BAGHDAD – Oil prices and the war against the organization of the Islamic state have revealed the fragility of the Iraqi economy as a country dependent on crude sales revenues to cover the expenses that have increased in recent years, putting the government in a bind.
Officials and experts said that the decline of crude oil on world markets since mid-2014, coincided with the invasion of the organization “dodging” a third of Iraq’s territory, which put the country into a cycle of war continues so far; and weighed on the public budget and the government to withdraw from the cash reserve, and borrow internal and external .
The government is trying to reorganize the budget by modifying its budget with a supplementary budget to cover rising expenditures, due to the urgent need to rebuild major service projects in Mosul and surrounding areas, as well as relief for up to 1 million displaced people.
The government approved the supplementary budget on June 22 and then sent it to the parliament, which is still discussing its terms.
Mahdi al-Alak, Secretary-General of the Council of Ministers said that the volume of losses suffered in liberated areas in the city of Mosul from the control, “Daash,” amounted to 50 billion dollars (62.5 trillion Iraqi dinars).
The Iraqi government is trying to assess the extent of damage to the liberated areas of the northern city of Mosul as the parliament discusses a supplementary budget for this year.
“The scale of the destruction in some of Mosul’s old areas is very large,” added Alak, who is also head of the High Commission for the Reconstruction of Areas Affected by Military Operations and Terrorism in the Iraqi Government.
Alaq pointed out that “some areas have little destruction and can be easily rebuilt and rehabilitated.”
He pointed out that what hinders the reconstruction of these areas, is the decline in oil prices in the global market, and the Iraqi government’s dependence on foreign currency reserves, to bridge the deficit in the budget of the country.
In December, the Iraqi parliament approved the country’s budget worth more than 100 trillion dinars (79 billion dollars) and a total deficit of 21 billion dollars (26.25 trillion dinars).
For his part, warned Mahmoud Dagher, director of financial operations at the Central Bank of Iraq, “the existence of a significant risk threatens foreign currency reserves.”
Dagher explained that “the danger is the continuation of the withdrawal of the government amounts of the reserve amount with the Central Bank, and the non-activation of projects that return financial imports such as border crossings.”
He did not say how much money the government withdrew from the financial reserve during the current period, but said that “the solution to this danger is to reform the reality of the border crossings, and control the window selling the dollar.”
The cash reserves of Iraq exceeded 80 billion dollars (100 trillion Iraqi dinars) before the drop in oil prices and the outbreak of war, but it fell to 45 billion dollars (56 trillion and 250 million dinars) early this year.
“The House of Representatives discusses the supplementary budget for the budget this year, because the federal government changed the price of a barrel of oil from 43 dollars to 44.4 dollars,” said Mohamed Halboussi, head of the Finance Committee in the Iraqi Council of Representatives.
“There is an increase in the budget from 100 trillion dinars (80 billion dollars) to 107 trillion Iraqi dinars (87 billion dollars), in addition to an increase in revenues from 79 trillion to 83 trillion dinars.”
He pointed to “the need of the government for more funds for the reconstruction of basic projects in the liberated areas,” noting that “the budget amendment is one of the conditions of the International Monetary Fund, which supports the Iraqi economy.”
The International Monetary Fund (IMF), along with other countries and donors, will provide up to $ 18.1 billion (24 billion dinars) to Iraq to help counter the double shock of the Da’ash attacks and the sharp drop in world oil prices.