Iraqi Government Affirms Tools Available to Ensure Salary Payments Continuity

The Prime Minister's advisor, Mazhar Mohammad Saleh, affirmed that the government gives utmost priority to sovereign spending, primarily including the salaries of employees and retirees, as well as social welfare allocations. Saleh indicated that the government's plan would focus on re-prioritizing expenditures to ensure the continuity of salary payments, emphasizing that the state possesses sufficient tools to guarantee their disbursement even amidst temporary financial pressures. Saleh further stated that the government operates on the principle of granting absolute priority to sovereign spending, which encompasses the salaries of employees, retirees, and social welfare. Therefore, its plan is expected to concentrate on reorganizing spending priorities, postponing certain non-essential expenditures, and managing available liquidity to ensure the sustained payment of salaries even under temporary financial strain. He clarified that the current issue primarily lies in the timing of revenue inflows rather than a permanent shortage of resources, making liquidity management a crucial factor in overcoming the current phase. He explained that the Central Bank plays a supportive role in maintaining monetary and financial stability by managing liquidity in the banking sector and providing a suitable environment for financing government needs through available legal instruments, without compromising its independence or monetary policy objectives. He noted that this might involve facilitating the subscription of treasury bills and bonds by banks, enhancing the efficiency of liquidity management within the banking system, thereby ensuring the continued financing of essential government spending, while adhering to the Central Bank Law and resorting to direct monetary financing only within exceptional legal frameworks, if any exist. Saleh elaborated that the government would simultaneously rely on a mix of financial tools to cover its funding needs. This includes maximizing non-oil revenues, utilizing available treasury liquidity, and domestic borrowing through treasury bonds and bills, in addition to the possibility of resorting to concessional external borrowing if circumstances require. He highlighted that the resumption of normal oil revenue flows remains the most critical factor in restoring financial balance and enhancing financial stability. He further indicated that these measures, if managed within recognized frameworks, are not expected to have a direct impact on the Central Bank's foreign reserves. This is because these reserves are primarily allocated to support exchange rate stability, meet external obligations, and boost confidence in the national economy, and are not typically used to finance the government's current expenditures. He added that if circumstances necessitate exceptional measures, they would be implemented in a manner that preserves safe reserve levels and does not jeopardize monetary stability. The Prime Minister's advisor continued, stating that the duration of the current challenge depends on the speed of oil revenue recovery, oil price levels, regional and international developments, as well as the efficiency of public financial management. He pointed out that if the crisis remains within the scope of a temporary liquidity shortage, the remedial measures are also likely to be temporary. Saleh affirmed that these measures are generally not considered direct lending from the Central Bank to the government, but rather indirect financing through government debt instruments subscribed by banks or via financial market mechanisms. He explained that the repayment of these obligations occurs upon maturity from public revenues, particularly oil revenues after their normal flow resumes, or from the general budget resources, ensuring that temporary financing does not become a permanent financial burden. He clarified that no official figures have been announced yet regarding the volume of borrowing the government might resort to, as the required funding volume will be determined according to the duration of the liquidity crisis and the level of revenues generated in the upcoming period. The Prime Minister's advisor added that from an economic perspective, borrowing is preferably limited to covering temporary liquidity gaps, while maintaining safe levels of public debt and avoiding expansion in borrowing beyond what financial necessities dictate. Saleh continued his explanation by stating that if any sustained escalation in the Strait of Hormuz leads to a disruption or sustained reduction in Iraqi oil exports, it would naturally have a negative impact on revenue flows to the treasury, increasing pressure on public liquidity. Nevertheless, this scenario does not necessarily mean a halt in salary payments, as the state possesses tools to deal with temporary crises, including managing financial reserves, re-prioritizing spending, short-term borrowing, and activating domestic debt instruments. However, the challenges will intensify the longer the disturbances last, which makes diversifying oil export outlets through regional borders and adopting a policy of diversifying export routes via oil pipelines a strategic priority to enhance economic security and reduce risks associated with reliance on a single export outlet. He indicated that the remedies are not limited to managing the liquidity crisis and temporary financing but extend to adopting reform visions aimed at extinguishing domestic public debt within an integrated development path. This vision relies on employing debt instruments and financial and monetary policies in a way that supports productive investment and increases the productivity of the real sector, especially the industrial, agricultural, services, and infrastructure sectors. This contributes to creating new job opportunities, expanding the tax base, and maximizing non-oil revenues. Through this approach, extinguishing public debt becomes a result of economic growth and increased GDP and public revenues, rather than merely a financial repayment process, thereby achieving in a single planning trajectory the goals of financial sustainability, increased production, maximized employment levels, and strengthening the national economy's resilience and reducing its dependence on oil revenues. He pointed out that, according to the strategic dimensions of the government program and the re-description of the national economy's productive building mechanisms, domestic public debt is not viewed merely as a financial burden, but as a tool for economic development when employed to finance productive activities and projects with added value. This contributes to raising economic growth rates, maximizing employment levels, expanding productive capacity, and increasing public revenues, thereby providing the necessary resources to gradually extinguish public debt within a sustainable development path. Thus, domestic debt transforms from a tool for financing deficits into a lever for investment and production, within the framework of an integrated economic policy aimed at promoting economic diversification, achieving financial sustainability, and enhancing the efficiency of the national economy. Saleh concluded his statements by saying that this vision aligns with the literature of developmental economic policy, which has been adopted by many successful international experiences in transitioning from managing financial deficits to building a productive and sustainable economy, through utilizing public financing tools to stimulate real growth, rather than exclusively funding current expenditures.