Millions threatened by unemployment as Iraq’s budget dispute prevails

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Iraqi women work at a brick factory near the central Iraqi shrine city of Najaf on May 26, 2014. (Photo: AFP-Haider Hamdani)

By: Mostafa Nasser

Published Wednesday, June 4, 2014

Iraqi markets and the private sector are in disarray and debilitated six months into the suspension of the country's state budget, as more than 90 percent of development projects contracted to private companies are delayed.

Baghdad- While reports come in about the flight of domestic capital at the end of last year, local experts point to the prospects of unemployment affecting four million workers in the Iraqi market and the private sector. This is due to the failure to adopt the budget.

Financial expert and former deputy governor of the Iraqi central bank, Mazhar Mohammed Saleh, told Al-Akhbar there are "eight million workers in Iraq, half of whom work for the government and the other half in the private sector and market, which is threatened by paralysis." He added that "market activity is considered the government's contractor."

The Iraqi government divides its budget into operational and investment budgets. The operational budget is spent on employee salaries and social expenditures. It reaches 80 percent of the overall budget, compared to only 20 percent of the investment budget earmarked for development projects.

Saleh added that unemployment rates rose to 24 percent, as all development projects are allocated to the private sector, employing four million workers, mostly young men. This leads to social and security burdens. "Growth and progress rates are related to investment expenditures and the five-year plan. The disruption of the state budget means the suspension of the plan and the delay or standstill of growth rates," Saleh explained.

The government is currently enforcing the Financial Administration Act of 2004, issued by Iraq's civilian governor at the time, Paul Bremer, which allows the head of the executive authority to expend one-twelfth of the preceding year's operations and projects budget. State employee salaries are spent through advances by the Finance Ministry, which are settled after the budget approval.

According to some theoretical estimates, the per capita share of Iraqis in the budget reaches US$4,500 a year. If the budget is not passed, this amount will be reduced for Iraqi segments, who are dependent on the market and the private sector.

In the meantime, most governorates stopped paying the salaries of thousands of workers receiving daily wages. Some announced a 90 percent stoppage of their projects allocated to the private sector, in addition to running out of money for fuel and maintenance of some industrial and agricultural sectors. The Ministry of Planning had also announced that 96 percent of the projects included in the 2013 budget were not completed. Only 200 projects were finished, out of the 8,000 in the budget plan.

The Iraqi cabinet had referred the 2014 federal budget to the parliament last January. However, it created disputes between the State of Law Coalition and the Kurdish Alliance over the financial share of Kurdistan region. An agreement in parliament paved the way for a first reading of the budget bill in the middle of last March. But it was suspended due to the end of the legislative term.

Reports are also indicating the flight of domestic funds and investors from Iraq since the end of last year. It coincided with the crisis in the Anbar region and parliamentary elections. "Capital is waiting for Iraq to stabilize, especially since the country lacks a business or a general investment environment," Saleh maintained. He indicated that the state budget has entered a phase of political haggling before the elections, creating an obstacle for its adoption.

Although politicians raised speculations about the possibility of legislating the adoption of the 2014 and 2015 budgets at the same time, Saleh explained that it would be possible legally, but will create a conflict in the closing accounts.

"The system of accounting in Iraq is unconstitutional for failing to issue the final accounts. The political speculations are based on the absence of closing accounts for this year as well," Saleh continued. He indicated that earlier budgets "amounting to almost US$72 billion" had been prepared out of financial advances, which were not audited or supervised due to the lack of final accounts.

"Another problem is related to private sector loans, given to implement old projects. They are supposed to be settled in the new budget. Some of them borrowed large amounts from government and domestic banks, which is creating problems for the private sector," Saleh concluded.

This article is an edited translation from the Arabic Edition.

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