Iraq considers ‘wage stability fund’ as cash crisis worsens

The Iraqi government is considering creating a fund to ensure civil servant salaries can be paid as the country plunges deeper into a cash crisis.

The crisis was caused by a sharp fall in oil exports due to the Iran war and effective closure of the Strait of Hormuz, through which most of Iraq’s crude supplies to global markets pass.

Oil sales account for the bulk of Iraq’s income and the decline in crude exports over the past two months has boosted its public debt and depressed foreign assets.

Lawmaker Uday Awad Al-Tamimi said he had presented a proposal to parliament for the establishment of a “wage stability fund”, according to the official daily Al-Sabah.

“This fund will be used in emergencies to ensure timely disbursement of salaries. It can be funded through oil revenues and investment income,” he said.

An adviser to caretaker prime minister Mohammed Al-Sudani said this week that Iraq’s monthly public revenues, including oil exports, fell to below ID4 trillion ($3 billion), while spending on wages and government operations exceeds ID8 trillion.

“Iraq’s finances are passing through a sensitive stage due to the large decline in oil revenues,” Mudhar Saleh, Al-Sudani’s economic adviser, said in local press comments.

Before the regional conflict, Iraq forecast revenues at around ID710 trillion during the 2024-28 national development plan.

That plan was based on oil production of more than 4 million barrels per day, above the country’s current output of about 1.3 million bpd.

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Ahmed Tabaqchali, chief strategist of the AFC Iraq Fund, an equity investor, said last month that Iraq’s situation is precarious because of “massive” imbalances and the state’s oversized economic role, funded by volatile oil export revenues.

“The conflict is a negative, but things are not so dire,” Tabaqchali said. “We have foreign reserves that will last us 12 months at 2025-level imports.”

Iraq analyst Nabil Al-Marsoumi, economics professor at Basra University, said this week that the crisis had boosted Iraq’s domestic debt to an all-time high around ID96 trillion.

Central bank reserves plunged by about ID3 trillion in two weeks during April as it used funds to offset the fall in crude sales, said Al-Marsoomi.