Iraq’s parliament just passed the 2016 budget. It was based upon export figures and petroleum prices that few think are achievable. There were also questions on how many lawmakers actually voted on it as well. All together it was a procedural move to get the bill passed even though no one believes the budget will work out how it was written.
On December 16, 2015 Iraq’s legislature voted on the 2016 draft budget. It was for $89.75 billion with $67.9 billion for operational costs like salaries and pensions, and $21.8 billion for investments. Most of that money will come from oil exports, which were set at 3.6 million barrels per day selling at $45 per barrel. That includes 3.05 million barrels from the Basra ports and 550,000 barrels provided by the Kurdistan Regional Government (KRG). If those marks are met Baghdad will be facing a $20.1 billion deficit. The problem was that none of those figures are likely to be met, and there was also a move against the Kurds, which was apparently ignored the day of the vote.
First, the budget was based up questionable oil estimates. The southern fields and Basra ports are likely to hit 3.05 million barrels per day in exports as it surpassed that mark seven months out of eleven in 2015, but it may not be able to maintain it as shipments always fluctuate due to things like bad weather. The bigger problem is that the Kurds have been exporting all of their petroleum independently since October. The KRG has signed a number of deals with oil traders, which include advances, making it hard to extricate itself from. Kurdistan also owes millions to oil companies, lenders, and their public workers and does not trust Baghdad that provided inconsistent payments in 2015. Together that gives little incentive for Irbil to agree to another export deal with Baghdad, and a Kurdish member of parliament said as much to Iraq Oil Report.
Second, international oil prices are plummeting and Iraq sells its crude for less than the amount set in the budget. In November the country sold a barrel of its oil for $36.42, the lowest price of the year. There’s no telling when and if that might rise. This was well known amongst members of parliament. Majid al-Tamimi for example, a member of the finance committee said that all of the budget’s oil and export figures were wrong and should have been revised. The result should have been deeper cuts in spending, but those were not made as economics rarely plays a role in the political deals that make up the budget.
Third, there was a controversy over the voting procedures. The night before the budget came before parliament there was a meeting of party chiefs where State of Law (SOL) tried to cut the KRG’s share of the budget from 17% to 13%. The list argued that since Baghdad was paying the Peshmerga the region should not get as much as it has gotten in the past. The real reason was because many members of SOL oppose the Kurds’ independent oil sales and what to punish them for it. A petition was passed, which was signed by 111 MPs to boycott the vote on the budget until the Kurdish issue was resolved. When the budget came up however, only 21 MPs were recorded as not voting. That meant the party bosses or the speaker might have passed the budget by ignoring the representatives who were boycotting. That might have been the reason why several SOL lawmakers complained about the speaker afterward.
The 2015 budget used similar faulty assumptions about exports and the economy, and faced major difficulties as a result. A senior official told Iraq Oil Report that only around 50% of what was projected in the $102.5 billion budget for 2015 was actually spent. Not only that, but because of the falling oil prices the cabinet allocated the money it had available based upon what it wanted rather than following the budget. A similar situation is likely to occur next year, as few parliamentarians interviewed by the press believe that anything in the document will be followed through with. Rather it was a formality that ignored not only the economic difficulties facing the country, but many of the members of parliament as well that might have voted against the bill.
Agence France Presse, “Iraq approves $88.2 bn budget for 2016,” 12/16/15
Al Mada, “Kurdistan’s row over their share with State of Law … and Parliament added 16 articles to the draft budget,” 12/16/15
Osgood, Patrick, Tahir, Rawaz, “Iraq budget moves toward passage,” Iraq Oil Report, 11/26/15
Osgood, Patrick, Tahir, Rawaz, and Van Heveneln, Ben, “New details of KRG oil deals reveal latent risks,” Iraqi Oil Report, 10/29/15
Sotaliraq, “Majid al-Tamimi: the assumption upon which the 2016 budget are based are wrong,” 12/20/15
Van Heuvelen, Ben, Tahir, Rawaz, “Iraq passes 2016 budget,” Iraq Oil Report, 12/17/15