Iraq faces 71 trillion dinar budget deficit in 2021: parliamentary finance committee member

ERBIL, Kurdistan Region — A member of Iraqi parliament’s finance committee has told state media that the country’s budget deficit for 2021 stands at 71 trillion dinars (approximately $49 billion), according to a bill set to be read by parliament next month.

Muhammad Saheb Al-Daraji told state media on Wednesday that the budget, approved by Iraq’s Council of Ministers on December 21, stands at 164 trillion dinars (approx. $113 billion), and the price of oil is set at $42 per barrel, according to the bill.

“The deficit in the budget reaches 71 trillion dinars,” Al-Daraji added, saying Iraq will also be steeped in 16 trillion dinars, or $11 billion, worth of debt from previous loans.

Deputy parliament speaker Basheer Haddad said that the parliament will conduct their first reading of the bill at the “beginning of January,” state media reported on Tuesday.

Iraq has plunged deeper into an economic crisis amid low oil prices, the main source of revenue for Baghdad. Economic woes were a key factor pushing people to the streets in widespread protests that began in October 2019, with youth calling for better services and an end to mass unemployment, but the economy has continued to weaken amid the COVID-19 pandemic. In October, the World Food Programme warned that 10 percent of Iraqis are going hungry. 

Iraq’s central bank announced on December 19 that it would be devaluing the country’s currency in an effort to combat a national liquidity crisis and bring in much-needed cash to the government’s coffers.

The devaluation of the Iraqi dinar is a step taken towards reform and creating a “financial balance” and will revive the economy, said Iraq’s Minister of Finance.

“There are attempts at removing the Iraqi dinar from the market and adding huge amounts of [older] dollars into the market,” Daraji added. “These huge amounts come from the Kurdistan Region.”

According to the committee member, 53.8 trillion dinars (around $37 billion dollars) of the budget has been set aside for civil servant salaries – a thorny issue between Baghdad and Erbil this year. 

The Kurdistan Regional Government (KRG) in Erbil, reliant on Baghdad to pay its civil servants, has not paid its employees for most of this year amid budget disputes with Baghdad. The federal government has had to take out loans from its central bank to pay the salaries of its civil servants for the last three months of 2020. 

Tensions rose between the two governments after Kurdish MPs in Baghdad walked out over a parliamentary session on the fiscal deficit coverage bill, angered over a clause obliging Erbil to hand over an unspecified amount of oil in exchange for funds- a clause they say was not in the original bill. 

Frustrated civil servants took to the streets across the provinces of Sulaimani, Halabja and the Garmiyan administration to protest their unpaid salaries earlier this month. 11 people were killed. 

Protests have also recently taken place in Basra over unpaid salaries. 

High-level civil servants will receive a pay cut next year, Iraq’s labour minister announced in a Tuesday press conference.

"The three presidencies will receive a 40 percent cut in their salaries, and all MPs and ministers will receive a 30 percent cut," Adel al-Rikabi said.

"The budget bill does not affect the salaries of employees that make up the majority of Iraqi people," added Iraqi Prime Minister Mustafa al-Kadhimi. "The targets of this bill are people in higher positions."