Iraq expands spending as Gulf states cut back, economist says

BAGHDAD — Iraq is expanding public spending in its draft 2027 budget while wealthier Gulf states cut back after the disruption to energy exports through the Strait of Hormuz, economist Ziad al-Hashimi said, calling the plan a “welfare budget” that ignores the country’s financial crisis.

“It presented figures as though Iraq were experiencing financial abundance and generating substantial revenues,” Hashimi wrote on Facebook. The draft, not yet published, shows spending of about 217 trillion dinars, the largest in Iraq’s history, according to economists Nabil al-Marsoumi and Abdulrahman al-Mashhadani, with oil revenue of about 140 trillion and a deficit of about 45 trillion, built on exports of around 4 million barrels a day. Iraq exported about 2.6 million in September, against 3.3 to 3.5 million before the strait was disrupted. “This is an unrealistic figure in itself and will not be achieved for a long time,” Hashimi said of the export assumption.

“Most wealthy Gulf countries implemented austerity measures after the crisis disrupted energy exports through the strait and began visibly reducing spending, even though these countries possess enormous financial buffers, particularly sovereign wealth funds worth trillions of dollars,” he said. Qatar cut ministry budgets by up to 30% and foreign aid by about 85%, he said, figures first reported by the Financial Times in August, which Doha said were inaccurate and taken out of context. Saudi Arabia projects spending of 1.392 trillion riyals in 2027, against about 1.435 trillion this year, he said, while Kuwait has set spending ceilings for ministries and Bahrain, the UAE and Oman have tightened controls on waste and efficiency.

“In contrast, Iraq presented a budget that expanded spending to a record 217 trillion dinars without genuinely reducing excessive expenditure, controlling waste or confronting corruption,” he said. Waste, administrative overstaffing and corruption were “three sources of financial destruction” the government had left untouched, and tackling them could save tens of trillions of dinars, he said.

Instead, he said, the government chose to raise its dinar revenue through devaluation, turning to “the weakest and easiest link — citizens’ and employees’ salaries.” On Wednesday the official dollar rate rose to 1,520 dinars from 1,320, making the dollar about 15% more expensive, and the parallel market passed 170,000 dinars per $100.

“The 2027 budget can be considered a real test of this government, its seriousness and its ability to bring Iraq out of the current financial crisis with the fewest losses and at the lowest cost,” he said. “But so far, it has failed and demonstrated that it is following the path of previous governments and repeating the same mistakes.”

Marsoumi asked on Wednesday how a government with a salary crisis could raise salaries and welfare in the draft from 90 trillion to 101 trillion dinars. Revenues covered only 76% of salaries and welfare in the first seven months of the year, he reported on Sunday. Iraq has had no budget this year, with spending governed by the one-twelfth rule since the three-year law covering 2023 to 2025 expired, and the government acknowledged a fiscal crisis in late July, when salaries went out in stages. Oil provides more than 90% of federal revenue.