Iraqi Parliament prepares to vote on 2023 budget as parties push for higher allocations

The $152bn budget is the largest in Iraq’s history

Iraqi politicians voted in confidence of Mohammed Shia Al Sudani's government in October 2022 after a year-long crisis caused by contested elections. Photo: Iraqi Parliament Media Office.

The Iraqi Parliament is poised to cast a significant vote on Thursday to approve the country's long-awaited 2023 budget.

In March, the Cabinet approved a draft budget law for 2023, sending it to the legislative body.

The budget stands at 197.82 trillion Iraqi dinars ($152.17 billion) and runs with a deficit of 63.27 trillion dinars ($48.67 billion).

It is the largest proposed budget in Iraqi history, with the government of Prime Minister Mohammed Shia Al Sudani planning to repeat it in 2024 and 2025.

Approving the budget would be a significant achievement for Mr Al Sudani’s government, which took over in October after a year of political infighting that caused clashes between Shiite militias and delays in investment in vital sectors.

A decision to pass the spending plan would strengthen the biggest parliamentary bloc, the Co-ordination Framework, comprising of political groups linked to Iran-backed militias.

The bloc is set to benefit from the proposed public spending after strengthening its position within the government.

The major parties within the bloc have actively advocated for the budget's passage in a bid to claim credit for securing funding for their respective constituencies, which may in turn strengthen their support base.

Over the past few months, Mr Al Sudani’s supporters have been assuming senior government positions and ministries after removing their opponents and rivals, mainly those linked to Shiite cleric Moqtada Al Sadr, who withdrew from parliament.

In November, the government approved, for the first time, the establishment of a trading company run by the government-sanctioned paramilitary group known as the Popular Mobilisation Forces.

The group is closely linked to the Tehran-allied militias and the company now has multimillion-dollar deals with the government in different sectors.

Ignoring warnings by the International Monetary Fund and the World Bank to reduce its inflated public sector spending, the budget has so far seen the creation of new jobs for 832,000 government employees, according to a legislator who is on the financial committee.

Of those, at least 116,000 have been added to PMF which is a 95 per cent increase, the politician told The National.

This comes at a time when Iraq is experiencing its lowest levels of violence in two decades.

“These groups have overseen the massive expansion of Iraq’s budget in an effort to buy the population’s support as they consolidate power,” Michael Knights, an Iraq expert at the Washington Institute for Near East Policy wrote on Monday.

“The Co-ordination Framework is trying to buy the goodwill of Iraq’s political factions and its population through unsustainable spending,” Mr Knights said.

“Iran-backed militias are also using state revenue to cement their hold on power,” he said.

He warned of “laying the groundwork for future instability” by overloading the state with salary obligations.

Oil price vulnerability

The operational expenditure stands at 150.27 trillion dinar ($115.59 billion) while investment expenditure will be 47.55 trillion dinar ($36.58 billion).

The budget calculations are based on an assumed oil price of $70 a barrel, with an average daily crude oil output of 3.5 million barrels, including 400,000 from the Kurdistan region.

Brent crude, the benchmark for two-thirds of the world’s oil, is being traded at around $70 per barrel.

“If oil prices drop, Baghdad will go broke even quicker,” Mr Knights warned.

The budget, spanning various sectors and addressing key national priorities, has been subject to intense negotiations and discussions among political factions.

The parliament failed to vote on the budget many times due to disagreements on amendments made by the Finance Committee regarding the share of the semi-autonomous Kurdish Region and its financial commitments.

Some Co-ordination Framework politicians and Kurdish opposition parties on the financial committee have been pushing for amendments to the draft budget to strengthen Baghdad's hands on Kurdistan’s oil industry and to control its revenue.

Independent politician Mustafa Al Garawi said the heads of blocs had withdrawn the budget from the financial committee and kept its members in the dark.

"The work financial committee has been suspended by a political decision for more than 10 days now after the disagreements over the articles related to [Kurdistan] region," Mr Al Garawi told state TV.

He expected the budget to be approved by a "political agreement and not with a technical vision".

The Kurdish Democratic Party, which is headquartered in Erbil and has traditionally had the most control over the semi-autonomous region's energy sector, issued strong objections to changes to the draft, some of which revolve around the schedule for the region to pay back debt to oil traders.

While the debt to major oil traders including Vitol and energy companies operating in the region – thought by some analysts to be as high as $6 billion – was gradually being repaid, Baghdad is seeking faster repayment.

The increased pressure comes after the International Chamber of Commerce ruled on a long-standing complaint from Baghdad against independent exports by the region.

About 450,000 barrels of oil have been trapped in the region since late March, pending an agreement between Baghdad and Erbil on how to jointly market the oil.

A disagreement on how to manage a joint account for revenues is also delaying compromise between both sides, as well as disagreement on who will reimburse Kurdish workers who had salaries cut, after Baghdad reduced payments to the region in an earlier dispute.

The amendments introduced earlier were cutting off the region's share from the budget, which is 12.6 per cent, if it failed to submit the produced oil to Baghdad.

Another amendment was to force the region to pay back 10 per cent of the employees salaries withheld in previous years.

Under the latest agreements on Wednesday night, all of the new amendments were annulled, while discussions were still going on the 10 per cent reimbursement, two politicians said.

On April 4, a deal was struck between Baghdad and Erbil to allow the federal government to market the oil produced from the Kurdish region. The exports are yet to resume.