BAGHDAD (AP) — Iraq’s parliament on Monday approved a record $152 billion budget for 2023, following months of wrangling over the sharing of oil revenues between the central government in Baghdad and Iraq’s semi-autonomous northern Kurdish region.
The process has also been hampered by infighting between different Iraqi Kurdish parties. The budget – approved six months into the fiscal year and after four chaotic late-night voting sessions – allocates 12.6% of revenue to the Kurdish region and is seen as strengthening Baghdad’s hand on oil revenues.
The central government in Baghdad and the Kurdish regional government in the city of Erbil have been locked in a dispute over oil revenues for years, while competing Kurdish parties are also at odds over their shares.
In the absence of a binding law detailing the sharing of funds from oil and gas exports, the Kurdish region continued its own exports, while Baghdad argued that all exports should be handled by the state-owned utility of oil marketing, SOMO, Irbil receiving a share of profits.
Under the new budget, the Kurdish region can market its own oil but must deposit the revenue in a bank account that central government officials can monitor. Baghdad will then deduct this amount from its monthly allowance to the Kurdish regional government and transfer any excess money to Erbil.
The budget vote lasted several days, in part because of objections from the largest Kurdish party, the Kurdistan Democratic Party, to the provisions on the revenue-sharing process and a related dispute resolution mechanism.
The Shiite-majority coalition holds the most seats in Iraq’s 329-seat parliament, with 220 seats. The Kurds, the second ethnic group in Iraq, hold around sixty seats, but they are shared between two main parties: the PDK and the Patriotic Union of Kurdistan (UPK), often at odds.
Finalizing the budget on Monday was a victory for Prime Minister Mohammed Shia al-Sudani’s government, which was formed last year following a long political vacuum following the 2021 elections.
Al-Sudani came to power with the support of the Coordination Framework, a coalition of pro-Iranian parties, after influential Shia cleric and political leader Muqtada al-Sadr – whose party had won the largest share of seats but not enough to form a government — withdrew from politics.
Paralyzed by the political deadlock, parliament failed to pass a budget last year. With a budget now in place for 2023, al-Sudani’s government hopes to tackle poverty and bring much-needed economic stability.
However, some analysts say the budget is based on an overly optimistic outlook and warns of a soaring deficit.
The budget projects revenues of about $103.3 billion for 2023, based on a projected price of $70 a barrel for oil exports, Iraq’s main source of revenue, with exports estimated at 3.5 million barrels per day, including 400,000,000 barrels from the Kurdish region. The budget projects a deficit of about $48 billion.
“The new budget is a cause for concern, as it is highly dependent on oil revenues,” said Mudhar Mohammed Salih, al-Sudani’s advisor for financial affairs. “If oil prices fall, the deficit will increase, forcing the government to borrow money. This is a risky proposition, as it could lead to debt problems.
A report released last month by the International Monetary Fund on Iraq’s finances warned that the “fiscal loosening” proposed in the budget plan could lead to inflation and exchange rate volatility in the short term, while that in the medium term, fluctuations in oil prices could lead to “critical risks to macroeconomic stability.”
“Barring a sharp increase in oil prices, the current fiscal stance could lead to growing deficits and intensifying financing pressures in the years to come,” the report said.
Monday’s vote also approved the same $152 billion budgets for 2024 and 2025 – ostensibly to avoid haggling over the issue for the next two years.
The parliamentary session came after an unannounced visit to Iraq by Iranian General Esmail Ghaani, according to two Iraqi Shiite politicians who spoke on condition of anonymity because they were not authorized to comment on the visit.
Ghaani leads the Revolutionary Guards’ Al-Quds Force, an expeditionary arm of the paramilitary organization answerable only to Iran’s Supreme Leader Ayatollah Ali Khamenei. He replaced Iranian General Qassem Soleimani, killed in a US airstrike in Baghdad in January 2020.
The two officials said Ghaani left Baghdad on Thursday evening, shortly before parliament convened in its first late-night session to begin voting on the budget.
Associated Press writer Abby Sewell in Beirut contributed to this report.