Financial Crisis Forces Iraq to Introduce Limits on Spending

Arab World

April 28th, 5:22am

Baghdad – Fadhel al-Nashmi

A street vendor rides past closed shops in a nearly empty popular market during curfew to help fight coronavirus in the eastern suburb of Baghdad, Iraq, April 3, 2020. (AP)

Iraq is witnessing an unprecedented financial crisis sparked by the collapse in the price of oil, which is the country’s main source of income and accounts to 90 percent of its revenues. Employees and pensioners have been gripped by fears that the government will be unable to pay their salaries for the coming months. In a bad sign, the Finance Ministry ordered on Monday the halt of all spending, limiting it to the funding of employee and pensioner wages. It cited a shortage of liquidity in April due to the drop in oil prices for its decision, which was likely ordered by the prime minister. Economic experts predicted that the government will be forced to impose a salary cut for the coming months, however, the parliamentary finance committee on Monday refuted the claim. Committee member Ahmed al-Safar said the body has set standards aimed at ensuring the equal distribution of wealth. Moreover, he stated that experts have predicted that oil prices will go back up again and that the current crisis will be short-lived. Should it persist, the committee will resort to other means, such as central bank loans and limiting unnecessary spending and focusing on ensuring that salaries are paid, he explained. Economics professor at Baghdad University Ihsan Jaber, however, doubted the government would be able to secure loans and instead expected a pay cut in the coming months. He told Asharq Al-Awsat that Iraq experienced a similar, less severe crisis back in 2014, but it managed to overcome it through internally borrowing some 16 trillion dinars. Such borrowing means are unavailable today for a number of reasons, such as how people are saving their money at their homes, not at banks. These savings account to 80 percent of the local currency, he revealed. The government will be able to secure salaries until June and then it will resort a wage cut of about 35 percent, said Jaber. New investments, hiring and projects are a thing of the past given the drop in oil prices and the rampant corruption that has completely depleted state resources, he added.

from Asharq AL-awsat https://aawsat.com/english/home/article/2256546/financial-crisis-forces-iraq-introduce-limits-spending