When Will the Iraqi Government Resort to Amending the Budget Law? An Economic Expert Explains
As of September 12, 2024, Iraq's reliance on oil revenues continues to dominate its economic landscape [1]. Over the past decade, oil revenues have accounted for more than 99% of exports, 85% of the government's budget, and 42% of gross domestic product (GDP). This heavy dependence on oil exposes the country to macroeconomic volatility, particularly when oil prices fluctuate [1].
In June 2023, the Iraqi Council of Representatives approved the federal budgets for 2023, 2024, and 2025, marking the first time a three-year budget was enacted [2]. The 2023 budget was the largest in Iraq's history, totaling 198.9 trillion Iraqi dinars (approximately $153 billion) [2]. The budgets for 2024 and 2025 are set to remain the same, unless the cabinet requests amendments and Parliament approves them [2].
Iraq's budgeting process has been historically slow, with no budget passed in three of the past nine years (2014, 2020, and 2022) [2]. The three-year budget offers a measure of stability, ensuring that the government has a budget until the next federal elections in late 2025 and provincial council elections scheduled for 2024 [2].
However, the government's reliance on oil revenues, which account for nearly all state revenue, leaves Iraq's economy and budget in a precarious position [3]. Oil is a volatile commodity, and Iraq has limited control over the global oil market. This vulnerability to oil market fluctuations and the decisions of other OPEC members could necessitate budget amendments [3].
Moreover, the complexity of tax legislation, tax evasion, lack of tax awareness, delays in collections, weak supervision and control, and conflicts in tax laws and legislation between different directorates have prompted the Council of Ministers to issue new tax reform instructions starting in 2024 [4]. These reforms aim to address the issues within the tax system that could affect the government's income and budgetary planning [4].
When Will the Budget Law Be Amended?
The decision to amend the budget law will depend on several factors. Chief among them are changes in oil prices, the performance of the non-oil economy, and the government's fiscal needs [1]. If oil prices fall significantly or if non-oil sectors do not perform as expected, the government may need to adjust the budget to ensure fiscal stability [1].
Additionally, the effectiveness of the tax reform instructions and the government's ability to collect revenues could influence the need for budget amendments [4]. If the reforms are successful in increasing tax compliance and collections, the government may have more fiscal space to adjust the budget without compromising its financial stability [4].
Expert Analysis
An economic advisor to the Iraqi government, Mazhar Muhammad Salih, has stated that the three-year budget approach is specifically designed to facilitate long-term planning [5]. The finance and planning ministries can use the Financial Management Law No. 6 of 2019 to make adjustments to the budget over the coming years, as long as Parliament approves them [5].
This flexibility allows the government to account for changes in oil prices or other economic developments, which could lead to amendments in the budget law [5]. The ability to make such adjustments is crucial for maintaining fiscal stability and ensuring that the government can respond to economic fluctuations [5].
Conclusion
The Iraqi government's decision to amend the budget law will be influenced by the evolving economic conditions, including oil prices, tax reforms, and non-oil economic performance. The three-year budget approach offers a level of stability but also the flexibility to make amendments as needed. The government's ability to navigate these challenges will be crucial in maintaining fiscal stability and ensuring the country's economic resilience [3].
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