GP Insights # 352, 9 May 2020
On 6 May, after six months of political deadlock, Iraq's Parliament has a new PM and also a new cabinet led by Prime Minister Mustafa al-Kadhimi. In forming the cabinet, there were rejections of several candidates and parties squabbling over cabinet seats in private deals. Of the proposed 22-seat cabinet, 15 ministers were approved; seven ministries including the key foreign affairs and oil portfolios, remain empty.
Al-Kadhimi, a former journalist and Iraq's intelligence chief, is considered a pragmatic with good relations across the Iraqi political spectrum. Asserting that his government would be "solution-based" and "not a crisis government", al-Khamidi promised early elections and scorned the use of Iraq as a battleground by foreign nations and pledged to solve the economic crisis through oil-export negotiations and expense rationalization.
What is the background?
In October 2019, strong anti-government protests had swept across Iraq. Widespread frustration due to unemployment, corruption, political sclerosis, political cronyism, bad fiscal management and poor public services were the rallying issues in the protest movement that sought an overturn of the elite government in power.
The government then led by Prime Minister Adel Abdul Mahdi responded by coming down heavily upon the protestors and killing hundreds that ultimately culminated in his forced resignation. However, until Allawi's appointment in February 2020, Mahdi maintained a caretaker government.
Amidst this protracted political wrangling and turmoil, the twin crises of the pandemic and plummeting oil prices have worsened Iraq's economy and society. Currently, Iraq is facing a declining economy with no quick fixes or easy patches to dwindle the widening schism between Iraq's financing needs, shrinking oil revenues and mass youth unemployment issues.
What does it mean?
The task before the new government led by al-Khadimi's government is substantial.
First, the new prime minister will have to negotiate and achieve an agreement upon all portfolios. To secure a vote of confidence, Khadimi traded 90 per cent of his freedom to choose his cabinet; the main political parties picked his cabinet ministers in an informal power-sharing system of apportionment.
Second, al-Khadimi will have to manoeuvre the dangerous criticism, which only allows Shia parties to pick ministers. Third, the country faces a budget gap with a high fiscal deficit. World Bank says Iraq could experience a financing gap of 54 billion dollars in 2020. The new government will have to present a balanced budget addressing this fiscal deficit. In addition, the plunging oil prices have further devastated Iraq's economy. A minimum oil price of 58 US dollar /barrel is required for Iraq to meet its domestic pension and wage obligations alone.
Finally, the protests led by the unemployed youth, that dethroned Mahdi and brought the government to its knees, endures as figurative aspic. The pandemic may have put the large gatherings by demonstrators on hold but the protests will revive if the demands of the people remain unresolved.