Swords, Pens, and Stethoscopes in the Federal Budget

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For the Arabic version of this piece, please click here.

In policy circles, one often hears analysts lament that the violence and conflict that marked most years in Iraq since 2003 meant that federal budgets prioritized allocations for the security sector above all else. This implied that much needed investment spending in education and healthcare have suffered from relatively lower spending.[1] Indeed the prioritization of the security sector, arguably, would have unfavorable implications for the nation’s development by reducing allocations for public education and healthcare, especially during years where there was a budget shortfall. However, the disparity is not as great as one might assume. Prior to the recently passed 3-year budget,[2] total spending on healthcare and education had been obscured because funding was divided between direct allocations to the Ministry of Education (MoE) and the Ministry of Health (MoH) and indirect healthcare and education allocations within the budget’s total allocations to provincial governments.

This piece argues that Iraq’s failure to invest in healthcare and education is not primarily a result of over-prioritization of the security sector, but a consequence of the significant deficit in overall investment spending on the country’s infrastructure – a chronic failure that has characterized all budgets since 2003. How money is spent across sectors – including security, healthcare, and education – is a reflection of Iraq’s political economy since 2003. Public sector employment has constituted the primary means by which the ruling ethno-sectarian elite built patronage networks, and as such received the bulk of successive budgetary allocations. These payroll expenditures have come at the expense of spending on public infrastructure. Such myopic budgetary practices have persisted even during the successive economic crises that the country has experienced since 2003.

It Has Always been about Patronage Networks

A cursory reading of current and past budgets might lead one to conclude that Iraq massively prioritized the security sector at the expense of healthcare and education. In particular, even the 2023-25 budget which combined direct and indirect spending on healthcare and education to the relevant ministries, investment allocations on security infrastructure are 156% larger than those for healthcare and education infrastructure. While spending allocations for payroll, pensions, social security, and other operational expenses – i.e., current expenditures – are 9% larger. Particularly within current expenditures, spending on salaries is 28% larger in the security sector. Combined, current and investment expenditure allocations mean that the security sector has a 17% larger overall budget allocation (Figure 1). Moreover, while there are 11% more civil servants employed in the health and education sectors, the average security sector salary is 44% higher than the average healthcare and education salary. All of which re-enforce the perception that far more is being spent on security than on healthcare and education.

Figure 1: Budget allocations to the security, health, and educations sectors (excluding allocations to Kurdistan Region of Iraq (KRI) and oil investment spending)

However, drilling down into the details of the budget shows that the prioritization of the security sector is not quite as clear cut as it first appears. The 156% larger investment spending allocation, while high as a percentage difference, is in fact small as an absolute difference, at just IQD 2.1 trillion (USD 1.60 billion). As small as it is, this difference itself is larger than the IQD 1.4 trillion (USD 1.06 billion) investment spending allocation for healthcare and education. Such figures highlight Iraq’s infinitesimal investment spending across all non-oil sectors.

Salaries account for the bulk of current expenditure allocations for each sector: 96% for the security sector versus 81% for the healthcare and education sectors. Overall, payroll makes up 84% and 77% of the total spending allocations for security and healthcare and education respectively. These are all much higher than the levels in the overall budget (Figure 1). Such high absolute and relative allocations do not reflect a prioritization of one sector over others, but is simply a manifestation of how the ruling ethno-sectarian elite built patronage networks that coincided with, and benefited from, the need to increase spending on security during periods of conflict.

The fact that salaries for healthcare and education seem smaller as a percentage of current expenditures than those in the security sector (81% versus 96%) is not an indication of a more balanced allocation. Rather, budgets for the two sectors must account for a great deal of provisioning of goods and services, such as pharmaceuticals and medical procedures for healthcare. In contrast, spending on goods and services in the security sector is relatively low in comparison.

Finally, the amount that is allocated for salaries, absolute and relative, in security, healthcare, and education dwarfs actual investments in these sectors. This reflects the fact that the public sector is a primary means of building patronage networks, which come at the expense of actual investments in the country’s infrastructure. Specifically, salary allocations are seven times larger than what is set aside for investment spending in the security sector and 14 times larger in healthcare and education. Again, this is much higher than the level in the overall budget (Figure 1).

Policy Implications

The fact that allocations for salaries dominate all other budget allocations for the security, healthcare, and education sectors, as shown in the prior section, is a manifestation of the structural imbalances between current and investment expenditures in successive federal budgets since 2003. The 2023-25 budget, irrespective of its ambitious investment spending plans, perpetuates these structural imbalances both for overall budget spending and for spending on individual sectors (Figure 2).

Figure 2: Current and Investment Expenditures (excluding allocations to Kurdistan Region of Iraq (KRI) and oil investment spending)

The relative stability that the country has enjoyed over the last few years and a higher oil price environment following the invasion of Ukraine provide the wherewithal and the opportunity to reverse these imbalances and rebuild the country’s infrastructure. Specifically, the government should plan for long-term investments that can address the country’s dilapidated healthcare system and its dysfunctional education sector.

The arguments, and the need for such investments and strategic long-term thinking, are compelling and have been widely discussed. In healthcare, the once robust healthcare sector has struggled to rebuild from the ravages of war and sanctions. During the pandemic the Minister of Health went so far as to warn of the system’s imminent “collapse.” And from the perspective of everyday citizens, trust in healthcare is at an all-time low.  In terms of education, a recent UNICEF overview argues that “decades of conflict and under-investment in Iraq have destroyed what used to be the best education system in the region and severely curtailed Iraqi children’s access to quality learning.”

As urgent and self-evident as these needs are, the perfect track record of economic mismanagement and the lopsided incentives of the post-2003 political order that promote myopic economic policymaking mean investments in healthcare and education will continue to play a distant second fiddle to building patronage networks.

This is not to suggest, of course, that simply injecting more money into healthcare and education infrastructures will transform these sectors’ fortunes. Nor will increased allocations address the endemic problems of corruption and graft in supply chains and contracting, not to mention the systemic evasion of building codes that ensure the safety of facilities. If more investment spending on medical and education infrastructure is not simultaneously coupled with a serious effort to promote accountability and transparency, ordinary people will not see their hospitals and schools improve.

Disclaimer: The views expressed in this article are those of the author alone. They do not purport to reflect the opinions or views of the Institute of Regional and International Studies (IRIS).