Iraq’s passing of the biggest budget in its history has raised concern among experts, who say it will stretch the country's finances to the breaking point.
Government supporters argue that the bill is essential to minimise political wrangling after post-election political rows led to entire years without budgets, most recently in 2022.
Previously, Iraq went without a budget in 2014 and 2020, also due to bitter political divisions.
Despite going 18 months without a budget amid record revenue from oil and legislation that limits government spending to a level below the previous budget, Iraq's Parliament still took four consecutive sessions to pass this year's budget.
Some of the delays were caused by differences between the various political blocs mostly over the semi-autonomous Kurdistan region’s share of the budget, the rights of specific governorates within the region and how its oil will be marketed.
The budget of $152 billion, of which 12.6 per cent is allocated to the Kurdish region, has sparked concerns over how, if oil prices drop below $70 per barrel – a three-year average price the budget expects – then the country will not be able to live up to what is set out in the agreement.
The International Monetary Fund has an even worse prognosis for Iraq's “fiscal breakeven” point – the amount an oil-dependent country needs to balance its budget – saying Iraq may need a price as high as $96 per barrel. Brent crude was trading at about $72 per barrel on Monday.
The budget is based on mostly operational expenses and there is no sizeable investment budget, said Sajad Jiyad, an analyst and fellow at the Century Foundation.
“There is no real investment spending in the budget as it just focuses on expanding what was in previous budgets and leaves very little – a few billion – on investment,” Mr Jiyad told The National.
“Even if the government manages to execute 80 per cent of the budget, it will not increase oil revenues, it will not lead to creation of new jobs.”
Iraq has struggled with low-budget execution rates, hampering spending on vital reconstruction even during times of high oil prices.
Instead, the government must increase investment spending and cut down some other spending to roll back a soaring deficit of about $49 billion.
“If this is not done, then if oil prices fall, we won’t have a real way of paying back that deficit unless we cut back that spending,” he said.
Parliament’s first deputy speaker, Mohsen Al Mandalawi, on Monday said that it was vital to “reduce spending and increase non-oil revenues to maximise state revenues” in the agricultural, service and reconstruction sectors.
Budget continuity
“The budget law is essential for the execution of the government programme and the projects included,” Farhad Alaadin, foreign affairs adviser to Prime Minister Mohammed Al Sudani, told The National.
“The budget law this time provides continuity and prevents disruption of government function. The government will be able to start the implementation of the infrastructure projects and turn Iraq into one of the biggest workshops in the region.”
For Mr Al Sudani, the passing of the budget “prioritises the essential needs of Iraqi citizens and families, aiming to meet their expectations for government services, construction and infrastructure projects”.
“It addresses the issue of recurring or failed projects that has persisted in previous years, while also emphasising reduced operational spending, increased non-oil revenues, and support for the private sector,” Mr Al Sudani said.
Increase in Kurdish tension
The budget has tried to address the long-standing issues between Iraq and the Kurdish region, with its oil revenue set to be deposited in an account overseen by the Iraqi Central Bank and the Kurdish Regional Government.
The new bill reaffirms that 12.7 per cent of oil revenue will go to the semi-autonomous Kurdish region – a reduced amount set in 2018, and down from the 17 per cent the region was meant to receive prior to a 2017 contested Kurdish independence referendum.
The failed referendum worsened the bitter row between both sides and led to budget cuts from Baghdad.
The region has rarely received these amounts in full, however, due to repeated disputes with Baghdad over its oil sector.
The row over independent exports worsened this year when oil supplies going through a northern pipeline to the Turkish port of Ceyhan were halted after an international arbitration ruling deemed them unlawful. A court decided that the export of the oil was in breach of a 1973 agreement between Baghdad and Ankara.
Under the budget, 400,000 barrels per day of oil will now be marketed by Baghdad's State Organisation for Marketing of Oil, with revenue going to a central bank account overseen by the central government.
Article 14 was among the most disputed in the bill, as it entails the management of the region’s oil income and a review of oil contracts in the Kurdish region that Baghdad's Supreme Court has ruled unconstitutional.
The Kurdish Democratic Party, based in Erbil, said that changes to Article 14 broke a prior agreement with Baghdad that the revenue would be jointly managed.
The amendment to the draft allows other Kurdish governorates to challenge the region's spending allocations, strengthening the hand of the Kurdish Democratic Party's main rival, the Sulaymaniyah governorate-based Patriotic Union of Kurdistan, which has aligned itself with Iran-backed parties in Baghdad.
The PUK has long claimed the KDP has withheld what PUK politician Harem Kamal Agha recently called “justice in the distribution of financial dues among the governorates”.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Nepotism is the name of the game
Salman Khan’s father, Salim Khan, is one of Bollywood’s most legendary screenwriters. Through his partnership with co-writer Javed Akhtar, Salim is credited with having paved the path for the Indian film industry’s blockbuster format in the 1970s. Something his son now rules the roost of. More importantly, the Salim-Javed duo also created the persona of the “angry young man” for Bollywood megastar Amitabh Bachchan in the 1970s, reflecting the angst of the average Indian. In choosing to be the ordinary man’s “hero” as opposed to a thespian in new Bollywood, Salman Khan remains tightly linked to his father’s oeuvre. Thanks dad.
BOSH!'s pantry essentials
Nutritional yeast
This is Firth's pick and an ingredient he says, "gives you an instant cheesy flavour". He advises making your own cream cheese with it or simply using it to whip up a mac and cheese or wholesome lasagne. It's available in organic and specialist grocery stores across the UAE.
Seeds
"We've got a big jar of mixed seeds in our kitchen," Theasby explains. "That's what you use to make a bolognese or pie or salad: just grab a handful of seeds and sprinkle them over the top. It's a really good way to make sure you're getting your omegas."
Umami flavours
"I could say soya sauce, but I'll say all umami-makers and have them in the same batch," says Firth. He suggests having items such as Marmite, balsamic vinegar and other general, dark, umami-tasting products in your cupboard "to make your bolognese a little bit more 'umptious'".
Onions and garlic
"If you've got them, you can cook basically anything from that base," says Theasby. "These ingredients are so prevalent in every world cuisine and if you've got them in your cupboard, then you know you've got the foundation of a really nice meal."
Your grain of choice
Whether rice, quinoa, pasta or buckwheat, Firth advises always having a stock of your favourite grains in the cupboard. "That you, you have an instant meal and all you have to do is just chuck a bit of veg in."
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
The biog
Hobby: Playing piano and drawing patterns
Best book: Awaken the Giant Within by Tony Robbins
Food of choice: Sushi
Favourite colour: Orange
