Iraq and Gulf Analysis

The Iraqi Parliament Finally Passes the 2011 Budget

Posted by Reidar Visser on Sunday, 20 February 2011 19:52

After a marathon session in the Iraqi parliament, Iraqi politicians today passed the budget for 2011.

The  key figures are as follows: Income, 80.9 trillion Iraqi dinars (ID); expenditure, 96.6 trillion ID (of which 30 trillion ID is investment); deficit 15.7 trillion ID. The budget is based on an expected daily oil export of 2,2 million barrels and an oil price of USD 76.5 per barrel.

The big money in this budget goes to the central government in Baghdad and the Kurdish Regional Government, underlining the asymmetrical nature of Iraq’s federalism despite constitutional provisions that arguably could have given the unfederated governorates more rights and money. The biggest single ministry spending post is defence and security with 14 trillion; unless it is a typo education will get 9 trillion which seems generous compared with the military spending. It is interesting that the petrodollar scheme that was introduced in 2010 and gave a dollar for each barrel of exported oil to the producing governorates is perpetuated (to total some 1.6 trillion ID), and will also include petrodollars that accrued in 2010 but have yet to be spent. There had been some discussion that the scheme would be made universal to all of Iraq at the expense of the producing governorates, but instead the two ideas appear to have been merged into one as the ministry of finance is given the task of allocating additional petrodollars based on national production to all governorates based on population (i.e. a lot less per governorate than the producing governorates get under the original scheme). Kurdistan is excepted from the petrodollar arrangement until it has sent in an audited account of its oil-industry activities for 2010–2011.

Other than that, the Maliki government has gone some way towards compromise with the Kurds on oil export. Whether it has gone all the way, as Maliki appeared to promise in an early-February interview when he said that the KRG oil contracts had been fully approved, simply remains unclear in the current budget. Maliki recently backtracked in a televised press conference and put the taped video on his website, thereby seemingly reverting to the previous agreement between the oil ministry in Baghdad and the Kurdish authorities of paying costs but not profits for the foreign companies. As expected, the key numbers pertaining to this issue are not included in the budget law as such, and even in the annexes – not yet published by parliament – they are unlikely to specify the exact payment that will be given to the foreign companies. But it is interesting that in a leaked version of these numbers that has failed to receive much attention, from the Sumaria news agency on 9 February, a heading of around 2.05 trillion ID was set aside as “contribution to the costs of exporting oil including entitlements under the contracts signed with foreign companies in Arbil”.

المساهمة في كلفة انتاج النفط الخام المصدر بضمنها مستحقات عقود شركات النفط الأجنبية في إقليم اربيل

It is noteworthy that this heading, without the Kurdistan portion, has featured in Iraqi budgets going back at least to 2008, and has increased annually – apparently from 800 billion ID in 2008 via 1.3 trillion ID last year. Thus the increase from last year may well reflect some natural growth in the cost of oil production in other parts of Iraq on top of payment for the Kurdish exports. At any rate, total Iraqi exports are estimated at 800 million barrels for 2011, meaning this allocation of money, the equivalent of USD 1.7 billion, should add up to around 2 dollars per barrel on average, though with Maliki having recently acknowledged a greater per-barrel cost for Kurdistan than the rest of Iraq, and with that leaked budget draft certainly making reference to “contracts”. Additionally, there was also a significant heading of 3.2 trillion ID for unspecified “investment projects of the foreign oil companies”. Again, these numbers relate to a leaked version of the full budget from 10 days ago; today some confusion has been thrown into the mix by a Reuters report to the effect that the budget supposedly includes “$2.05 billion to pay oil firms investment costs” which sounds very similar to the 2.05 trillion ID reported on 9 February except that they applied to Iraq’s total exports. It is impossible to verify this before the annexes to the budget are published; in 2010 some annexes weren’t published at all. (Update: Figures more or less similar to those reported by Sumaria on 9 February have now been confirmed by sources that have seen the final annexes. The “investment projects” are thought to relate to contracts signed by Baghdad for the south and hence the share of the firms operating in Kurdistan is presumably to be taken from the USD 1.7 billion heading for general export costs.)

At any rate, money has definitely been set aside for exports for Kurdistan to resume, and the Kurds skilfully managed to avoid controversy over the issue in parliament by seeking assurances from the finance minister from Iraqiyya instead of attempting to spell the issue out in the budget law itself. Some commentators have hinted that there may be transparency issues here, but DNO regularly reports its profits so some numbers should emerge eventually. It is of course remarkable that a party like Iraqiyya should go as far as this in underwriting a Galbraithian economic model for Iraq, but it can be explained in terms of realpolitik with reference to the party’s ongoing campaign to seek Kurdish support for the establishment of the strategic policy council that at least its leader, Ayad Allawi, remains focused on.

The bigger challenge for the Kurds these days seems to come from the people in their own streets. That applies to other parts of Iraq too: Tension is simmering in Kut and Ramadi as well. In other words, the test for all of Iraq’s leaders going forward, regardless of whether they are Shiites, Sunnis or Kurds, is whether they can do more than divvying up the spoils between themselves and actually deliver the services and jobs that the Iraqi people are asking for. The budget is only a first step.

Note: The exchange rate for the Iraqi Dinar (ID) has been calculated at 1,200 ID to the US dollar. “Billions” and “trillions” are given in accordance with Anglo-American usage in which a billion is the same as a “milliard” in many European languages and Arabic and a trillion is 1,000 “milliards”.

9 Responses to “The Iraqi Parliament Finally Passes the 2011 Budget”

  1. Tom P said

    It’s just a side-issue in your article, but would you care to share some more on the nature of the discontentment among the Kurds? To an outsider it’s baffling that some in the opposition seem to identify with the popular uprisings in Egypt and Tunisia.The Kurdish institutions being so new, it seems like such a long shot to claim that they are anywhere near the same situation as the Egyptians, for instance. Specifically, I came across an article by a Mr Rauf Naqishbendi on which basically is composed of a lot of unsubstantiated allegations of corruption against the regime. More interestingly, he thinks that the regime has betrayed the Kurds by joining the Iraqi federation and not pushing for independence. This is a thought that goes right into a central theme on your site about centre–periphery relations in Iraq, I guess. Is it possible to hear any echo of this position among the Kurdish political parties or in the public?

    In the event that there is, it would only strengthen the “hardline” position of the KRG vis-à-vis Bagdad, I assume. If not, maybe the popular cry for improvements in Kurdistan still could work to the KRG’s benefit in their dispute with Bagdad in the sense that a politically vibrant community would carry some weight with the central government also?

  2. Reidar Visser said

    Tom, as a matter of principle I steer away from commenting on internal Kurdish issue since I don’t read Kurdish, only Arabic, and am not really in a position to offer any meaningful insights on what is going on internally. I can tell you that those who do research on the Kurdish region differ in their opinion on this. Some highlight the dual (and some would say contradictive) nature of the discourse of the Kurdish leadership i.e. encouraging nationalist ambitions for domestic consumption while at the same time trying to get the most of the pragmatic marriage with Baghdad. Many say it would have been better with a straightforward divorce. Again other suggest that the strength of Kurdish nationalism is somewhat exaggerated because of the influence of Kurdish intellectuals living in exile. These analysts say bread-and-butter issues count for more, and this could explain the sort of tension that we are currently seeing. Accusations about rampant corruption in the KRG institutions that have evolved since 1992 are certainly frequent, but then again that is also a common phenomenon in all of Iraq.

    Having watched these developments from afar over a long time, I was astounded to hear an apparent echo from the intra-Kurdish struggle in 1996 when the latest violence erupted in Sulaymaniyya. Back then, of course, the PUK basically tried to annihilate the KDP using Iranian support; the KDP responded by enlisting assistance from Saddam Hussein. This time, the KDP was complaining about Iranian influences as well as Gorran being used against them in Sulaymaniyya. Again, I leave it to those who are experts on Kurdish affairs to pull out the true significance of this, but it certainly made me remember that it’s just 15 years ago since the PUK and KDP were at war with each other.

  3. Santana said

    The Kurds in my opinion will never be satisfied with anything but full independence….as anyone can see their demands of Baghdad are so over-reaching and ambitious that it clearly indicates “Mataleb ejooziah” or “impossible demands” for a reason…..they actually WANT to hear a big “No” from Parliament so they can then cry in Washington and to UNAMI that they are the oppressed and thus must take matters into their own hands and declare independence.
    After WW2 Israelis used the Holocaust to get what they want, the Kurds learned or were taught by the Israelis to use Halabja and now “unmet 19 demands” as their rallying cry.
    I would have more respect for them if they would just be more honest in dealing with the Iraqi Arabs then all these stupid games.

  4. bks said

    What is the (Realpolitik) status of the Kurdish language in Iraq? Are government documents released in two versions, as in Canada? When Maliki speaks, is there a simultaneous translation into Kurdish?


  5. Reidar Visser said

    Arabic and Kurdish ar the two official languages according to the constitution. In practice I have never heard anyone talk anything other than Arabic in the Iraqi parliament other than on special festive occasions etc. Also, very few ministry websites or news agencies are truly bi-lingual. It should be added that despite the constitutional provisions for a federal-government role in such areas as health and education, the Kurds are in practice only paying for the foreign ministry and defence – i.e. those are the only two minsitry headings to be deducted as “sovereign spending” before the calculation of the Kurdish 17% of the budget.

  6. Salah said

    last month the Iraqi parliament accepted that the kurdish language used by Kurds MP in the discussion during the setting or parliament and there were translation equipment put in place for arab MP to understand MP kurdish discussions!

    To me looks very odd as all around the world there were few incident this matter been supported and largely implemented. But looks Iraq different in every thing even democracy rules and practice.

  7. Eric H said

    Do you know if budget reflects the priorities set out in the 2010-2014 National Development Plan?

    Also has there been any explanation of how the budget relates to Iraq’s cumulative budget surplus as discussed by the US GAO last September? The Iraqi government was meant to produce a report last Autumn on this.

  8. Reidar Visser said

    Eric, sadly, no, the only thing about the budget that I really try to keep track of is centre-periphery relations. Maybe some others know?

  9. I’ve read the entire budget and provided an analysis of it in my most recent newsletter, and the answer to Eric’s question is, no, not explicitly, although some passages of the budget refer to some of the same issues pointed to in the GAO report, it doesn’t deal with it in a systematic way. As a general matter, the budget is not a transparent exercise. Partly this is due to what Reider already referred to, there are references to further details in an appendix but the appendices aren’t published. Other issues are addressed in a vague manner. They’ve set their budget assumptions at a fairly conservative level, $76/barrel oil, and then just hope there is enough instability elsewhere to keep oil prices high.

    For example on the GAO question, if you look at Section One, Article 2(2), it gives the figure for the current project and then says “this deficit is to be covered from financial totals held over from the 2010 budget and from internal and external borrowing…” The first part of that refers to the cumulative surplus from previous years. If you have read the GAO report you know this money is scattered in various places. There are also provisions in this budget related to the authority of the federal government to “grab back” funds from other institutions.

    As for the national plan to which you refer, I hadn’t previously read it, but if you have read it the budget does in some places give specific amounts for specific ministries and items, but also reserves large amounts for non-itemized categories like “other ministries and institutions” which are supposedly detailed in an appendix which, as note, is not included in the published text.

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