Iraqi salaries at risk if oil prices drop below $65, warns financial expert

BAGHDAD — Financial expert Mahmoud Dagher warned Monday that Iraqi salaries could face serious threats if oil prices fall below $65 per barrel. Dagher cautioned that Iraq could only sustain salary payments for up to six months under such conditions, stressing the need to reconsider the salary budget, which has surged to 60 trillion Iraqi dinars, up from 40 trillion dinars two years ago.

Excerpts from Dagher’s interview with Utv:

I, along with a group of experts, have long warned against relying too heavily on oil, so that we don’t find ourselves in a situation where public revenue fails to keep up with public spending. However, we’ve observed a strong political drive to increase spending. While some of this is justified by the need for infrastructure, the budget has reached unprecedented levels of expenditure. Salaries were originally capped at 40 trillion dinars, but that ceiling has now risen to 60 trillion. With such high spending, what remains in the budget for creating opportunities in other sectors?

Iraq didn’t face an economic crisis until 2014. At that time, the government’s responses were sound and appropriate, such as freezing new appointments and adopting austerity measures. By 2017, the state was able to breathe again, even though revenues in 2015 and 2016 only amounted to $26 billion. But the first major mistake came in 2020 when the decision to borrow was made, particularly domestic borrowing, which ballooned to 70 trillion dinars after previously being under 40 trillion. The second mistake was devaluing the currency, which caused chaos in public life.

If oil prices drop to $65 per barrel and stay there for six months, we will enter a dangerous phase in terms of securing salaries. Talking about developing agriculture, industry, or raising taxes is pointless at the moment. What we need is to slow down the pace of spending.

The Gulf countries will also experience a decline in revenues and oil prices, but they won’t be destabilized because they have sovereign wealth funds. Iraq, on the other hand, has always opted to increase spending. I warn against tapping into our cash reserves, as they are essentially covered by the people’s dinars and shouldn’t be touched. However, we can reduce spending and endure the pain.