The Iraqi parliament approved on Thursday a financing law that gives the government access to much-needed funds to cover a widening financial deficit amid low oil prices and the impact of the coronavirus pandemic.
The law, seen by The National, allows the government to borrow only 12 trillion Iraqi dinars (about $10.15 billion) from local and international lenders, less than one-third of the 41 trillion dinars it requested to bridge the financing gap in expenses for the rest of the year.
In the absence of a 2020 budget due to political deadlock, the new borrowing law acts as a stop-gap measure for the government to pay its bills – mainly the salaries of civil servants, pensions and social benefits.
The government has been struggling to pay public-sector staff, with pressure mounting after delayed October salaries prompted calls for strikes.
The law stipulates that 20 per cent of the borrowed money must go to investment projects, including the strategic Faw port on the Arabian Gulf.
Hours into the session, disagreement erupted between Arab and Kurdish lawmakers after the introduction of a new article that requires the northern Kurdish region to hand over 250,000 barrels of oil per day to Baghdad, along with other non-oil federal revenues, otherwise the central government will withhold payments.
According to an agreement reached earlier between the Kurds and Baghdad, the Kurdish region is entitled to 320bn dinars a month in exchange for oil exports and half of the customs revenues from Kurdistan-controlled border crossings.
But the Kurds have failed to hand over the revenues, prompting calls inside and outside parliament to block the Kurdish share of the new funds.
The latest law is the second this year to address the government’s precarious financial position. In June, parliament gave the green light to the government to borrow $5bn internationally and 15 trillion Iraqi dinars locally.
Iraq’s oil-reliant economy has faced a double shock this year from battered oil prices on the international market and the impact of coronavirus. Between January and November, the country earned about $34bn in oil revenue, Oil Ministry figures show, nearly 50 per cent lower than the sum projected in this year’s draft budget.
Iraq needs about $7bn a month to meet its financial commitments, about $5bn of which is for salaries and pensions, according to the Finance Ministry.