Veteran Iraqi official gives dire warning about state’s finances

A veteran Iraqi economist who is advising his country’s Prime Minister, Mustafa Al Kadhimi, has revealed the extent of government waste in the resource-rich but impoverished nation.

Mudher Salih painted a picture of a state obsessed with generating cash from its oil sector without taking action to develop the country or plug black holes in the budget that have sucked vital liquidity out of public finances for years.

On Tuesday, Mr Salih told the official Iraqi news agency that the electricity sector costs the government about $10 billion (Dh36.73bn) a year to operate but generates only seven per cent of its operating costs in revenue.

Iraq also suffers crippling power cuts and imports electricity and gas from neighbours to boost production.

Official data shows Iraq’s generation capacity is 16,000 megawatts, compared with the up to 30,000 megawatts needed to satisfy demand.

Mr Salih is one of the few senior independent experts in Iraq who survived purges under Saddam Hussein.

He retained a senior position in the state after the consolidation of the Shiite political ascendancy in 2005, the year Iraq held its first democratic election after Saddam’s fall.

Mr Salih said the state imported $50bn worth of fuel in the past 10 years, although Iraq was one of the top five members of Opec.

“This amount could have been used to build 10 large oil refineries,” Mr Salih said.

“Big structural changes are needed in the electricity and oil sector.”

He said that without “real” investment Iraq would have no capacity to “develop and progress”.

Investment was mostly made to produce more oil and revenue outside the sector was non-existent, he said.

He said the government would take “emergency measures and they will be very difficult, in addition to a long-term reform process to activate the private sector”.

Mr Salih’s comments echo a warning given by the World Bank in a report this year that Iraq faced “a combination of acute shocks” that it was ill-prepared to handle.

The report highlighted the challenges facing Iraq, including the collapse in oil prices, the coronavirus pandemic and “growing discontent over poor service delivery, rising corruption and a lack of jobs”.

The World Bank predicted a debt trap that would “create pressures on the exchange rate and inflation”.

That scenario assumes that if oil prices stabilised in the low $30s per barrel, Iraq would still need to raise $67bn to cover spending.

“Implementing reforms in Iraq has become even more crucial for the sustainability of growth and job creation,” the report said.