Finance minister says Iraq's leaders willing to make reforms

Iraq's finance minister says there is growing political will to carry out drastic reforms needed for the country to tackle a daunting liquidity crisis that has pushed Iraq to the brink of collapse

Iraq (Copyright 2020 The Associated Press. All rights reserved.)

Iraq s finance minister said Thursday there is growing political will to undertake drastic reforms needed for the country to tackle a daunting liquidity crisis, which has pushed Iraq to the brink of collapse.

“There is more will now than there was five months ago,” Finance Minister Ali Allawi told The Associated Press. “Now, I think there is recognition that unless oil prices go up miraculously, this is something we have to cope with and manage.”

Low oil prices have slashed state coffers in the crude-exporting country by nearly half, and over-reliance on oil has limited the government's ability to seek out other income. A widening month-to-month deficit has cast uncertainty over how future payments will be made for public wages, external debts and essential imports of food and medicine.

Iraq's unsustainable economy laid bare by fiscal pressures spurred by spiraling oil prices and the coronavirus pandemic, is a long-standing problem that has flummoxed reformists for over a decade.

This week, Prime Minister Mustafa al-Kadhimi's government issued a much-anticipated 95-page “white paper” for economic reform that, if implemented, would prompt a drastic overhaul of the entire system within three to five years.

“It is a paper designed to create a strategic and policy framework for a new Iraqi economy,” said Allawi. "In the end of this period of change and reform ... we are supposed to have a restructured and more dynamic economy, that is the point of it.”

The absence of support from major political elites has undermined similar efforts in the past. Al-Kadhimi's government still depends on an endorsement by Parliament for the vision to gain steam.

“There is less denial, before it was all denial," said Allawi.

With oil prices not expected to rebound in the near-term, only reforms will see Iraq avoid an economic catastrophe, top officials in al-Kadhimi’s government, including Allawi, have repeatedly said. The future of the project faces a major test: Parliament endorsement in the form of a binding resolution or legislation.

Later, aspects of the plan outlined in the paper will be incorporated into the 2021 budget, said Allawi, something that will also require a parliament vote. Government subsidies in the electricity and oil sectors will face particular scrutiny.

In September, Iraq made $3.16 billion in oil exports, which accounts for 90% of state revenue — less than half of the $7 billion needed to pay for salaries, pensions, imports and debts. September salaries were delayed and the payment of October wages depends largely on the government borrowing internally. A previous bill allowing for $12 billion in internal borrowing has been used up; a new one, asking for $35 billion, faces a parliament vote.

“I hope parliament will approve it,” said Allawi of the bill. “If it doesn’t, we have potential for other alternatives, but it will be more difficult.”

Iraq's dollar reserves stand at $53 billion.