Iraq economy unlikely to recover due to growing foreign debt, officials say

ERBIL, Kurdistan Region - With an estimated $130 billion in external debt as of December 2015, Iraq’s economy will likely see further stagnation this year after plunging oil prices crippled its finances last year, according to government aides in Baghdad.

Advisers to Prime Minister Haidar al-Abadi told Rudaw the central government finds it increasingly difficult to pay the over $4 billion monthly wages to state employees without a “significant rise in oil prices” in the months ahead.

“We may not be able to pay full salaries in April this year, if the revenues remain low,” a government aide told Rudaw, requesting anonymity since he was not authorized to speak to the media.

Earlier on Sunday Abadi hosted a meeting with a Kurdish delegation headed by Nechirvan Barzani, prime minister of the Kurdistan Regional Government (KRG).

Both Baghdad and Erbil have taken preemptive steps to address the double shock of the Islamic State in Iraq and the swift collapse of global oil prices by reducing government expenditures.

As Baghdad decided to freeze the Kurdistan region’s share of the Iraqi budget in February 2014, the KRG took massive loans to finance its own 1.5 million government employees. The KRG owes an estimated $15 billion in external debts, according to Kurdish lawmaker Firsat Sofi, who also estimated the regional government had $4 billion in national loans.

The Iraqi central government has so far been able to pay monthly wages to its employees, in part because it has had access to its $78 billion international reserve assets. According to the International Monetary Fund (IMF) the country’s reserves have fallen to $66 billion since the end of 2013.

The government has borrowed relatively small amounts of cash in 2014 and 2015 when millions of people were displaced following an ISIS offensive. Finance Minister Hoshyar Zebari told Rudaw last month the country had managed its salaries with an external loan of nearly $12 billion.

The bulk of Iraq’s loans were made prior to the 2003 US-led invasion. Many of the creditors have agreed to an 80 percent reduction of Iraq’s foreign debts, including member states of the so-called Paris Club, which has credited Iraq with an estimated $42 billion.

Iraq has officially asked its Arab neighbors to prolong repayment of loans made during former ruler Saddam Hussein. Saudi Arabia, with over $15 billion and Kuwait, with nearly $7 billion, were the main creditors to the Baath regime during the 1980-88 Iraq-Iran war.