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Protecting migrant workers in the Gulf

Protecting migrant workers in the Gulf

An Organisation for Economic Co-operation and Development (OECD) article advises the world about Protecting migrant workers in the Gulf: don’t build back better over a poor foundation

By Vani Saraswathi, Editor-at-Large and Director of Projects, Migrant-Rights.Org

The Gulf Co-operation Council (GCC) states need to completely revamp past policies, and not merely attempt to bridge gaps or provide a salve to deep wounds.

As of February 2020, millions of migrants –– primarily from South and Southeast Asia and increasingly from East African countries –– were holding up Gulf economies, working in sectors and for wages unappealing to the more affluent citizens. In countries with per capita GDP of US$62,000 or more, minimum wages ranged as low as US$200 per month.

Men were packed into portacabins and decrepit buildings, six to a room if lucky, hidden behind screens of dust and grime, away from the smart buildings they built and shiny glasses they cleaned. The women were trapped 24/7 in homes that are their workplaces, every movement monitored. It is accepted and normalised without question that these men and women will leave behind their families in the hopes of building a better future for themselves. That they may live all their productive life in a strange country, excluded from social security benefits and denied all rights of belonging, is seen as a small price to pay for the supposed fiscal benefits. The fact that the price is too steep is rarely discussed.

“Why did able-bodied, productive individuals struggle for food and shelter in some of the richest countries in the world?” #DevMattersTweet

Then came March, and a worldwide upheaval as the COVID-19 pandemic struck nations indiscriminately. The official response across the board ranged from well-meaning but knee-jerk, to discriminatory and short-sighted. Some of the strictest lockdowns were implemented in the most congested areas of Gulf cities, where migrants live. However, their labour was considered essential, as the process of nation-building could not be paused. Attempts to decongest were hopeful at best, but the majority continued to live in cramped quarters, were bussed into construction sites, and remained vulnerable to this new infection, as they had been to other infections and health perils.

The women, hundreds of thousands employed as domestic workers, have been invisible at the best of times because their ability to leave home and enjoy an off day or free time has always been at the discretion of their employers. The pandemic guidelines prevented even this thin leeway, with some countries explicitly prohibiting domestic workers from socialising, even when their employers were allowed to. Domestic workers, like a lot of other poorly-paid and badly-treated workers, were considered essential workers. With entire families working and studying from home, their workload increased exponentially. They were also exposed to strong chemical cleaning agents without proper protective gear. While their services were essential, even critical, the individual was considered dispensable and replaceable.

Force majeure rules allowed companies to reduce pay, terminate workers, or put them on leave without pay. Measures were introduced to ensure business continuity even if these measures infringed on workers’ rights. The lack of civil society and trade unions and inability to negotiate collectively –– all disempowering conditions that preceded the pandemic –– meant workers’ voices and representation were limited and muted. No mechanisms were established to challenge the unfair implementation of the measures. Access to justice was riddled with even more problems than before, as wage theft and other labour abuses from the pre-COVID era were yet to be resolved. This post is not even attempting to explore the vulnerabilities and exclusion of undocumented workers –– many of whom are forced into irregularity by the sponsorship or Kafala system.

“When a population has been dehumanised and othered for so long –– as being temporary, their labour merely transactional –– a pandemic will not magically correct decades of poor policies.” #DevMattersTweet

In the plethora of webinars that consumed the early months of the pandemic, human rights advocates and activists repeatedly spoke of the lessons being learnt, the new normal that awaited us at the end of the dark tunnel, with ‘building back better’ punctuating every discourse. What they failed to recognise is that when a population has been dehumanised and othered for so long –– as being temporary, their labour merely transactional –– a pandemic will not magically correct decades of poor policies.

In fact, we saw the opposite, with migrant workers being blamed for spreading infections, because of their living conditions over which they had no control over. Ten months into the pandemic, it is almost back to business as usual, with malls, offices, schools and even tourism, opening up in stages. Vaccination drives have begun, with a promise to include migrants in all of the Gulf Co-operation Council countries. But the most marginalised are still housed in deplorable conditions, their temporariness being reinforced. And the first sector that re-opened for recruitment was domestic work bringing in more women from impoverished countries reeling from the impact of the pandemic.  

If there is one takeaway for human rights advocates it is that a socio-economic environment devastated by the pandemic is not fertile ground for righteous policies. If anything, origin and destination countries may go lax on due diligence over corporations in the name of business continuity and impose tighter controls over migrants under the pretext of protection.

“The last year has seen an increase in wage theft, and there is an urgent need for transnational mechanisms to deal with this.”#DevMattersTweet

There are key questions we need to ask ourselves and the governments:

  • Why did able-bodied, productive individuals struggle for food and shelter in some of the richest countries in the world? What combination of policies and prejudices leads to this situation?
  • With so little public investment made in social welfare, the dependence on live-in domestic workers is only likely to increase. How do we ensure recognition of domestic work as work, and domestic workers as workers, formalising their status in the labour market?
  • How do we then break the monopoly of live-in domestic work that is inherently exploitative?
  • The ghettoisation of migrant labour is both the root cause and the result of discrimination. In many Gulf Co-operation Council states, migrants constitute the majority of the population and their needs are deliberately neglected in urban planning.
  • The last year has seen an increase in wage theft, and there is an urgent need for transnational mechanisms to deal with this.  

In the coming years, climate change, population imbalances and economic distress will increase migrants’ vulnerabilities, and solutions cannot be rooted in the current environment of inequity and discrimination.

Read more OECD’s articles :

Boosting the Privatisation Process in Algeria

Boosting the Privatisation Process in Algeria

Conditions for boosting the privatisation process via the Algiers Stock Exchange are reviewed by University professor and international expert, Dr Abderrahmane MEBTOUL.

The aims of the privatisation, whether partial or total of the Algerian economy do not come to be questioned. The process is a must, however, it needs to be addressed as a matter of urgency. Proposals of strategies are made, notably through my experience as Chairman of the National Council of Privatizations between 1996/1999 complemented by numerous tours in the USA, helping to formulate the conditions for the success of the privatisation process via the Algiers Stock Exchange, to imply clarity in the objectives and means of implementation.

Boosting the Privatisation Process in Algeria
The Algerian Stock market in Algeria. (Photo by Monique Jaques/Corbis via Getty Images)
The urgency of a strategic vision

At a time of the coronavirus pandemic and the world going through new socio-economic changes in technological and organisational models including shock waves that according to the IMF, the World Bank, and the OECD, global growth will not be felt before the end of 2021. Furthermore, subject to the control of the epidemic, all domestic companies using the State’s handouts for their survival and all of the state-owned enterprises suffer from a structural deficit. Indebted to banks, some whose production techniques, are obsolete and do not meet new technologies and international standards, it is mentioned in this particular context to address the large budget deficit. The observation is the lack of dynamism of the public sector, the consolidation supported by the public treasury having far exceeded 100 billion dollars at constant prices between 2000/2020. The cost of the numerous restructurings between 1980/1999 and the ensuing remediation period of 2000/2020, resulted in more than 95% of the domestic companies returned to their inception status. Whereas with this, capital-money, it would have been more sensible to create a whole new and performing economic fabric. These are only announcements because, being an eminently political process, any decision on such a sensitive and complicated subject must first have the approval of the Council of Ministers certainly after consultation with the Security Council because it commits national security. Privatisation should not be confused with complementary de-monopolisation, both eminently political, moving towards the disengagement of the State from the economic sphere so that it devotes itself to its role as a strategic regulator in a market economy. Privatisation is a transfer of ownership from existing units to the private sector, and de-monopolisation is about fostering new private investment. The objective of de-monopolisation and privatisation must reinforce the systemic transformation of the transition from an administered economy to a competitive market economy. A legal text is not enough (this is only a means) and becomes a decoy if there are no coherent objectives clearly defined with pragmatism and a return to trust

Privatisation can only be successful if it is part of a coherent and visible global socio-economic policy and if it is accompanied by a competitive universal and sustained dialogue between the social partners. It should be aimed at putting an end to perpetual legal instability. The renovation of the Ministry of Finance through digitisation of all systems of taxation, banks, land and customs duties would surely put an end to the central and local bureaucracy that as a significant constraint of an administered economy would be best be accompanied by the overhaul of the socio-political system. Also, the decentralisation around large four to five regional poles, not deconcentration would help.

Moreover, the impacts of all trade agreements between Algeria and the European Union, Africa and the Arab world, as well as all international ones would be of a win-win type only if Algeria has public or private companies that are competitive in terms of cost/quality. In any case, all of these agreements have domestically economic, social and political implications.

The four conditions for boosting the privatisation process

Are our managers aware that there is a global privatisation market where competition is perennial, and the determining factor is a demand for goodwill and not just supply? The success of this process to prevent certain predators from being interested only in the real estate of these companies and not in the production tool involving five conditions? 

The first condition, its impact on the reduction of the budget deficit where according to the Finance Law of 2021 more than $21.75 billion in 2021, against the 2020 close of $18.60 billion and an overall projected treasury deficit of $28.26 billion, artificially, which is in principle filled by higher production and domestic productivity; to boost non-hydrocarbon exports and contribute to the establishment of a competitive market economy far from any monopoly, whether public or private. 

The State, as a regulator and guarantor of social cohesion, especially at a time of budgetary and tensions domestic and at our borders should enforce the contract between employers and employees so that the logic of profit does not undermine the dignity of workers. Nevertheless, never forget that the most incredible moral devaluation in any society is being unemployed or assisted. The important thing is not to work in the national, international or state-private sector, the critical thing for our children is to find a sustainable job within the framework of social protection.  

The second condition was a good preparation of a company X for privatisation, assuming transparent communication, as some executives and workers had heard the news in the press, which increased social tensions. Transparency is a fundamental condition for the acceptance of both the population and workers in the spirit of reforms linked to profound democratisation of society. The takeover of companies for executives and workers requires the creation of a risk bank to accompany them because they possess the technological, organisational and commercial know-how a hardcore of skills must constitute the basis of any reliable unit.  

The third condition will be to avoid filialisations that were not operating in the past—sticking with bureaucratic power, being the basis for the success of both the partial opening of capital and total privatisation, the wealth in the accounts being often undefining. Lack of an updated land registry poses the problem of the non-existence of reliable title deeds without which no transfer of ownership can be carried out. As there is an urgent need to have transparent real-time accountings of public, private companies, that meet international standards, all measures will be ineffective especially for stock market valuation the actual sale price varies from time to time.  

The fourth condition, time overlap of different institutions between selection, evaluations, tender notices, transfer to the stakeholders, then to the Government for the issuance of the final title of ownership would best be not arduous. It may discourage any takeover because mobile capital is invested only where economic and political obstacles are minimal. In this context, it is imperative that long bureaucratic circuits avoid a clearly defined synchronisation and that the current conflicting legal texts should be reviewed, which can lead to endless conflicts, hence the urgent need for their harmonisation with international law. Empowerment will need to be specified where it is necessary to determine who has it to request the undertaking of a privatisation operation. It is vital to prepare the transaction, to organise the selection of the purchaser, to authorise the conclusion of the transaction, to sign the relevant agreements and finally, to ensure that they are carried out correctly.

The four conditions for boosting the Algiers Stock Exchange 

In lethargy since its inception, the ASE was built up like a stadium without players through administrative injunctions, like all the loss-making state-owned enterprises.  

However, the revitalisation of the stock market implies three conditions

First,  the lifting of environmental constraints gives bureaucratic obstacles that cannot be a reliable purse without competition, avoiding legal instability referring to the rule of law.

Second, a stock exchange must be based on a renovated banking system. However, the Algerian financial system for decades has been the place par excellence for the distribution of the hydrocarbon rent and therefore a considerable challenge of power, and therefore the revitalisation of the stock market necessarily requires the overhaul of the financial system. Indeed, despite the number of private operators, we have a public economy with managed management, all activities whatever their nature feeding on budget flows, i.e. the very essence of financing is linked to the actual or supposed capacity of treasure. It can be considered that the banks in Algeria operate not from local market savings but by the recurrent advances from the Central Bank of Algeria that is refinanced by the public treasury in the form of reorganisation not only for the recent period but having to count the costs of restructuring between 1980/1990. This transformation is not in the scope of the company. However, it moves into the institutional field (distribution of the annuity hydrocarbons), and in this relationship, the Algerian financial system is passive. Bread 90% of these companies its returned to the starting box showing that it is not a question of capital money, real wealth can only assume the transformation of currency stock into capital stock, and there is the whole development problem. 

Thirdly, there can be no stock exchange without the resolution of all deeds circulating shares or bonds. The urgency of the integration of the informal sphere cannot be underestimated. Issuing title deeds is vital as there can be no reliable stock exchange without clear and transparent accounting modelled on international standards by generalising audits and analytical accounting in order to determine the cost centres for shareholders. This raises the problem of adapting a socio-educational system, which does not exist as financial engineering. The balance-of-payments services item with foreign exchange outflows between 2010/2019 is between $9/11 billion per year, in addition to foreign exchange outflows from import goods. There are a few rare exceptions; it turns out that accounts Algerian public and private companies from the most important to the simplest in the State that would not pass the most basic audits due diligence. For example, SONATRACH needs new strategic management like the majority of Algerian companies, with clear accounts in order to determine costs by sections, where we are witnessing the opacity of its management which is limited to delivering consolidated global accounts covering the essentials without distinguishing whether the surplus accumulated is due to exogenous factors, international prices or good internal management. As a primer, we propose partial privatisation of a few profitable national champions to initiate the movement to enable the establishment of a stock market index consisting of volume and quality, acting as incubators of companies eligible for the stock exchange and attracting investors looking for financing and know-how. 

The fourth condition is monetary stability and legal and monetary stability and the resolution of bad debts and debts, with state-owned banks crumbling under the weight of bad debts and the majority of state-owned enterprises in structural deficits, especially for the currency-denominated part involving transparent mechanisms in the event of exchange rate fluctuations. The simultaneous depreciation of the dinar against the Dollar, the main currency of exchange, does not respond to real values because their quotations are inversely proportional, has the essential aim of artificially filling the budget deficit, akin to an indirect tax. Indeed, on October 15, 2020, on the Stock Exchange, the Dollar is quoted at 1.2144 Euro, against 1.16 in June 2020, a depreciation of 5%, allowing a rise in the price of Brent by 5%. In reference to the June 2020 quote, the price of Brent quoted on December 15 at $50 would be $47.5 at constant prices, thus not having experienced a real increase in terms of purchasing power parity against the Euro and thus an increase in the import bill in euros in the same proportions. Thus, the current Government projecting for 2023 about 185 Dinar one Euro and 156 Dinars per Dollar and taking a 50% deviation from the parallel market we will have about 300 Dinars a minimum Euro in 2023 subject to the control of inflation otherwise the gap would be larger. They were compared to more than 200 Dinars in mid-December 2020 with a projection of 240/250 Euros at the end of 2021 in as to open borders and the inevitable increase in interest rates of the banks’ priorities to avoid their bankruptcies. In this case, it is illusory both to attract the savings of emigration via the banks that one wants to install with foreign exchange costs, as to capture the money capital via the informal sphere via Islamic finance. How do you want a trader with this monetary instability to appear on the stock exchange knowing that the value of the dinar will fall by at least 30% if not more in two to three years, depreciating its assets?.

In summary

The partial or total privatisation can be the process, with economic, social and political recompositions of power for a controlled liberalisation in order to avoid the squandering of public assets for the benefit of speculators interested mainly in real estate assets. It involves the transparency of specific objectives, the removal of bureaucratic obstacles, land, banks, the informal sphere, taxation, legal and monetary stability, essential criteria for any national investor.   

ademmebtoul@gmail.com

Energy from North Africa: H2 or HVDC?

Energy from North Africa: H2 or HVDC?

It has, in the recent past, been question of supplying Electricity from North Africa with notably the quickly miscarried project of Desertec. Could there be a revived or rebirth of the same or potentially the inception of the same? Would this explain the long and quiet convalescence of the Algerian president in Germany? In the meantime, kinimod in his WP page, wonders whether Energy from North Africa: h2 or hvdc?

(Image: BarneyElo, Pixabay)

The German energy demand is currently only covered to 17 % from renewable sources, albeit with an increasing tendency of half a percent per year (statista.de).

So 83 % are still missing for a complete decarbonization. The majority of this, namely 71 % of the total requirement, is currently covered by imports (weltenergierat.de). To do this, writes pv-magazine.de, we have to increase our photovoltaic area tenfold and our wind energy generation four times – a goal that many consider unattainable due to the acceptance problems of Germans.

One way out might be to import electricity and hydrogen on a large scale in the future instead of oil and gas. Then the gigantic solar fields would not cover German meadows, but Spanish, North African or Saudi Arabian desert areas, a win-win solution. Another advantage are supposedly the costs: since the capacity factor in Germany is only around 0.1, i.e. a 1 kW system only produces as much electricity in 10 hours as it would produce with one hour of full power, this factor in North Africa is 0.2 or higher (globalsolaratlas.com). For the same annual amount of energy, only half as much solar panel space is required, which is why solar power produced there costs only about half – or less. The countries there would have a slight additional income (which of course would increase the energy price again a little) and we would be rid of some of our energy worries.

There are roughly two paths for this solution:

  • Electrolytically produced hydrogen, that is either liquefied directly or converted to ammonia with atmospheric nitrogen and then liquefied – which requires slightly less complex transport ships. It can also be transported by pipeline.
  • Direct transmission of the solar power, perhaps buffered with storage for the hours after sunset, via HVDC lines.

What about the costs?

Renewable electricity is considerably cheaper in the MENA region (Middle East, North Africa) and southern Europe than here. In Portugal, solar power projects for 1.12 euro cents / kWh were agreed this year. In 2030, solar electricity costs are likely to be well below 1 c / kWh. In Germany, the electricity production costs for solar power are already below 4 c / kWh (solarify.de). In its position paper, the Federal Association of the New Energy Industry expects solar power production costs in Germany to be around 2.5 c / kWh, with storage adding another 1 ± 0.5 c.

Electricity can be transmitted with high voltage direct current (HVDC) lines over thousands of kilometers with little loss. In China there are some very long connections that bring wind power from the west to the industrial zones in the east. Starting in 2027, Singapore will receive a fifth of its electricity from a gigantic Australian solar field via the Suncable project – via a 3700 km long HVDC submarine cable. This electricity is supposed to cost 3.4 UScent / kWh. A storage facility in Australia will then still provide electricity in the evening hours (Forbes).

Generally, a 3000 km line adds 1.5 – 2.5 c / kWh to the electricity price (EIA study).

This means that the transport costs for MENA electricity are higher than the corresponding doubling of the German solar area (in 2030).

The cost of hydrogen consists of the cost of electricity, the cost of the electrolysis, which is mainly determined by the high investment for the electrolysers, and the transport costs.

For 2030 we can estimate electricity costs of 1 c / kWh for the south and 2.5 c / kWh for Germany. Storage costs of 1 c / kWh that may be reasonable are incurred everywhere.

The electrolyser costs in 2030 are given by Prognos as 2 – 8 c / kWh, in the EWI study with 1.5 – 2.4 c / kWh. They should be the same for all manufacturing regions.

According to the EWI study, the transport method is crucial for transport costs. If an existing pipeline can be rededicated and used for hydrogen, as is the case for southern Spain, they are low at around 0.4 c / kWh. However, if a ship has to be used, they rise to around 3 c / kWh because of the liquefaction required for this – or the conversion into ammonia and the subsequent liquefaction and the use of specialized ships.


With a little optimism we will end up with a hydrogen price of around 5 c/kWh for local production, around 4 c/kWh for southern Spain (pipeline transport) and around 6 c/kW for MENA production.

Electricity via HVDC would cost around 3.5 c/kWh, similar to the Sunline project, which roughly corresponds to the price for locally generated electricity.

Facit: Electricity from the south is not cheaper for us than local electricity because the electricity transport eats up the cost advantage. For H2 we can save a small cost advantage with pipeline transport if the pipeline already exists and only needs to be rededicated. In the case of ship transport, however, the hydrogen becomes considerably more expensive.

Since we will need a lot of electricity and also hydrogen for the decarbonisation of the economy, it may be necessary to obtain electricity, hydrogen or both from the south due to competition for land. Here, southern Spain is the cheapest export region, as both electricity and hydrogen transport infrastructure already exist. Electricity from North Africa would best be transported to Europe via HVDC and only converted into hydrogen there, because the transport costs for hydrogen by ship would be higher.

International Day for Tolerance

International Day for Tolerance

The International Day for Tolerance is an annual observance day declared by UNESCO in 1995 to generate public awareness of the dangers of intolerance. It is observed on 16 November.

International Day for Tolerance

“Tolerance is respect, acceptance and appreciation of the rich diversity of our world’s cultures, our forms of expression and ways of being human.” UNESCO’s 1995 Declaration of Principles on Tolerance.

In 1996, the UN General Assembly adopted Resolution 51/95 proclaiming 16 November as International Day for Tolerance.

International Day for Tolerance

This action followed the adoption of a Declaration of Principles on Tolerance by UNESCO’s Member States on 16 November 1995. Among other things, the Declaration affirms that tolerance is neither indulgence nor indifference. It is respect and appreciation of the rich variety of our world’s cultures, our forms of expression and ways of being human. Tolerance recognizes the universal human rights and fundamental freedoms of others. People are naturally diverse; only tolerance can ensure the survival of mixed communities in every region of the globe.

In 1995, to mark the United Nations Year for Tolerance and the 125th anniversary of the birth of Mahatma Gandhi, UNESCO created a prize for the promotion of tolerance and non-violence. The UNESCO-Madanjeet Singh Prize for the Promotion of Tolerance and Non-Violence rewards significant activities in the scientific, artistic, cultural or communication fields aimed at the promotion of a spirit of tolerance and non-violence. The creation of the Prize has been inspired by the ideals of UNESCO’s Constitution that proclaims that “peace, if it is not to fail, must be founded on the intellectual and moral solidarity of mankind”. The prize is awarded every two years on the International Day for Tolerance, 16 November. The Prize may be awarded to institutions, organizations or persons, who have contributed in a particularly meritorious and effective manner to tolerance and non-violence.

MESSAGE FROM THE DIRECTOR-GENERAL

International Day for Tolerance

“At a time when extremism and fanaticism are unleashed too often, at a time when the venom of hatred continues to poison a part of humanity, tolerance has never been more vital a virtue.”

 — Audrey Azoulay, Director-General of UNESCO
on the occasion of the International Day for Tolerance

Download the full message in PDF format
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WHAT DOES UNESCO FOR TOLERANCE

HOW CAN INTOLERANCE BE COUNTERED?

1. Fighting intolerance requires law:

Each Government is responsible for enforcing human rights laws, for banning and punishing hate crimes and discrimination against minorities, whether these are committed by State officials, private organizations or individuals. The State must also ensure equal access to courts, human rights commissioners or ombudsmen, so that people do not take justice into their own hands and resort to violence to settle their disputes.

2. Fighting intolerance requires education:

Laws are necessary but not sufficient for countering intolerance in individual attitudes. Intolerance is very often rooted in ignorance and fear: fear of the unknown, of the other, other cultures, nations, religions. Intolerance is also closely linked to an exaggerated sense of self-worth and pride, whether personal, national or religious. These notions are taught and learned at an early age. Therefore, greater emphasis needs to be placed on educating more and better. Greater efforts need to be made to teach children about tolerance and human rights, about other ways of life. Children should be encouraged at home and in school to be open-minded and curious.

Education is a life-long experience and does not begin or end in school. Endeavours to build tolerance through education will not succeed unless they reach all age groups, and take place everywhere: at home, in schools, in the workplace, in law-enforcement and legal training, and not least in entertainment and on the information highways.

3. Fighting intolerance requires access to information:

Intolerance is most dangerous when it is exploited to fulfil the political and territorial ambitions of an individual or groups of individuals. Hatemongers often begin by identifying the public’s tolerance threshold. They then develop fallacious arguments, lie with statistics and manipulate public opinion with misinformation and prejudice. The most efficient way to limit the influence of hatemongers is to develop policies that generate and promote press freedom and press pluralism, in order to allow the public to differentiate between facts and opinions.

4. Fighting intolerance requires individual awareness:

Intolerance in a society is the sum-total of the intolerance of its individual members. Bigotry, stereotyping, stigmatizing, insults and racial jokes are examples of individual expressions of intolerance to which some people are subjected daily. Intolerance breeds intolerance. It leaves its victims in pursuit of revenge. In order to fight intolerance individuals should become aware of the link between their behavior and the vicious cycle of mistrust and violence in society. Each one of us should begin by asking: am I a tolerant person? Do I stereotype people? Do I reject those who are different from me? Do I blame my problems on ‘them’?

5. Fighting intolerance requires local solutions:

Many people know that tomorrow’s problems will be increasingly global but few realize that solutions to global problems are mainly local, even individual. When confronted with an escalation of intolerance around us, we must not wait for governments and institutions to act alone. We are all part of the solution. We should not feel powerless for we actually posses an enormous capacity to wield power. Nonviolent action is a way of using that power-the power of people. The tools of nonviolent action-putting a group together to confront a problem, to organize a grassroots network, to demonstrate solidarity with victims of intolerance, to discredit hateful propaganda-are available to all those who want to put an end to intolerance, violence and hatred.

International Day for Tolerance

RESOURCES

Iraq’s Dire Fiscal Crisis

Iraq’s Dire Fiscal Crisis

Kirk H. Sowell describes in Carnegie Endowment for International Peace, how a newly appointed government finds it challenging to make ends meet through Iraq’s Dire Fiscal Crisis. In effect, like most oil-exporting countries of the MENA region, Iraq has to come to terms with the changing fundamentals of the world economy as aggravated by the pandemic.

Iraq’s Dire Fiscal Crisis


2 November 2020

Iraq’s Dire Fiscal Crisis

Iraq’s Prime Minister inherited a series of fiscal crises. As his interim government struggles to avert a complete economic collapse, austerity measures may come at the expense of much-needed reforms.

Since taking office, Iraqi Prime Minister Mustafa al-Kadhimi has faced a series of fiscal and security crises amid collapsing public services and protests. The collapse in global oil prices due to the coronavirus pandemic and the Saudi-Russia oil price war caused Iraq to face an internal solvency crisis as early as June. This fiscal crisis has short and long-term implications. In the short-term, Baghdad continuously struggles to pay public sector salaries, which required the state to borrow from the Central Bank over the summer. With low oil revenue, the state’s monthly profits are covering just over 50 percent of its expenses. In the longer-term, Iraq faces a looming macro-fiscal state collapse—potentially within the next year.

The state is struggling to cover its monthly expenses. Over successive governments, the size of the public sector has grown to the point that Iraq needs to spend more than its total revenue on basic payments—public sector salaries, pensions, food aid, and welfare—to keep a majority of Iraq’s population out of destitution. In 2019, oil revenue averaged $6.5 million per month, and with modest non-oil revenues (largely customs, well less than $1 billion per month), this covered operational expenses with a small amount left over for capital spending. Since the recovery of oil prices after the March collapse, Iraq’s monthly oil revenues have averaged just over $3 billion/month, hitting a high of $3.52 billion in August. In testimony before parliament in September, Finance Minister Ali Allawi revealed[1] that with revenues at these levels, the government was still borrowing 3.5 trillion Iraqi Dinars (IQD) — just over $3 billion—from the Central Bank each month.

On October 10, as Iraq’s cash crunch became more acute, Allawi explained that state employee compensation rose from 20 percent of oil revenues in 2005 to 120 percent today. To help the public understand why the government of such an oil-rich country was broke, he explained that a government of this size should have at least $15 to 20 billion in funds to pay monthly expenses on an ongoing basis, but when this government took office, only about $1 billion was available.[2] This is in part due to weak revenues, the result of low oil prices and Iraq’s adherence to OPEC’s limitations on oil exports. In the past, Iraq’s oil exports have reached 3.5 million barrels per day (bpd), yet they decreased to 2.5 million bpd in recent months. Prominent figures, including former oil minister Ibrahim Bahr al-Ulum, have argued in favor of leaving the OPEC agreement unilaterally. Yet Allawi, speaking before Parliament, explained that while he agreed that OPEC’s quota formula was unfair, Iraq needs the OPEC agreement to keep oil prices from collapsing. More recently, according to the Iraq Oil Report, the government has signaled that it may try to thread the needle by increasing exports by 250,000 barrels per day to satisfy critics—an amount above its quota, but still about 750,000 barrels per day below peak production, and thus hopefully too small an increase to incur Saudi retaliation.

Iraq’s monthly oil revenue to collapsed from $6.2 billion in January to just $1.4 billion in April. The figure recovered to $2.9 billion in May and has gradually improved since, but in August was still just $3.5 billion. Since the government only had about $3 billion in expendable reserves in May, it became clear that Iraq could not pay state employees in June. Salaries over the summer were paid as money became available. As late as July 28, the prime minister’s spokesman admitted that employees at the Culture & Antiquities Ministry (apparently the lowest priority), were still waiting to be paid.

The government saw this crisis coming and began preparing the public for austerity. Finance Minister Allawi made multiple public appearancesdescribing Iraq’s situation as dire and arguing for radical reform. In particular, he predicted that the government, while protecting base salaries, would make large cuts to employee benefits and other costs. On June 9, the cabinet followed through when it voted to implement a series of austerity measures, including cutting benefits, cutting unessential spending, and capping income from “double-salary” payments.[3] Kadhimi’s advisor Hisham Daoud described the new policies as “not enough but only a start” toward reform.

Kadhimi, with no electoral base or political base of his own, has faced the fiscal crisis with a weak hand. This became clear when Parliament overwhelmingly rejected the government’s austerity policies on June 10, one day later. Even MPs friendly to the government described the government’s measures as premature, suggesting that they should try to raise revenue through customs first. Parliament eventually passed a borrowing law on June 24 to allow the government to borrow just enough to make basic payments. This law, however, prohibited the government from cutting benefits. Previously, the cabinet had the authority to cut benefits because, unlike salaries set by law, benefits were set by previous cabinet decrees. Thus, Parliament made the long-term problem worse.

In July, protests resurged in Baghdad as a result of the fiscal crisis. The shortage of money caused Iraq’s electricity shortage to worsen dramatically. Outgoing Electricity Minister Luay al-Khatteeb attributed the decline to two factors: lack of maintenance and the suspension of planned electricity projects.

The government has a few possible, but politically difficult, fixes at its disposal. They could cut the subsidy of roughly $1 billion per month to private electricity consumption, which exists because the ministry only collects a fraction of consumer payments. Finance Minister Allawi pointed out that “people don’t pay their electricity bills” and that “95 percent” of consumption costs was absorbed by the state, asserting that “electricity is not a constitutional right.”[4] Yet such an effort will recall former prime minister Haider al-Abadi’s experience trying to extract electricity payments in 2017, which precipitated a strong protest movement. So far, Kadhimi has shown no sign of pushing the issue. His published comments during a cabinet meeting devoted to the electricity issue focused on “reducing bureaucracy” and improving maintenance, sidestepping the fact that maintenance workers have to be paid.

Iraq’s fiscal crisis comes on the heels of the political crisis of the outgoing government, which left the country without a budget for most of 2020. In such cases, Iraqi law allows the government to spend one twelfth of the previous year’s actual spending each month. Since this year’s revenues have been low, it never had the money to spend that much and simply spent what it had on basic payments. In September, the government released a budget for 2020 and the planned deficit was large—well over 100 percent—so as with past budgets much of the deficit will likely not be spent. The total anticipated revenues are 67.4 trillion dinars, or $57 billion, compared with proposed expenditures of 148.6 trillion dinars, or  $125.7 billion. Oil revenue in 2019 was $78.5 billion yet is projected to be just $49.3 billion for 2020. The government withdrew the bill just two days after it arrived in parliament.

In September the government ran out of money, having used up the borrowing authority from the June bill.[5] Given the population’s overwhelming dependence on state salaries, this brought the short-term financial problems to the fore. Furthermore, Parliament refused to authorize the new borrowing authority Allawi sought because the government had not submitted a “reform plan.” Thus in early October the government released a “White Paper” reform plan. The plan draws a broad and long path to reform that does not directly address the immediate crisis, except to the extent that its publication formally satisfies Parliament’s precondition for new borrowing.

An important part of Allawi’s efforts was his advocacy of Iraq accepting an International Monetary Fund “Stand-By Agreement” (SBA) which might be the only way to prevent a fiscal collapse next year. The agreement would also require spending cuts that parliament has already rejected. Allawi stressed that the IMF would not require cuts to programs protecting the poor, but rather to public sector compensation that, in Allawi’s view, Iraq needed to cut anyway.[6]

This set the stage for a new debacle as the government then sent a new borrowing law to Parliament only to condemn it. A member of Parliament on the Finance Committee criticized the figures in the bill as irresponsible.[7] Given the parliament’s role in aggravating the crisis, this was grandstanding. The looming parliamentary elections, due no later than 2022 and possibly earlier, are driving the political theater. Parliament will presumably pass an amended version of the government’s borrowing bill to allow the government to pay salaries. In the meantime, with salaries being paid late, disposable income is squeezed, further damaging an already weak economy. But Iraq could face a much worse scenario in 2021, as the IMF’s updated forecast for Brent oil prices projects $46.70 per barrel. Iraq’s Central Bank, which rescued the government over the summer, relies on a steady flow of dollars from oil revenues and given current prices range from $40 to $45, reserves are gradually declining. According to financial analyst Ahmed al-Tabaqchali, at current oil prices the Central Bank can continue to print money to fund the government “for about eight or nine months.”[8]  

In terms of immediate steps, at a minimum, a devaluation of the Iraqi dinar (long pegged at 1,182 to the dollar) seems likely in 2021. This would relieve some pressure on the Central Bank and make the government’s expenses cheaper (since its income is in dollars), but it would also drive up inflation over time. The bigger threat is that by mid-to-late 2021, the Central Bank will no longer be able to support the government, forcing austerity through non-payment of operational expenses, including salaries.

It is clear that the government needed to adopt a policy of cutting public sector expenses while increasing its capital investment in agriculture and industry and devoting more resources to education and health. Kadhimi’s reform measures in June were too little, too late.  Still, the austerity that Parliament has resisted will be inevitable if oil prices do not rise dramatically in the months to come. A key priority from an international point of view is that the IMF, as a condition for its loans, impose upon Iraq the reforms for which Allawi has been advocating and which parliament has so rejected. It does not seem likely that reform will come to Iraq by any other means.

Kirk H. Sowell is the publisher of the biweekly newsletter Inside Iraqi Politics (www.insideiraqipolitics.com). Follow him on Twitter @uticarisk.

[1] See 2:13:00.

[2] In most of these comments, Allawi gives the figures in Iraqi dinars. I have converted them to dollars. Thus, he said, for example, that the Finance Ministry had 1.3 trillion IQD when he came into office. This is slightly over $1 billion.

[3] When a family received a payment for a deceased breadwinner and receives another government benefit.

[4] Discussion begins around 1:06:00.

[5] Testimony by the finance minister and discussion of the budget starts at 1:38:00.

[6] In the previously cited video from Parliament on September 8, he refers to the IMF briefly around 2:25:00, then again around 2:48:00, and once more near then end of the four-hour video in response to an MP attacking the IMF option.

[7] The reading begins at 00:09:00 and the comments referred to in the text follow.

[8] Author interview conducted on October 28, 2020 via Skype.More on: