revenue to finance about 98% of its annual spending.

With the decline in global oil prices, the country has lost about two-thirds of its monthly revenue.

An OPEC+ agreement requiring Baghdad to give up about a quarter of its exports to help balance supply in the international markets has compounded its economic crisis. While the coroanvirus pandemic, which has driven down global demand for oil, has added another layer to the hardship.

Flames emerge from flare stacks at Nahr Bin Umar oil field, north of Basra. (REUTERS)
Flames emerge from flare stacks at Nahr Bin Umar oil field, north of Basra. (REUTERS)

The crises have caused a cash shortfall needed to pay government employees and foreign oil companies working on extraction projects and to support vital health, education and transportation sectors.

Iraq received some positive news regarding the oil market on Tuesday, as the price of Brent crude oil jumped amid expectations that the global market would continue a gradual recovery in conjunction with the expected increase in demand as many countries begin to ease lockdown measures.

Iraqi Ministry of Finance planners previously set a safe limit of $56 per barrel on the international market to base their spending plan off of, but economists believe that a price of $40 per barrel will secure the necessary needs.

The announcement that the government would come through on salaries in May was a boost for Khadhimi’s new government, as Finance Minister Ali Allawi traveled to Saudi Arabia for talks aimed at further economic recovery.

Kadhimi’s success in addressing Iraq’s crises is raising concern among Iran-backed militias and parties that he will gain popular support and curb their influence.

The previous government of Adel Abdul-Mahdi was closely associated with Iran, which reportedly gave it direction during mass protests beginning last October that killed at least 300.