Fiscal problems add more worries for Iraq

Iraq earns 90% of its revenues through oil exports. It is reported that the volume of Iraqi export has fallen by a fifth. Moreover, the country is now carrying out an expensive military campaign against Islamic State (IS), the militant group that captured northern and western part of the country. Fiscal problem in Iraq is as big as its political ones.
In January Iraq’s parliament passed a budget of 119 trillion Iraqi dinars ($105 billion). Around 16% cut in spending has been noted. To enhance revenues, sales tax on various things has been imposed by the government.
The budget is based on an oil price of $56 a barrel, and assumes exports of 3.3m barrels a day. In January Iraq exported 2.4m b/d, at an average price of $41 a barrel, according to the Economist Intelligence Unit.
To fill the void the government plans to sell bonds, postpone some payments and dip into its savings. Having paid down its public debt from over 300% of GDP in 2004 to 31% of GDP today, it has some room for manoeuvre.
Presently, it is in discussion about a $6 billion bond sale with Citigroup and Deutsche Bank. Officials stated that amount will be borrowed from World Bank and IMF. On the other hand, Kurdistan government is planning borrowing from Turkey. Haider al-Abadi, Iraq’s prime minister, has talked to Egypt about converting debts into oil.
Meanwhile, Kuwait has agreed to adjourn some of its compensation that Iraq has to pay due to 1990 invasion. Western oil companies, working in Iraq, have agreed to cut their investment. The government also plans to borrow from the central bank’s reserves, which the World Bank puts at $78 billion.
War and austerity have significant impact over the Iraqi economy, which had fallen down by 2.7% last year. Unemployment index rises to 25%; another 40% of Iraqis of working age are employed by the government.
Even in 2013, before IS burst on the scene, new foreign direct investment was only $2.9 billion—a fraction of what Iraq needs to rebuild its war-torn infrastructure and revive its oil industry.
Shortage of cash is also a problem for Iraq’s economy. On the basis of sharing oil income, Baghdad and Erbil agreed to pass budget. The deal stipulates that the Kurds must provide the government with 550,000 b/d in exchange for 17% of the government’s oil revenues.
So far the central government has paid a measly $250m to the Kurds. But Kurdistan has handed lesser oil than it promised.
Ashti Hawrami, the Kurds’ oil minister, said that due to poor infrastructure enough oil could not be supplied. Adil Abdul Mahdi, the national oil minister, said that Kurdistan is selling barrel to other side. Political differences are not helping to push back ISIS militants.