Oil fluctuations put the government in the “borrowing box”.. What is the fate of salaries?

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[size=52]Oil fluctuations put the government in the “borrowing box”.. What is the fate of salaries?[/size]

[size=45]Iraq's situation fluctuates from time to time with the fluctuations in global oil prices, which constitute about 90% of the state's revenues and 95% of exports. This huge dependence on oil requires Iraq to find solutions to overcome these crises and diversify its economy.
The government budget has set an oil price of $70 per barrel in 2024, about $6 less than the average price expected this year.
The financial advisor to the Iraqi Prime Minister, Mazhar Muhammad Salih, reveals that this is not the first time that oil-exporting countries have been exposed to the manifestations of the decline in the oil asset cycle; it is usually a pattern of cycles that affect the markets of raw materials in the global market, and it is a cycle that is mostly not long-term at the maximum decline, as the maximum decline point in it lasts for a limited period after the manifestations of oil glut disappear in the supply market.
He stressed that the decline in the oil asset cycle often causes "withdrawal or cessation of production in the marginal oil wells and fields with high costs in the scope of extraction, specifically the oil fields in North America called shale oil fields, and the occurrence of large investment losses."
Any drop in oil prices, according to the government advisor, below the cost level exposes it to “huge investment losses, in addition to a decline in strategic reserves of crude oil,” noting that the United States is still the largest oil producer in the world, with approximately 15 million barrels of oil per day, and that its daily consumption needs, with the increase in its reserves, may exceed 21 million barrels of oil per day, which will inevitably force it to import oil, according to Saleh.
As for the Iraqi economy, Saleh reveals that it has the economic flexibility to adapt to such cycles in the oil asset base, especially its financial repercussions, as oil revenues constitute approximately “90% of the total annual general budget revenues.”
He says that the budget “enjoys high flexibility in planning a hypothetical annual deficit in the general budget in anticipation and hedging against the occurrence of oil asset cycles and fluctuations in oil revenues.”
In the event that oil prices continue to fall, Saleh asserts: “Fiscal policy will take a package of measures to impose high financial discipline on some non-urgent public expenditures, in addition to “borrowing from the domestic financial market at the minimum limits set to cover any temporary deficit in revenues, which is called short-term bridge borrowing.”
Accordingly, and in light of the country’s large foreign currency reserves, Saleh says, adding, “Fiscal policy, in cooperation with monetary policy, will support the financial leverage of the general budget in accordance with the necessary requirements for sustainable development and economic stability.”[/size]
[size=45]In contrast, Professor of International Economics, Nawar Al-Saadi, points out that the Iraqi economy relies heavily on oil revenues, as the oil sector accounts for about 90% of government revenues and 95% of exports.
This over-reliance, according to Al-Saadi, “makes Iraq vulnerable to fluctuations in global oil prices, as is the case now with oil prices falling below $70 per barrel,” considering that this decline leads to “major financial challenges, especially since Iraq’s 2024 budget was set based on an oil price of around $70 per barrel, and therefore any decline in prices creates a financial gap that could significantly impact government spending.”
According to Al-Saadi, the operating budget, which includes spending on services and goods, may be “the most affected as a result of the decline in oil revenues in light of this situation,” expecting that “the government will face delays or cancellations of some important investment projects, which could lead to a slowdown in economic development.”
“Paying salaries to public sector employees is a top priority for the Iraqi government, as social stability is a crucial factor at this stage. However, continued reliance on oil to pay salaries cannot continue forever without reconsidering the revenue structure,” he stressed.
“Therefore, Iraq urgently needs to diversify its economy and reduce its dependence on oil as a major source of revenue,” he continued, indicating that “this can be achieved by strengthening non-oil sectors such as agriculture, industry, tourism, and transportation, in addition to improving the tax system and reducing tax evasion, which represents significant losses in government revenues.”
Al-Saadi considered that such structural reforms could “contribute to enhancing the stability of the Iraqi economy and reducing its exposure to fluctuations in the global oil market.” He believed
that fluctuations in oil prices are “a long-term problem, and financial reserves alone cannot be relied upon to solve this problem,” believing that Iraq needs “a sustainable strategy to diversify its sources of income and achieve a balance between oil and non-oil revenues to ensure its economic stability in the future.”[/size]
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