Shafaq News / Iraq has huge cash reserves of oil revenues exceeding $113 billion, at a time when it is suffering from internal debt estimated at 70 trillion, which raises many questions about the reasons for the government’s failure to pay these debts, get rid of the burdens of interest on it, and invest money to provide new resources.
Last July, Deputy Governor of the Central Bank of Iraq, Ammar Khalaf, announced an increase in foreign exchange reserves to $113 billion, benefiting from the improvement in the price of oil, which constitutes 96% of the total national product, while confirming the increase in the volume of internal debt to 70 trillion Iraqi dinars (about 47 billion dollars).
For his part, the governor of the Central Bank of Iraq Ali Al-Alaq revealed last August that the government has an amount of 46 trillion Iraqi dinars ($34.6 billion), as dibadronic debt to the Central Bank.
As oil revenues rise and fall according to market prices, current government spending includes $47.6 billion annually in salaries for about 12 million employees, while defense, security and service spending consumes about $60 billion, out of a total revenue of about $120 billion annually.
Internal and external debt
In this context, economic academic Ali Daedosh explains that “the public debt is divided into two external parts amounting to about 13 billion dollars to the beginning of 2023, and this is paid continuously and is deducted from the oil revenues achieved by the rise in oil prices above the price of a barrel of oil specified in the general budget.”
“In addition to having an external debt of $5.8 billion in pre-2003 debt, debt outside the Paris Club is unprocessed by about $40 billion, and not claimed by the Gulf states,” Diadush adds to Shafaq News.
He continued, “As for the internal debt, it reached about 70 trillion dinars, including 50 trillion for the benefit of the Central Bank of Iraq, and this is being rescheduled from time to time and at an interest determined by the government.”
He believes, “The government’s reluding not to pay the internal debt is a result of its many obligations to investment and service projects within the government curriculum, especially since the size of the planned deficit in the general budget for the year 2023 amounted to about 64 trillion dinars, and this also prevents the government from paying the internal debt, which warns of financial and economic problems facing the current government in the near future.”
He pointed to “an opportunity that was available to pay the internal debt before the Corona crisis, specifically during the period (2017-2019), when the financial abundance was achieved, but it was not paid as a result of the lack of a well-defined plan, as the failure of private banks and some entities that financed the internal debt did their debt because they have high liquidity through which they could face banking risks if they existed.”
“In general, the external debt is paid with the debt service on an ongoing basis, while the internal debt is only repaid from time to time in very small amounts,” Daadoush concluded.
The economist and financial expert, Mahmoud Dagher, agrees with Ali Dahdoush’s argument about the continuation of external debt payments, and the volume of internal and outstanding debts, assuring Shafaq News: “There is nothing to prevent the payment of the internal debt, which is mostly to the Central Bank.”
Efforts to recover rights
In turn, the financial adviser to the Prime Minister, Mazhar Mohammed Saleh, says that “the issue of Iraq’s debts is raised from time to time from its loans granted to other countries, which were previously provided by the Iraqi Foreign Development Fund between the mid-1970s and the early 1980s, which stopped after the outbreak of the Iran-Iraq war.”
“Most of those loans were granted to developing countries in Africa, Asia and Latin America, and the claims are still based on the remnants of those loans that were not paid and are estimated at less than $2 billion,” Saleh explains to Shafaq News.
“It is believed that part of it has been subject to the agreements of those countries with the Paris Club, because they are sovereign debts and belong to groups of poor countries, and efforts are being made to restore the rights of the country by diplomatic means and methods,” he adds.
“The public debt in Iraq at the end of 2022 amounted to 94.94 trillion dinars ($63.3 billion), of which 70.5 trillion dinars ($47 billion) are internal debt,” said Nabil Al-E-E-E-Economy at Basra University.
The internal and external (premium + interest) (debt service) in this year’s budget amounts to 18.96 trillion dinars ($12.6 billion) annually.
The decree adds, “Perhaps the most dangerous thing in the budget is that it is triple and not annual, which means that the exchange will continue next year not on the basis of 1/12 of the actual spending, but on the basis of what is allocated in the budget in the previous year, and this may lead to the release of the government’s hand in internal and external borrowing, especially with the disappearance of the cash surplus that will be used in this year’s budget, as well as that the budget in its current form will continue without amendment in the next two years and without parliament having the legal powers to reject or modify it, which will plunge the country in a sea of debts.”
The decree continues that “the legislation of the tripartite budget will give the government full legal powers to borrow 41.5 trillion dinars not only in 2023, but also in 2024 and 2025, which means that the government can borrow internally and externally without returning to Parliament an amount of 121.5 trillion dinars during the tripartite budget and for the three years 2023, 2024 and 2025.”
The World Bank described Iraq’s economy as “shame,” and stated that the country’s debt increased to about $152 billion.
He said in a report issued last August that “the annual budget approved by the government authorities is witnessing a significant increase in the volume of public expenditures by 59% from the previous year, which represents 74.3% of total spending, which will lead to a large fiscal deficit of 51.6 trillion Iraqi dinars – equivalent to $39.7 billion – which represents 14.3% of the volume of public imports, more than half of the recent record reserves accumulated in the wake of the boom in oil prices.”
According to the World Bank, “Iraq’s lack of diversification of sources of income due to the chaotic policies of successive governments, led to a contraction of GDP by 1.1%, in 2023 and an increase in the country’s public debt to 58.3% from 53.8% in the previous year, which will reach 152 billion dollars, an increase of 10 billion dollars, while the total external debt amounted to 50 billion dollars, and the interior amounted to 102 billion dollars, which means that the government authorities in the previous three years borrowed internally about $ 60 billion, at a rate of 15 billion annually, with annual interest of internal debts of 16 to 17% of the volume.”
According to the bank, “the prospects for the economic future in Iraq are still exposed to great risks due to the excessive dependence on oil, which makes it vulnerable to shocks in oil markets and global demand as evidenced by the recent decline in oil prices, in addition to the factors driving fragility that pose fundamental challenges to the economy, such as corruption, poor service delivery and infrastructure development, and security risks.”
“The continued pursuit of these policies by government authorities will make the country’s budget work in favor of the political parties that have delayed the wheel of development, and made them suffer from major imbalances despite the passage of two decades of end to the war,” the World Bank added.