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Iraq’s bumper budget holds promise and risk

25 May 2023

Commentary
John Bambridge
Analysis editor

The premiership of Prime Minister Mohammed al-Sudani has so far been one of twists and turns, and the latest of these is the finalisation of a planned three-year budget for 2023-25 that has sparked both hope and concern.

The budget plans record spending of ID198tn ($152bn) a year and an annual deficit of ID117.3tn ($89bn). Of the total expenditure, ID49.5tn ($38bn) is allocated for investments, while three-quarters is dedicated to current spending.

The investment part of the equation is direly needed, as Iraq’s projects market all but ground to a halt in 2022. Across the projects sectors, from energy and utilities through to construction and transport, there are major schemes that need to go ahead. To capitalise on the under-development Al-Faw Port, Baghdad has once again mooted a north-to-south high-speed rail system, but these plans have been in the works since 2002 and their realisation will require a huge commitment on the government’s part.

The government has also promised to revive the stalled $8bn Nebras petrochemicals complex in Basra, and there are $15bn-worth of thermal and solar photovoltaic power generation schemes in planning and procurement. The delivery of spending on the scale of any of these promises would be a step change for the projects market, which saw just over $5bn in awards in 2022.

While the investment part of the budget is least concerning, Iraq’s overall fiscal approach is raising alarms. Plans to hire hundreds of thousands of civil servants and raise public sector salaries contradict the IMF advice for Iraq to tighten its fiscal policy. It also smacks of short-term political gain that nevertheless promises long-term economic pain for the country.

The delivery of spending on the scale of any of these promises would be a step change for the projects market

More positively, the budget aims to establish a new agreement with the Kurdistan Regional Government, including a budget share for Kurdistan and joint management of oil from the region. This could lay to rest at least part of the cause of the long-simmering tensions between Baghdad and Erbil.

Beyond the budget, Al-Sudani’s administration has also brokered a deal with QatarEnergy and France’s TotalEnergies that should see progress on the $10bn Gas Growth Integrated Project, in a major win for Iraq. 

Looking ahead, all attention will be on whether Al-Sudani’s budget gets parliamentary approval. Lawmakers could force adjustments or even reject it. The unaltered budget would be a double-edged sword. Iraq needs projects spending, but a public sector expansion could haunt Baghdad for decades to come.

MEED's June 2023 special report on Iraq also includes:

> GOVERNMENT: Sudani makes fitful progress as Iraq's premier
> ECONOMY: Iraq hits the spend button​​​​​​​
> POWER: Iraq power projects make headway
> UPSTREAM DEVELOPERS: No place like Iraq for international oil firms
> OIL & GAS: Iraq's energy sector steadily expands
> TOTALENERGIES: Total to activate $27bn Iraq contract this year
> CONSTRUCTION: Transport plans underpin Iraq’s reconstruction

 

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John Bambridge

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