Page 7 - MEOG Week 17

MEOG Commentary MEOG
In its draft 2020 budget, Iraq had been count- ing on revenues from oil prices at $56 a barrel to fund badly needed development projects and the bloated public sector, costing nearly $45bn in compensation and pensions. Oil Minister Thamir Ghadhban said recently that revenue from crude exports has dropped by 50%.
Now officials are debating difficult salary cuts. One idea be to would defer paying public sector workers part of their social benefits until the financial sector improves, according to three Iraqi officials. The question is how much to cut and from whom; one recommendation is that higher-end earners take a 50% cut. The officials spoke on condition of anonymity so as not to derail ongoing talks.
That would save Iraq hundreds of millions of dollars, but risks triggering unrest. Public sector workers receive a host of benefits that effectively add 50-70% to their take-home wages. These include family allowances and so-called danger pay benefits for security forces.
Still, experts said that will not be enough if oil prices remain between $20-30 per barrel. “Cuts need to be deeper to make a dent in payroll, and even then, if revenues are so low there comes a point where cuts are not enough,” Jiyad said.
On top of this, expected compliance with OPEC+ will require Iraq to remove over 1mn bpd from production in May and June.
Moreover, the country has been left without an effective executive to carry out reforms by
an ongoing leadership vacuum since Decem- ber, when Prime Minister Adel Abdul-Mahdi resigned under pressure from protesters. Prime Minister-designate Mustafa kadhimi is due to present his proposed Cabinet to Parliament next week, but he faces opposition from key political blocs.
Until his government is in place, a 2020 budget is unlikely to be approved. This limits Iraq’s ability to borrow from international agen- cies for budgetary support.
Across the region, the drop in oil prices will derail future investment and development plans. the region’s largest crude producer, Saudi Arabia, plans to cuts spending by 5%, or about $13.3bn. Additional cuts and measures are antic- ipated as it digs into its roughly $500bn in foreign
reserves.
target dates of Crown Prince Mohammed
bin Salman’s (MbS) plan for the completion of new cities and mega projects will likely be delayed as businesses suffer and foreign invest- ment dips amid the pandemic.
kuwait has ample reserves as well. But the island nation of Bahrain faces a debt estimated to be equal to 105% of its GDP, even after it received a $10bn bailout from its neighbours to avoid defaulting on a $750mn Islamic bond repayment in 2018.
The whole region is bracing itself for an inev- itable period of turmoil, against which no nation is immune.™
Week 17 29•April•2020 w w w . N E W S B A S E . c o m P7