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UPDATE 1-Iraqi parliament approves emergency bill offsetting shrinking revenue

(Adds Kurdistan regional government statement)

BAGHDAD, Nov 12 (Reuters) - Iraqi lawmakers on Thursday passed an emergency spending bill to allow the cash-strapped government to borrow abroad as the economy reels from low oil prices, but approved less than a third of the amount originally requested.

The finance ministry will be allowed to borrow $10.1 billion from international markets and local banks, much less than the $35 billion originally sought by the government.

Due to infighting, parliament has failed to approve a budget for this year, and the bill will only secure enough funds to get the government to the end of the year.

Iraq relies on oil to fund 97% of its state budget, and its commitment to an OPEC+ deal on reducing oil output has squeezed the finances of a government struggling to tackle the fallout from years of war and rampant corruption.

The secured funds will mainly cover public servants’ salaries, food imports and crucial projects, according to a copy of the law seen by Reuters.

Differences emerged during Thursday’s vote after Kurdish lawmakers objected to an article binding the Kurdish Regional Government (KRG) to hand over revenues generated from regional oil exports as a condition for receiving its monthly share from the new funding plan.

The KRG is at odds with the national government in Baghdad about the allocation of its oil revenue, and in a statement expressed its “concern and objection” to the linkage being made in the funding law. It said a top-level meeting would be held to decide an official position.

Most of the Kurdish lawmakers walked out of the voting session, lawmakers said.

The World Bank estimates Iraq’s economy will shrink 9.7% in 2020 due to lower oil prices and the coronavirus pandemic, following growth of 4.4% in 2019. (Reporting by Ahmed Rasheed; Editing by Hugh Lawson and Kevin Liffey)