As the new Iraqi government begins to address the economic and fiscal crisis facing Iraq, the Deputy Prime Minister and Minister of Finance, Dr. Ali Allawi outlined the scale of the challenge, and the broad objectives of the government’s reform programme.

Protecting low-income groups

Dr. Allawi reiterated in a recent interview the government’s commitment to protecting the income of  low and middle income public sector workers and pensioners, saying that the “benefits and pensions of low and middle income groups are a red line, and will never be cut. The government took this decision from the start.”

Iraq’s Deputy Prime Minister and Minister of Finance was also clear that the reform programme seeks to support people on low income who work outside state institutions.

This, he said, will be achieved through the creation of an environment that encourages entrepreneurship and investment, supports the private sector, traders, craftsmen, and industrialists to help the economy recover and raise the living standards of all low-income groups in Iraq.

However, Dr. Allawi acknowledged that the investment environment in Iraq is deficient, and does not encourage foreign and Iraqi investors, and that reforms are essential to address these shortcomings and remove any obstacles and restrictions that stifle the private sector and discourage investment.

Over-reliance on oil revenues

Iraq’s Deputy Prime Minister and Minister of Finance explained that the main financial challenge facing Iraq is the almost total reliance on oil for revenues.

“Oil exports provide 92% of the state’s resources. We don’t have any other revenue. The whole country, the state finances, and the economy of Iraq as a whole, are dependent  on oil prices and the volume of oil exports” he said.

He added that the current deficit is caused by the state spending more than its revenues, and by waste and mismanagement.

Dr. Allawi said that the reform programme will cut public spending, stop waste and tackle corruption.

He added that in the short term, the Iraqi government will address the current fiscal deficit through borrowing, and that it had submitted a draft law to Parliament to allow it to borrow from Iraqi and foreign banks, and from global financial institutions.

The law was approved by Parliament last week, allowing the government to borrow US$5 billion from foreign sources and up to 15 trillion dinars locally for the 2020 financial year.

The borrowing law stipulates that no less than 15% of all loans are to be spent on ongoing investment projects outside of the oil sector which creates fiscal space.

However, Dr. Allawi added that this will only address the problem in the short-term and is not a permanent solution.

A reform White Paper

Dr. Allawi said that the government is now in the process of preparing a comprehensive and integrated programme for the reform of the Iraqi economy and for its development. This programme, he added, will be presented in a White Paper to Parliament during the next three months.

The reforms will impact all productive and service sectors of the Iraqi economy, and aim to diversify the sources of state revenues, through ending the waste of public money, tackling corruption and increasing income from customs and direct taxation.

Critical to the reform programme is growing the private sector and freeing it from decades-long bureaucratic shackles and other restrictions so it can play its leading role in the economy and provide a prosperous and decent life to all Iraqis.

“When the private sector grows, employment opportunities and domestic production increase” explained Dr. Allawi.

The government is also working on other priorities, including holding early, free and fair elections, but Dr. Allawi made it clear that implementing economic and financial reforms was essential to create the right environment for all the other political, electoral and social reforms that the government intends to carry out.

He also underscored that the government will strive to empower Iraqis to be able to influence fundamental decisions that affect them, and is seeking to narrow the inherited wide gap between government and citizens.