Wednesday, May 21, 2014

When Will Iraq Pass Its 2014 Budget?

 
Iraq is supposed to pass its budget by November of each year. It is now May 2014 and there is no deal on the table to move the legislation forward. Many provinces have complained that they have halted their projects and can’t pay their employees because there are no funds coming from the central government. There have even been protests over the issue. The problem is that the political parties are caught up with the election results and the coming negotiations to form a new government. The budget was originally held up because Prime Minister Nouri al-Maliki wanted to punish Kurdistan for its oil policy. The Kurdish parties then refused to show up to the legislature to discuss the draft law, and were joined by its erstwhile ally Speaker Osama Nujafi’s Mutahidun who is also an opponent of Maliki. There is some talk that the budget may not be passed until a new ruling coalition is put together. The problem is that may take a year. The country may go broke in the meantime, and that type of financial crisis may be the only thing that will move the elite to deal with the issue instead of their own political disputes.

In the last few months local officials have complained that they are running out of money, while people have taken to the streets because the budget is so behind schedule. In May, Maysan, Dhi Qar, Basra, Diyala, Ninewa, and Salahaddin all complained that they were running out of money. Maysan said they had to suspend paying public workers’ their salaries. Dhi Qar stated it had no means to buy fuel or pay for maintenance work. Ninewa claimed it had to borrow huge amounts of money to keep it afloat. Diyala told the press it had to lay people off. Finally, almost all of them had to halt most if not all of their development projects because they could not pay companies for their work. A member of parliament’s legal committee told Al Mada that might put the government in a vulnerable position because firms could start suing over breach of contract if they were not paid eventually. May 11 3,000 people protested in Basra about the lack of services. One of their claims was that delays in funding and the budget not being passed had held up projects for years. Back in April the Basra provincial council held a special session calling on Baghdad to pass the budget, while people gathered in Diwaniya demanding the same thing. Basra officials went as far as to threaten to take over the South Oil Company, which is responsible for the vast majority of Iraq’s oil exports, if they could not count on the central government for money. The governorates always have problems spending their funds because they receive it so late from Baghdad. Any unspent money has to be returned by the end of the year. The way things are going they may only have a few weeks left in 2014 to execute their budgets meaning they will achieve little of substance.

The budget has been held up due to Prime Minister Nouri al-Maliki’s political and economic disputes with the Kurdistan Regional Government and Speaker Osama Nujafi. On January 15, 2014 the cabinet approved its draft budget. This was done despite the Kurdish ministers boycotting the session. The Kurds were absent because the budget calls for them to export 400,000 barrels a day in oil or have their money cut. This immediately set off a war of words between the two sides with escalating threats blaming each other for the situation. The premier said that the Kurds needed to fulfill their obligations to the state otherwise why should they get their share of the budget. To push the matter, Maliki cut off payments to the Kurdistan Regional Government (KRG). The Kurds retaliated by refusing to show up to parliament. They didn’t have the numbers to stop a quorum being formed on their own, but that was achieved when Speaker Osama Nujafi’s Mutahidun party joined them. Nujafi complained about the prime minister’s military campaign in Anbar, but he also has an alliance with President Massoud Barzani’s Kurdistan Democratic Party (KDP) due to their mutual patron Turkey. This became a major issue in the run up to the April 2014 elections. Now that those have been completed the parties main priority is creating a new government. That means that the budget is being put on the back burner. The preservation of the lists’ political power and positions are more important than the financial health of the country.

It may take a year for a new government to be formed, which will put a huge amount of stress upon the country’s economy if the budget is not passed before then. For now the government is running off of the unspent funds from the 2013 budget. That is considerable because only around 30% of the investment budget is spent and about half the provinces spend 50% or less of their money as well. However as the months drag on you can expect the governorates to complain more that they are unable to carry out their duties due to a lack of money. The summer is usually protest time in Iraq, so it is not unforeseeable that this will become a major issue for the public as well as the two protests have foreshadowed. There’s a good chance that the parties will not deal with the issue until it becomes a crisis. Until then the ruling elites will hold budget hostage.

SOURCES

Barznjy, Hiwa, “baghdad’s financial blockade: iraqi Kurdistan talks independence while locals strike,” Niqash, 2/27/14
- “US, Turkey and Iran mediating between Erbil and Baghdad,” Bas News, 4/8/14

Habib, Mustafa, “cashed up: iraq’s 2014 budget biggest ever, but also part of political power play,” Niqash, 11/21/13

Hasan, Harith, “Bitter Maliki-Nujaifi exchanges strain political system,” Al Monitor, 3/10/14

Iraq Times, “Basraians protest against the deterioration of the electricity service to their city,” 5/11/14

Kakakhan, Aram, “Iraq Draft Budget Littered With Mines Against Kurdistan,” Rudaw, 12/28/13

Al Mada, “Baghdad has become a weak position in front of the companies after the delayed payment of financial dues,” 5/15/14
- “Council of Nineveh borrow billion declares bankruptcy .. and all projects in Diyala, Salahuddin Off,” 5/14/14
- “Delayed budget stop 90% of the project..Basra, Dhi Qar no funds for fuel and maintenance,” 5/13/14
- “Experts warn of economic paralysis as a result of the crisis in Kurdistan and Baghdad contend with: the Government of the Territory of alternative solutions,” 3/2/14
- “Maysan: delayed budget stop the salaries of employees and daily wages paralyzing the local market to the scarcity of liquidity,” 5/19/14

Al Masalah, “Baghdad calls for Kurdistan to deliver 400 thousand barrels per day,” 1/15/14

Al Rafidayn, “Dozens of citizens demonstrating in central Baghdad to demand that parliament approve the budget,” 3/8/14

Al Rayy, “Demonstration in Diwaniya, demanding passage of the budget and the abolition of officials’ privileges,” 4/19/14

Rudaw, “Iraqi Ministers Approve 2014 Budget despite Kurdish Boycott,” 1/15/14

Shafaq News, “Kurds withdraw from Parliament before voting on the budget,” 1/16/14
- “Signs of big crisis between Erbil and Baghdad caused by 10 billion $,” 10/27/13

Sowell, Kirk, “Maliki uses budget dispute to boost his third-term prospects,” The National, 3/25/14

Wahid, Ahmad, “Basra threatens to take over Iraq’s South Oil Co.,” Al Monitor, 4/23/14

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