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Will COVID-19 Mark the Endgame for Iraq's Muhasasa Ta'ifia?
Iraq's sectarian-based political system has depended on oil rents since 2003 to ensure its legitimacy and buy loyalty. Already running out of steam and challenged by protesters, it faces a major new test due to the drop in oil prices caused by the COVID-19 crisis. Unable to maintain its expensive patronage system, and in the absence of any real political reform, the days of the Muhasasa Ta'ifia may be running out.
Iraqi university students carry the Iraqi national flag during a protest in central Baghdad, February 2020. © EPA-EFE/MURTAJA LATEEF
CIO of Asia Frontier Capital Iraq Fund & Adjunct Assistant Professor at AUIS
COVID-19: Impact on MENA Countries
#COVID-19 #Economy #FutureMENA #Iraq #Political Parties
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*This piece is published in collaboration with Chatham House. It is part of a series which addresses the future of governance and security in the Middle East and North Africa, and their impact on the role of the state in the region.
The state's control of oil rents underpinned Iraq's post-2003 political order, characterized by Muhasasa Ta'ifia or sectarian apportionment. It enabled the political order's continuity and apparent stability through multiple crises, including the 2008 financial crisis and the war with ISIS. However, the crash in oil rents, brought about by COVID-19's disruption of the world economy, exposes the structural inconsistencies and inherent contradictions of the Muhasasa Ta'ifia system and its singular dependence on a volatile resource. The political order's response to the current crisis – by focusing on maintaining public expenditures at the expense of investment spending – mirrors its responses to previous crises. However, this time around, its current institutional decay is extremely advanced, and oil dynamics have fundamentally changed. So, will the COVID-19 mark the endgame of the Muhasasa system?
Anatomy of the Muhasasa: Bloating the public sector
The Muhasasa Ta'ifia involves the control of state resources by an inclusive government of all ethno-sectarian parties, in proportion to the seats won by each party in parliamentary elections. This leads to fierce competition for power and influence through developing party patronage networks. Public sector employment became a primary means for building such networks because of its dominance in the economy and its role as the largest formal employer.
This, enabled by rising oil rents, led to a dramatic expansion in the number of public sector employees, whose expenditures increased almost fivefold from 2005 to an estimated $50bn in 2020 (red line in Figure 1).
Figure 1 - Dotted lines are projection ranges, expenditure trend line is in lighter colour (for details see sources section below)
These expenditures increased consistently, pausing only when oil revenues declined during crises, but resuming their upward trend as the crisis passed. In the process, they consumed an ever-increasing percentage share of oil revenues – a share that spiked successively and unsustainably higher during each crisis as oil revenues plunged (red arrows in Figure 2).
Figure 2 - Dotted lines are projection ranges, expenditure percentage trendline is in lighter colour (for details see sources section below)
Such expenditure by successive governments came at the expense of spending on much needed public infrastructure (destroyed by over four decades of conflict) and of building the country's capital stock – both essential foundations of sustainable economic growth. This misspending, the state's weakness in enforcing the rule of law, its stifling bureaucracy, and its central role in the non-oil economy through the control of oil rents – itself another vehicle for the extension of party patronage networks – have all inhibited the formal private sector's growth and its ability to generate good jobs. Accordingly, large parts of the country's private sector development took place in the informal economy, which increasingly became the source of livelihood for the poor and marginalized segments of society who currently account for 20.5% (2017/2018) of the population.
The country's demographic pressures (Figure 3) generate ever-growing cohorts of job seekers but neither the bloated public sector nor the stunted formal private sector can absorb these rising number of young job seekers, which leaves most of them dependent on the informal economy for their livelihood and its ensuing constraints on their social mobility and financial security. Within the official unemployment figures of 9.8%, youth unemployment, for those aged 15-24, stands at 16.5%, while surveys reveal only 6% of the country's youth are satisfied with government efforts to improve employment opportunities. In such an economy, demonstrations demanding jobs and reform become inevitable, and as expected the first wave of the October 2019 demonstrations was composed of young men and women seeking jobs and was ignited by the government's crackdown on the informal sector earlier in the summer.
Figure 3 - Source: IMF Iraq Country Report 19/248
COVID-19's impact on Iraq's Muhasasa system
The disruptions of COVID-19 to the global economy, and its impact on lowering oil prices, present a new type of challenge to Iraq and to the outlook of the Muhasasa Ta'ifia's governance model which has grown dependent on public job creation as a way to acquire legitimacy.
Forecasting the impact of COVID-19 crisis on Iraq is fraught with uncertainty, yet it is possible to sketch broad trends. The nature of the virus precludes a return to full normality for the world economy for the foreseeable future. Even though global lockdowns are expected to ease over the next few months, world demand for oil is expected to remain low until at least the end of 2020 (Figure 4). Under this scenario oil prices, as measured by Brent crude, are projected to average between $30-40 per barrel over the next 12 months, and between $45-55 per barrel over the succeeding 12 months.
Figure 4 - Source: International Energy Agency (IEA)
As in the previous crises of 2008 and 2014, the governing elite will aim to maintain expenditures on salaries, pensions and social security, but also embark on dramatic cuts to investment spending plans and to expenditures on goods and services, as seen from the government's early responses to the unfolding crises. However, these reduced expenditures will not be enough to offset losses in oil revenues. Each $1 drop in Brent crude prices reduces oil revenues by about $1.25bn, leading to an estimated deficit in a range of $41.5 to 52.5bn for the next 12 months. This deficit will initially be funded domestically through indirect monetary financing, using the country's foreign reserves, which were $63.7bn as of the end of February. However, this approach requires near-ideal scenarios to be effective, as it does not allow for lower oil prices than forecast, or for a delay in their expected recovery. A decline of these reserves to under $15bn could lead to a devaluation of the currency, which would lower the living standards of the majority of the population given Iraq's high dependence on imports to satisfy consumption. The new government's approach addresses the issues raised here head-on and would rebalance the budget's structural imbalance. However, it has the herculean task of passing such a solution through Muhasas's parliament, and an acceptance by an alienated population. Crucially a successful passage will start un-ravelling the patronage networks much sooner, and as such the governing elite will seek its derailment, pushing instead for a continuation of past practices. Beyond the next 12 months, expected higher oil revenues will remove much of the pressure on government finances, but with public sector payroll expenditures consuming the bulk of these revenues (Figure 4) and with the country's foreign reserves depleted, the consequence will be a continuation of the lack public investments in infrastructure or reconstruction, and the maintenance of most cuts to spending on goods and services. This would exasperate the pressures on the informal economy, already hard hit by the disruptions of the COVID-19 lockdown and the government's prior spending cuts.
This creates a multi-faceted challenge that the political elite, with its increasing fragmentation and the erosion of its legitimacy over the years, is ill-equipped to resolve. The size of the public sector payroll expenditures leaves no room for new hires nor for infrastructure and reconstruction spending. While resorting to loans to fund public investments could be an option, this means a foreign borrowing supported by an IMF accord along the lines of the 2016 Stand-By Agreement as Iraq would have likely exhausted domestic sources of borrowing in the first 12 months. Such foreign loans would come with conditions to embark on accelerated structural economic reforms and integrating the informal economy into the formal economy. They would also come with painful adjustments that require a buy-in by an alienated population, and they would undermine the foundations of patronage networks. Meanwhile, the economic conditions of the neglected informal economy that led to the 2019 demonstrations would have become progressively worse.
What next for Iraq? Damned If they do, dammed if they don't
The post-2003 political order, for all its claims to be a departure from the past, is a decentralized evolution of the prior model under Saddam Hussain which has persistently expanded the patrimonial role of the state as a redistributor of oil wealth in exchange for social acquiescence of its rule. The system of Muhasasa Ta'ifia was already running out of steam and being challenged by the protest movements in 2018 and 2019. COVID-19 and its repercussions on the world economy have further exposed the current governance model and its dependence on volatile and declining oil rents as well as the inability of the current Iraqi political elites to manage their way out of the crisis.
Without real political reform that upends sectarian apportionment and in the process acquires legitimacy in the public's eyes, the days of the Muhasasa Ta'ifia are running out, whether brought about by the current crisis or temporarily postponed by a quick recovery in oil prices. Without the fuel of ever sharply increasing oil rents, the foundations of the Muhasasa model are crumbling. The political order's only survival option is resorting to excessive coercion and repression of an ever-growing disenfranchised young population – itself an unsustainable survival mechanism given the country's demographic pressures and the atomization of the political order.
The figures and charts cited in this article are the author's estimates and are based on data from: the IMF Iraq country reports 2004-2019; The Ministry of Finance; the Ministry of Oil; The Ministry of Planning's Central Statistical Organization (COSIT), the Central Bank of Iraq (CBI); and on publicly available news, analysis and research. Estimates for oil revenues for 2020 & 2021 take into account the coordinated OPEC+ deal agreed on 11 April but do not assume full compliance by Iraq with its quotas. Assumptions for budget spending for 2020 and 2021 are based on the author's recent works as linked in the article, but updated to reflect the OPEC+ data. Total public sector expenditures are higher than that used here as they don't include those for State Owned Enterprises (SOEs) employees as these are included in the transfers item in the budget but not broken down. All errors and omissions are the author's own.
Ahmed Tabaqchali's comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.
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Something that everyone should know about Sedona, that is if you're ever planning a trip there, is the area has the absolute worst 3G cell service imaginable. It's more like 1A. I know, I know. You're on vacation, put the phone down and enjoy yourself. I hear that all the time when I'm not on vacation, but the truth is I love my phone. I love the technology, I love the constant stream of information and I love the quick interactions with my friends via text messages or tweets through twitter.
I was a little bummed that I wasn't able to share some of my vacation with my friends & family via updates through my phone because the "loading" wheel was forever in motion. Nothing worked. I mean nothing. The resort we stayed at had WiFi but it was awful, I swear I heard my phone making the old beeps and swirly noises we all used to hear when our phone modems use to start-up.
That added some grit to my level of frustration when I was at Seven Canyons. There is ZERO cell service once you get out-of-town and are further back in the canyon. I mean NONE, no bars. Can you hear me now? Nope! It didn't bug me until after I was done playing. I hadn't planned on using my phone for anything other than the GolfShot app. I knew without any service the ClubSG app was worthless so I never even opened that app up. I really needed to use my phone when I was done with the round though and that's where I'll pick the story back up.
The group that I met up with on the 4th hole was a pleasure to play with. I'm always concerned when joining a group that I'm going to be looked at as "Oh Hell, not THAT guy." but they welcomed me into their group and I really enjoyed playing with them.
When we finished they asked me if I could snap a few photos for them with the picturesque mountains looming in the background and then we all headed off to the parking lot. It was nice to be able to drive right up to my vehicle and unload right there rather than having to haul my stuff across the parking lot like you have to at other courses.
I pulled my bag off; got my phone, grab my back up balls from their spot in the cart. Make sure I didn't leave anything in the basket behind the seats. Double checked the little pockets in the cart to make sure I didn't leave anything behind and grabbed my scorecard. I finished off my water and then opened up my bag to grab my keys. That's pretty much my routine EVERY time I finish a round of golf. This time though, one crucial element was missing, my keys.
It would have been real easy to have wrapped up my story about Seven Canyons yesterday and left it at that, but what took place after I realized my keys were MIA I think is a note worthy story. Some things, no matter how embarrassing they can be, are just worth telling.
My first thought was "OK, check again, they have to be here, your truck is here." I went through my bag again, and again and a fourth time. No keys. The panic began to set in now. They only thing that I could think of that had happened was that I had somehow lowered the lift-gate to the Suburban and the keys were inside the truck. I peered in through the window and couldn't see anything. There was a chance they were in there though. Once while loading groceries I didn't realized I had set down my keys on the rear scuff plate as I was unloading the shopping cart and when I was done I hit the button to lower the gate. Just as it shut I saw the keys and tried to stop the door but it had gone too far and they keys were locked inside. No biggie. I grabbed my phone, dialed OnStar and in a matter of 3 minutes I was back on the road.
ONSTAR I thought! Yes! Then I remembered no cell service. I headed up to the clubhouse and asked if I could use the phone. The staff inside was great and let me use one of their offices to make the call. The lady at OnStar was more than helpful, as they always are, and said it would take a few minutes to get the doors opened. I walked back out to the car and waited, and waited and waited, nothing.
A few minutes later the lady that let me use the phone came outside and was hollering "Mathew, we have a phone call for you." I went back inside and it was OnStar on the other end. She was telling me that the unlock attempt had failed and wanted to know if I wanted to try another attempt. "YES!" of course I did. Well to shorten up the story a bit the same thing happened two more times. After that failed third attempt, OnStar said they were sending out a Tow Truck to do an on-site manual unlock and they would be there within the hour.
After that phone conversation I asked if I could use a cart and go retrace my steps from the practice range to the course and back. The Practice facility at Seven Canyons is a true five-minute drive from where you pick your cart up and then another five-minute drive back to where you were to get to the first tee. I had plenty of time to think things over and nothing made sense at all! Where in the hell could the keys have gone?
A trip around the course and a visit to the practice facility turned up nothing and I was back at the parking lot where my truck was. The employees at the cart area were great. All of them offered to help me in one way or another. One of them even offered to call AAA and use his "get a friend out of trouble" card to help me get back in to town with the truck. I respectfully declined and let him know that OnStar was working on it for me. That was really cool to see. After that exchange I went inside grabbed my clubs and emptied out my bag for what I believe was the tenth time. As much as I didn't want to do it, it was time to make the call. I had to let my wife know what was going on.
That's not an easy call to make and believe me I did not want to make it! Before that call I was wreck. The only thing going through my head was how much the tow bill was going to be to get it to a dealership and then get a new key made. Worse part was it was going on 6pm the day before a Holiday and we had A LOT planned for the next day. There was a good chance that I was going to be without a vehicle for two days while on vacation. I was going to have to get a rental car and deal with an irate wife for the next several days. It wasn't looking good for me.
Luckily for me my darling, lovable and beautiful wife packed the extra set of keys. One crisis averted. I didn't help me much in my current situation but it was nice knowing that at least one of the keys to the truck was a simple 15 minute drive away.
There was still no sign of the tow truck driver yet. I was hoping that as soon as I got inside the truck the keys would have been right there and this whole thing would have been over. So in an attempt to make some good use of my time I went over to the putting green and just putted for about 30 minutes until the tow truck showed up.
It took him about 5min to open it up and with very little surprise the keys were nowhere to be found. The driver was kind enough to offer me a ride back into town and after getting the keys and an earful of disappointment from my better half I hopped in a cab and made my way back to Seven Canyons.
Interesting fun fact moment: Did you know that it's not uncommon for a "lady friend" or better said a mistress to request a cab ride all the way back to Las Vegas from Sedona, which is a 4.5hr drive. I was shocked! Apparently when things don't go the way the mistress had planned for them to go, they are quick to call a cab to get the heck out of Sedona and head back home. I was told it happens a lot more than you would think. Now you all know.
The cabbie dropped me off and I use the keys to get in the truck the legit way. I had tossed my clubs in the front seats once the tow truck driver was able to get in, so I grabbed them and popped the hatch. Still hoping to find the keys wedged somewhere out of eye sight I started poking all over the place but it was useless. They were nowhere to be found.
I picked up my bag and loaded the clubs in the back and I don't know why but I decided to check again one more time. I pulled everything out of each pocket and checked one last time. Nope, nope, nope and no- wait a minute, what the hell was this. I don't know if was the angle the bag was lying at, flat in the back of the truck instead of upright, but as I ran my hand through the empty pocket my fingernail got caught on a tiny tear in the fabric. I stuck my finger in the hole and violently ripped it big enough to fit my hand in and you'll never believe what was in there. Yep, it was them, my keys.
So that is how my OGIO bag let me down.
I really considered emptying out all the clubs and turning the bag upside down, which would have save me a TON of grief, but I thought there was no way the keys fell inside the club area. I never even once considered that a hole may have formed from the stitching coming apart from the inside of one the pockets. Hell, this was an OGIO bag, not an unknown run of the mill K-Mart special. I paid good money for that bag and now I'm turned off every time I see my other OGIO golf bag and my OGIO backpack that I use every day.
So that's my embarrassing tale. The last time I played a round with my buddy Dan he was talking to someone and he said "That's why I have this little bag, everything goes in it and I always know where it is at." At the time I thought, that's a good idea, but I never did anything about it. Not anymore, I have my little gadget bag now and it's not leaving my bag, EVER! Well that's not entirely true as soon as I can find a replacement for that large soon to be paper weight of an OGIO bag in my garage it will be gladly moved to another one! Does anyone have any suggestions? I'm all ears!
Thanks for the warning tho!
That is hilarious (as long as it does not happen to me), I have an Ogio bag too….


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redpajama_set_name: RedPajamaGithub


Few people like to talk about money. But couples who can honestly communicate about their finances before they get married will be in better shape for the future, says Elle Kaplan, finance expert and founder of LexION Capital.
"Almost every one of your relationship milestones is connected to finances, yet money is often seen as a taboo subject to bring up, even when you're tying the knot," she says. "That's why I tell couples to start talking about their finances as soon as a relationship turns serious. If both partners start discussing money early, they can work together and make compromises to take their relationship to a whole new level."
To get you started, here are six money questions you must ask before you say "I do."
1. What are your spending and savings habits?
"Spending and saving habits absolutely need to be discussed before getting married," says Kaplan, who explains you can't take for granted that your money philosophies will magically align. Everything from your upbringing, income, and even the media color your and your partner's financial feelings. "We often don't even think about our own money habits, but how you both approach money is going to determine if your goals can be reached in marriage," Kaplan says. "Impulse spending, for instance, is a behavior that needs to be addressed and resolved before getting married."
We've been taught it's not polite to ask another person, even our partners, what he or she makes. But what you each bring home, says Kaplan, "touches almost every aspect of a relationship. Where you both can live, how much you can save, and even your quality of life is affected by your joint income." Because of this, she says, you must be willing to share your income with your soon-to-be spouse. And with that information disclosed, "you should figure out if your joint income will be enough to support your relationship goals, or if it makes sense to prolong some of them," she recommends.
3. How will we save for retirement?
After you've tied the knot, Kaplan says, couples often stash their money in savings for a first home or a big vacation. "Boring things like retirement often get left in the dust," she says. "But this is definitely not the time to forget about your golden years, because it's exponentially easier to plan and save the earlier you start. Couples can avoid scrambling later in life by taking small steps today."
This three-digit number can make a big difference in your relationship, Kaplan says. "Credit scores might not seem like a big deal, but you'll be in for a big shock if you get denied a loan for that dream home due to poor credit," she points out. So before your wedding day, reveal your respective numbers and avoid unpleasant surprises down the road. "Yes, you'll both still have your own credit history, but lenders typically look at both spouses' scores when approving a mortgage or determining its interest rate," Kaplan reminds us.
5. What debts do you have?
It's a sad fact, but "almost every American has some form of debt," says Kaplan. And yet, despite the fact that most American carry around a student loan or two, "it's a still a sticky subject to bring up with a partner," she says. "Not all debts are created equal; there's a big difference between 'dirty debt,' such as high-interest credit card debt, and 'clean debt,' such as low-interest government student loans. High interest debt can quickly snowball and drive a chisel into an otherwise amazing marriage. If partners bring this up early, they can come up with a game plan to tackle it together and move upwards and onwards."
6. How will we combine or keep separate our money?
Many couples take for granted that after they tie the knot, they'll simply share everything from bank accounts to credit cards. But that may not be the right move for you. "While marriage is indeed a union, your finances aren't going to automatically be combined into one account after saying 'I do,'" she says. "It's important to discuss whether you'll merge your finances into a joint account, or maintain individual accounts. What works for many partners is to have a joint account for large financial spending, and individual accounts for day-to-day spending. Either way, you'll want to set up a system where there's financial transparency, especially for larger purchases."