Iraq's parliament on Monday approved record public spending for this year to help improve worn-out infrastructure and services. The planned expenditure will widen the oil-dependent country's budget deficit considerably unless there is a significant rise in crude prices in the second half of the year.
Spending in the long-awaited budget has been set at 198.91 trillion Iraqi dinars for 2023, and the same amount for 2024 and 2025. The official exchange rate for the budget has been pegged at ID1,300 to the dollar, putting expenditure at $153bn/yr, which is about 70pc higher than the $89.5bn allocated in the country's last approved budget in 2021. The Kurdistan Regional Government has been allocated 12.6pc of the budget under the terms of a deal struck between Erbil and Baghdad in April.
The new budget assumes an average oil price of $70/bl in 2023-25 and crude exports of 3.5mn b/d, including 400,000 b/d from the semi-autonomous Kurdistan region in northern Iraq, whereas the 2021 budget assumed an oil price of $45/bl and exports of 3.25mn b/d, including 250,000 b/d from Kurdistan. Based on the updated assumptions, the government expects to be left with a budget deficit of $49bn this year, more than double 2021's deficit of $19.79bn.
The IMF estimated last month that Iraq requires an oil price of $96/bl to break even, more than $20/bl above current values, and warned that the country risks "mounting deficits and financial pressure barring a major increase in oil prices".
While the budget covers three years, it remains subject to amendments voted on by parliament. Iraq's fiscal year usually starts on 1 January and budgets should in theory be adopted prior to that.
Major differences between political and sectarian groups and disputes over spending allocation often result in delays in Iraq passing its budget bill. The promise of hundreds of thousands of new government jobs was key to overcoming wrangling between the different political groups this time around, although the threat of renewed political instability will mount if oil prices drop below the $70/bl threshold.
Iraq has cash and gold reserves to act as a buffer. The country's central bank said last month that foreign reserves stood at $111bn and gold reserves at 132.74t, which ranks Iraq as the world's 30th biggest gold-holding nation.
