Iraq's finance minister visits Saudi Arabia to seek Gulf funds to stave off fiscal collapse

Iraq's finance minister visits Saudi Arabia to seek Gulf funds to stave off fiscal collapse
Ali Allawi met with his Saudi counterpart in Riyadh on Friday, seeking emergency funds from the GCC to stave off an impending financial crisis in the country.
3 min read
The Iraqi finance minister met his Saudi counterpart in Riyadh [Twitter]

Iraq's new finance minister was in Saudi Arabia on Saturday seeking emergency funds to stave off an impending financial crisis brought on by collapsing oil prices. 

In his first trip abroad since becoming minister, Ali Allawi met the Saudi finance, energy and foreign ministers in Riyadh on Friday, Iraqi state media reported.

"Saudi Arabia agreed to lend Iraq $3 billion to cover the budget deficit and secure the salaries of employees and retirees, as well as providing energy at very low prices instead of high price import from Iran," Iraqi political analyst, Zeidon Al-Kinani said on Twitter. 

"Riyadh is desperate for a strategic ally like Iraq for whatever costs. And Baghdad could benefit from an economic boost, and feed the anti-Iran discourse on the street under the justification of building strategic partnerships with other Arab partners," Al-Kinani added on the social media platform.

In an interview with state television before his departure, Allawi said his priority would be to secure funds to plug gaps in Iraq's budget. 

"Iraq is in need of immediate monetary support so that the government can fulfil its obligations towards its employees," he said.

Iraq is facing a liquidity crisis following the collapse of crude oil prices from more than $50 per barrel last year to around $20 per barrel in recent months.

That has prompted fears about the government's ability to pay salaries to some four million state workers, as well as pensions and welfare to another four million people. 

The government budgeted almost $4 billion a month for public salaries in 2020, but it only earned $1.4 billion in April by selling crude oil - virtually the only way authorities can fund official expenditures. 

Prime Minister Mustafa Kadhemi last week pledged that May salaries would be paid as usual, with officials telling AFP they would likely have to resort to internal borrowing. 

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Ahead of Allawi's trip, an Iraqi government source told AFP the minister would also travel to Kuwait and the United Arab Emirates "to gather financial support for Iraq".

Kadhemi also likely to visit the Gulf, the official said.

The prime minister took office in early May after months of political deadlock and is known to be a personal friend of Saudi Crown Prince Mohammed bin Salman. 

His appointment was welcomed by the United States, which swiftly granted Iraq a 120-day extension on a waiver allowing it to import Iranian gas to feed its worn-out power grid.

Washington has insisted that Iraq wean off Iranian energy and partner with American or Gulf companies to stand up its overstretched electricity sector.

Last year, Iraq signed a landmark deal with the six-nation Gulf Cooperation Council for a transmission line to import 500 megawatts of electricity to its grid this year.

The 300-kilometre (200-mile) line would run from Kuwait to Iraq's southern port of Faw and be financed by the GCC - Kuwait, Saudi Arabia, the UAE, Qatar, Oman and Bahrain -  according to the electricity ministry.

A second Iraqi official told AFP that the previous cabinet had considered asking Kuwait to accept a delay in the monthly reparations payments it makes to compensate for Saddam Hussein's invasion of the Gulf State in 1991. 

"We need as much liquidity as we can get for salaries," that official said. 

Agencies contributed to this report.

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