Mudher Mohammed Saleh, advisor to the Prime Minister, confirmed today, Thursday, that the government relies on giving absolute priority to sovereign expenditures, foremost among them salaries for employees and retirees and social welfare. The plan will focus on rearranging expenditure priorities to ensure the continued payment of salaries, noting that the state has tools to ensure salary payments even amidst ongoing temporary financial pressures.
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Saleh stated in a press statement followed by the news agency that "the government relies on the principle of giving absolute priority to sovereign expenditures, particularly the salaries of employees and retirees and social welfare. Therefore, it is expected that the plan will focus on rearranging spending priorities, postponing some unnecessary expenses, and managing available liquidity to ensure the continuity of salary payments even under temporary financial pressures." He explained that "the current problem primarily lies in the timing of revenue inflows rather than a permanent shortage of resources, which makes liquidity management a critical factor in overcoming the current phase."
He added that "the Central Bank of Iraq plays a supportive role in maintaining monetary and financial stability by managing liquidity in the banking sector and providing a suitable environment for financing the government’s needs through available legal instruments, without compromising its independence or the objectives of monetary policy." He pointed out that "this may include facilitating subscription to treasury bills and bonds by banks, and enhancing the efficiency of liquidity management in the banking system, ensuring continued financing of necessary government expenditure while adhering to the provisions of the Central Bank Law and not resorting to direct cash financing except within exceptional legal frameworks, if available."
He clarified that "the government will rely simultaneously on a mix of financial tools to cover its financing needs, which includes maximizing non-oil revenues, utilizing available treasury liquidity, and domestic borrowing through bonds and treasury bills, as well as the possibility of resorting to concessional external borrowing if circumstances require." He noted that "the resumption of natural inflows of oil revenues remains the most important factor in restoring financial balance and enhancing financial stability."
He indicated that "it is not expected that these measures, if managed within the known frameworks, will have a direct impact on the foreign reserves of the Central Bank, as this reserve is primarily dedicated to supporting the stability of the exchange rate, fulfilling external obligations, and enhancing confidence in the national economy, and is not typically used to finance current government expenditures. However, if circumstances require exceptional measures, they will be implemented while maintaining safe limits for reserves and not threatening monetary stability."
He continued that "the duration of the crisis depends on the speed of restoring oil revenue inflows, oil price levels, regional and international developments, as well as the efficiency of public financial management," noting that "if the crisis remains within the scope of a temporary liquidity shortfall, it is likely that the remedial measures will also be temporary."
Saleh emphasized that "these measures do not primarily constitute direct lending from the Central Bank to the government, but rather represent indirect financing through government debt instruments that banks subscribe to, or through financial market mechanisms," pointing out that "the repayment of these obligations occurs when they are due from public revenues, especially oil revenues after their return to normal flow, or from general budget resources, ensuring that temporary financing does not become a permanent financial burden."
He stated that "there are no official figures announced yet determining the size of borrowing that the government may resort to, as the required financing size will be determined based on the duration of the liquidity crisis and the level of revenues realized in the upcoming period."
He continued that "from an economic perspective, it is preferable to limit borrowing to cover the temporary liquidity gap while maintaining safe levels of public debt, and not to expand borrowing except to the extent dictated by financial necessities."
He added, "However, if any ongoing escalation in the Strait of Hormuz leads to the disruption or sustainable decrease of Iraqi oil exports, it is natural that this will negatively impact revenue flow to the treasury, increasing pressures on public liquidity. Nevertheless, this scenario does not necessarily mean stopping salary payments, as the state has tools to deal with temporary crises, including managing financial reserves, rearranging spending priorities, short-term borrowing, and activating internal debt instruments. However, challenges will increase the longer the disturbances last, making the diversification of oil export outlets through regional borders and adopting an export route diversification policy via pipelines a strategic priority to enhance economic security and reduce the risks associated with reliance on a single export outlet."
He noted that "the solutions are not limited to managing the liquidity crisis and temporary financing, but extend to adopting reform concepts aimed at extinguishing internal public debt within a comprehensive development trajectory. This vision relies on utilizing debt instruments and financial and monetary policies that support productive investment, increase the productivity of the real sector, particularly in industry, agriculture, services, and infrastructure, contributing to the creation of new job opportunities, expanding the tax base, and maximizing non-oil revenues. In this approach, extinguishing public debt becomes a result of economic growth and increased GDP and public revenues, rather than just a financial repayment process, achieving in a single planning trajectory the objectives of financial sustainability, increased production, maximizing employment levels, and strengthening the resilience of the national economy while reducing dependence on oil revenues."