The Iraqi government is facing a financial crisis. This financial crisis is exasperating pre-exiting political crises.
Iraq’s finances. Oil revenues cannot cover the salaries and perks of the government’s public sector for much longer. In recent months, Prime Minister Abadi had resorted to covering the shortfall by depleting the reserves of the Central Bank. There is no reliable data for where the reserves stand are at this point. Some say 52 to 59 billion USD. Others put it at 45 billion USD. Abadi’s economic advisors believe that market speculation on the Dinar’s value would kick in when the reserves dwindle down to 35 billion USD, which they judge may happen late next year. Outside analysts predict that the Dinar may lose as much as one third of its value within three months.
The Central Bank’s reserves are also being depleted by its corruption-ridden ‘Dollar Auction’—an issue that we shall revisit in a later post.
The government of Iraq pays out approximately 9.5 billion USD for baseline salaries, another 9.5 billion USD for pensions, and approximately 26 billion USD in ‘perks’, known in Arabic as mukhassassat. Given the current revenue generated from oil sales and other income, Iraq would need to cut back spending by 20 billion USD to keep the government running. Even this steep cutback would not allow room for new government spending on existing and new projects, such as infrastructure works. It can only pay for running costs.
The Abadi government floated plans for a new pay scale for salaries two weeks ago. It also cut back some perks. This move engendered wide and vehement rejection by public sector employees. However, the cuts fall short of the goal of 20 billion USD. The numbers are not in yet, but sources speculate that these cuts may only save about 1.7 billion USD. The government’s handling of its messaging on the issue has been abysmal. It began with a narrative that revolved around reforming and shortening the pay gap between seniority grades. Only two days ago did Abadi, while confronting an angry audience of university professors, tell the nation that the government is essentially broke.
These payroll cuts are coming at a time of widespread popular anger at corruption and the lack of accountability for past financial mismanagement. Once marginal demands, such as annulling the political process and dismemberment of the country, have gained ground in the lexicon of public opinion. There are many issues enervating public wrath, many warranted. One such issue is the oil services agreements concluded by past governments with international oil companies. The political class seems at a loss in trying to counter these narratives. Abadi has instituted reforms that fall short of public expectation. Whatever goodwill he may have earned at the beginning of the reforms process has soured. He is now politically vulnerable.
A political challenge from Iran’s acolytes. An array of political forces, which for the sake of convenience we’ll call ‘the Suleimani camp’ in reference to Iranian General Qasim Suleimani, smell the prospect of a political opportunity to unseat Abadi and substitute him with one of their own. Their opening gambit may have been a letter authored by Abu Mahdi al-Muhandis, Suleimani’s right-hand-man for Iraqi affairs, on October 20 that was purposely leaked to the press. In this letter, Al-Muhandis decries Abadi’s obstructionism as regards the funding and logistical support of the Popular Mobilization Forces (the Shi’a militia), many of which answer to Suleimani. Parliament had assigned approximately 2 billion USD to the PMFs in the 2015 budget, but Abadi slashed it down to 1 billion USD in court. Al-Muhandis claims that they had only received a third of that amount to date. The letter included several subtle digs at Grand Ayotallah Sistani, seemingly alluding to a game changer in how the relationship between Sistani and Iran’s Khamen’i is to be conducted from here on out. A few days later, Al-Muhandis gave a speech (again, purposely leaked to the press) in which he clearly called for targeting the United States.
On Tuesday, word came out of a petition signed by dozens of State of Law coalition MPs that threw down the gauntlet at Abadi’s feet. The authenticity of the letter has been questioned by leading Da’awa Party cadres, but it is undeniable that something is afoot. This may be the beginning of a split in SOL coalition between the respective Abadi and Sulimani camps, the latter of which would include former PM Nouri al-Maliki in its ranks.
Political discontent from Abadi’s Shia allies. The Shia ‘center’ includes non-SOL political and societal actors who have consistently pushed back against the Suleimani camp. The main players are Sistani, Hakim and al-Sadr. They have supported Abadi over the course of the past year. However, many of them are indicating that they are fed up with the Prime Minister.
The most recent rift between them and Abadi centers around the appointment of Emad al-Khirsan to head the Secretariat of the Council of Ministers. This position was promised at the time of the cabinet’s formation to Hakim’s bloc. Hakim had been telling Abadi not to go ahead with al-Khirsan’s appointment for the past three months. But al-Khirsan showed up to work anyway ten days ago. Abadi hadn’t signed his appointment papers, but he was clearly preparing to do so, and al-Khirsan appeared to have Abadi’s blessing. Several forces mounted a public relations campaign against the appointment, citing a variety of reasons, and Abadi was forced to tell al-Khirsan on Thursday that he is not going through with it.
Hakim, al-Sadr and others are furious over Abadi’s lack of interest in consulting with them. Similar gripe had been heard from Da’awa Party stalwarts such as Najem and al-Zuheiri over the past few weeks. However, Hakim, al-Sadr et al don’t seem to agree on who may replace him.
The war against the caliphate. The momentum gained in Beiji and in the Hamrin Mountains was lost in the public mind with the jihadist feint of putting Samara back in play over the last four days. This reflects poorly on the PMFs, further compelling them to scapegoat Abadi and the Americans.
What comes next? Oddly enough, the financial crisis functions as Abadi’s political seat belt. No one wants to take on his job if it involves having to manage the crisis. However, I find it very doubtful that Abadi can do the task either with the team he has at hand. Such considerations may only delay the gambit to unseat him by a month or two. Meanwhile, popular discontent is likely to mount.
American interests mandate that Abadi stays in charge. His removal would indicate a loss of face for the Obama administration vis-à-vis Iran, which is exactly what Suleimani is playing at in my opinion. But it doesn’t seem as if Abadi’s government has been fitted with an American airbag in anticipation of the financial crash. McGurk is being promoted right at the moment when multiple political and financial crises converge in Baghdad. One of his more recent tasks as Obama’s “Mr. Iraq”—many of which he had executed admirably—was to keep a lid on things. Yet I wonder how much of a heads up Washington got from him and Amb. Jones about Abadi’s impending tribulations.