Iraq faces “irreversible shocks” without urgent economic reforms

Rudaw Digital – warned Iraqi Finance Minister Ali Allawi today, Monday (22 June 2020), in an exclusive interview with Agence France-Presse, that the Iraqi economy may face “shocks that we will not be able to deal with” unless reform measures are adopted in less than a year.

“Reform is necessary,” said Allawi (73 years), who was charged with stabilizing the Iraqi economy after the collapse of crude oil prices, which cut the state revenue by half.

He added, “If we do not adjust matters during this year, we may face shocks that we will not be able to deal with,” while expectations indicate that the Iraqi economy will face a contraction of 10 percent during the year.

Allawi, who was also finance minister during the transitional government’s period between 2005 and 2006, indicated that the situation today is “worse” because Baghdad faces an “existential economic situation”.

At that point, the price of a barrel of oil was approximately $ 35, but the number of state employees was less than a million.

Today there are more than four million employees, and many other Iraqis who are paid salaries and pensions. This means a monthly sum of between four and five billion dollars.

With one in five Iraqis receiving government aid, the bill becomes heavier for the country that depends on paying all its expenditures on oil whose prices collapsed months ago with a severe shortage of demand for it.

Empty treasury and aliens

According to Allawi, the government must pay the salaries of the months of June and July at the appointed time, by borrowing from government banks.

But he warned that these measures are possible for a short period, otherwise “they will affect the price structure and, consequently, on inflation, which will in turn affect the exchange rate and the reserve in the central bank.”

He added that in the face of the expenses that have increased over the years, the government found the treasury empty, after 17 years of the American invasion that toppled Saddam Hussein’s regime and established a new political system ravaged by corruption and cronyism, and put Iraq in high positions among the list of the most corrupt countries in the world.

“The government is supposed to have one and a half months of expenses before it faces crises,” Allawi told France Presse from his home in Baghdad.

He added, “We were supposed to have liquidity between ten to 15 trillion dinars, but the treasury contained only two trillion dinars.”

Experts today, including Allawi, believe that the entire financial system of Iraq, the second largest oil producer in OPEC, must be reviewed.

Allawi said that 40 million Iraqis will have to submit to a strict austerity policy that may last for “two years.”

In addition, the authorities will address loopholes in the spending schedule, especially with regard to multiple salaries or “aliens” as they are called, and they are registered in the payroll without working.

Oil and confidence

At the government level, long-awaited promises to diversify the economy, not to make the country’s fate dependent on global crude markets, and start discussions with the World Bank and the International Monetary Fund will have to be implemented.

Allawi stressed that “if the price of oil continues at this level for a year, and spending remains the same, undoubtedly we will collide with a wall. We cannot run a country, especially from the economic side, with only hope that the oil prices will rise to cover the expenses.”

The question is: Can a transitional government, formed during the most serious social crisis in the country, undertake a complete reform of the economy?

Although Allawi experienced a similar crisis in 2005, he admitted this time that the crisis of trust between citizens and the authority widened, after six months of an unprecedented popular uprising that was suppressed by force by the previous government of Adel Abdul Mahdi.

Indeed, at the beginning of the current month of June, when pensions were deducted in the first steps of the government austerity policy, the protest was unanimous against Allawi and Prime Minister Mustafa Al-Kazemi, even within the parliament that is usually entrusted with approving reforms, especially the fight against corruption that led to more evaporation. Of $ 450 billion in public money since 2003.

Rudaw.net