Rising expenditures and salary delays spark liquidity concerns

Assertions that the Iraqi government is facing a liquidity crisis have gained traction following delays in the payment of public sector salaries last month.

Salaries are typically disbursed on the 23rd of each month, but were delayed by one week last month. The Ministry of Finance had previously denied facing a liquidity crisis, and on December 31, it announced the completion of December salary disbursements:

“The Accounting Department at the Ministry of Finance has completed the disbursement of employee salary allocations for all departments and governorates for the month of December, in accordance with the entitlement schedules.

The Ministry notes that this month’s salary disbursement process was accompanied by a series of technical and accounting procedures, including the review of monthly audit balances in conjunction with the fiscal year-end and the preparation of final accounts. These measures are essential to ensure the transparency and accuracy of financial data.

The Ministry also draws public attention to the urgent steps it has taken to expedite the disbursement process and ensure that employees receive their full entitlements while adhering to standards of efficiency and transparency.
The Ministry calls on all media outlets to act responsibly, verify the accuracy of information being circulated, and rely on official sources when reporting news.”

Despite the ministry’s assurances, concerns persist over Iraq’s fiscal position in 2025. In September last year, the prime minister’s financial advisor told Reuters that stricter financial discipline would be needed in 2025 due to an anticipated decline in oil revenues.

Brent crude prices, which have hovered in the low $70-per-barrel range for several months, saw a slight uptick so far this month, reaching $80 today.

Government spending has surged alarmingly in recent months, while revenues throughout most of last year remained relatively stable, ranging between 10-12 trillion IQD per month. The Finance Ministry has published spending figures only up to October 2024, revealing significant budgetary pressures. While most months saw surpluses ranging between 1-3 trillion IQD, July recorded a 4 trillion IQD deficit. By the end of October, total government spending had reached just under 123 trillion IQD, against total revenues of 125.5 trillion IQD. However, October alone saw a staggering 17 trillion IQD deficit due to sharp increases in both operational and capital expenditures.

Key drivers of October’s spending spike included 5 trillion IQD allocated by the Ministry of Trade for grants and subsidies to farmers, and the food ration system, alongside nearly 11 trillion IQD in investment spending by the Ministry of Oil. Additionally, spending on public sector salaries and budget transfers to the KRG rose significantly, with October transfers to Erbil exceeding 2 trillion IQD.

Yesterday, Sami met with the Parliamentary Finance Committee to discuss proposed amendments to the federal budget law, particularly Article 12, which addresses federal compensation to the KRG for its oil sales.

During the meeting, Sami assured the committee that employee salaries for 2025 are fully secured. But she highlighted that a major challenge in implementing the 2024 budget and addressing its deficit arose from the federal government’s payment of over 11 trillion IQD in salaries for employees in the Kurdistan Region. Sami noted that the KRG authorities had failed to transfer the region’s oil and non-oil revenues to the central government, adversely affecting funding for other provinces. According to her, the KRG’s non-oil revenues had exceeded 4 trillion IQD last year, yet Erbil transferred only 320 billion IQD to Baghdad.

The finance minister emphasized that Article 12 of the budget law remains a technical issue the ministry has not fully examined. However, she made it clear that payments to companies operating in the KRG’s oil fields are contingent upon the submission of detailed reports on production costs, transportation, and internal consumption. These details must be incorporated into the 2025 budget schedules, alongside the complete transfer of oil and non-oil revenues from the region, to ensure federal coverage of these dues. She cautioned that the KRG's failure to comply could lead to a severe liquidity crisis.

On a more positive note, non-oil revenues in federal Iraq have shown some improvement, with an almost three-fold increase in taxes, fees, and customs revenues in 2024. Nonetheless, whether Iraq is indeed in the throes of a fiscal crisis will become clearer when it comes time to pay January salaries. What remains certain is that rising expenditures, particularly on salaries and subsidies, have compounded the government’s financial challenges.