The new prime minister’s resolve to tackle runaway government salaries faces an early test.
Hopes of a return to stability in Iraq have been dashed many times. But the appointment of Mustafa al-Kadhimi as prime minister has been met with rare approval by both the United States and its arch-foe Iran. Not only has al-Kadhimi—a secular leader and the country’s former intelligence chief—managed to overcome months of political deadlock to form a government, he also raised expectations of a new chapter in Iraqi politics. By succeeding where his two predecessors failed, the 53-year-old prime minister looks better positioned to quell widespread protests and anger among Iraqis.
Yet hope can sometimes be deceptive. OPEC’s second-largest producer needs at least $5.5 billion a month to cover salaries, pensions, subsidies and debt-servicing costs, according to S&P Global Platts. The disconnect between supply and demand fundamentals forced crude prices into negative territory in April, a potentially devastating development for the Iraqi economy.
Aside from a ravaged economy, the new prime minister faces myriad challenges spanning plunging oil revenues, the Covid-19 outbreak and tensions between US forces in Iraq and local Iranian-backed militias. Yet al-Kadhimi has been quick to recognize that overcoming the country’s dire economic plight will be the short-term arbiter of his success.
No wonder the country is seeking to reschedule the roughly $1 billion it pays to international oil companies each month. Oil prices have recovered, yet a revamp of this year’s budget is being discussed.
Still, the new prime minister’s resolve to tackle runaway government salaries faces an early test, and al-Kadhimi will have to choose between slashing wages or cutting staff numbers. The government will need to borrow to bridge what is expected to be a yawning deficit, although Iraq claims it has around $2 billion in undrawn loans from the World Bank.