A statement issued by the Ministry of Finance
Last week, a number of public statements and inquiries were made regarding the delay in paying the October salaries. This comes on the heels of the delay in paying salaries for the month of September.
The Ministry of Finance has repeatedly affirmed that the government’s current revenues, in light of low oil prices and Iraq’s commitment to OPEC decisions related to reducing oil production, are insufficient to meet the government’s current expenditures. Currently, monthly oil revenues are less than 50% of the government’s current expenditures. We expect this situation to continue in the near future.
To address structural imbalances in public finances, the Ministry of Finance has embarked on a three-pronged program to address short, medium, and long-term issues affecting the Iraqi economy.
As for the very short period, between now and the end of 2020, the Ministry of Finance sees no choice but to resort to short-term loans from state banks, which will then be deducted from the central bank. All other options, such as increasing revenues from customs, taxes, or levies from the electricity sector, are simply not possible in the short term. Moreover, despite the necessity to rationalize and activate the generation of other non-oil revenues, such measures will not compensate, in the short term, for the shortfall in oil revenues, given the structure of our economy. All other measures related to public sector payroll management require legislative approval before they are translated into spending cuts or revenue generation.
In this regard, there were a number of important issues that were raised.
First, the ministry does not seek to increase the public debt unless it is necessary and its service is sustainable. Iraq’s debt at the present time is not excessive compared to the size of its economy. Public debt in the world has grown tremendously over the past twelve months, to address the negative consequences of the Corona pandemic. Globally, public debt as a percentage of GDP is close to 100%. In Iraq it is still less than 75% of GDP. However, the Ministry of Finance recognizes the need to be prudent in the manner in which the fiscal deficit is financed.
Second, the Ministry of Finance was open and transparent regarding the state of public finances and issued accurate and timely information when requested by the House of Representatives. The Ministry is aware of the concerns that could arise as a result of delays in fulfilling government spending obligations. The situation today is fundamentally different from previous periods, when public finances were under pressure due to low oil revenues. Not only has public spending grown rapidly in the past five years, but the decline in oil production and prices has been longer and deeper than in previous periods, in light of a difficult global economy.
Third, the Ministry of Finance asked the House of Representatives to authorize it to borrow 41 trillion dinars for the remainder of the current year to meet the deficit in financing salaries and retirement payments, dues in 19 and 20, other expenditures and investment projects.
The Ministry of Finance plans to introduce major reforms affecting public finances in the 2021 budget. If approved by the Council of Ministers and the House of Representatives, we believe that they will form the basis for addressing the economy issues in the medium term and rationalizing public finances during the period from 2021 to 2023.
The Finance Ministry played a key role in leading the team that put together the white paper. These aim to analyze the structural problems affecting the Iraqi economy and provide detailed solutions to solve them. This reform program aims to reorient the axes of the Iraqi economy. The reform program will require a great deal of legislative and institutional work and cannot be implemented without the support of Parliament.
Media Office of the Minister of Finance
October 30, 2020