By Mark Kukis / Baghdad Saturday, May. 23, 2009

Ahmed Basim Mohammed al-Abaje is understanding about slow salary payments from the Iraqi government. He and other citizens of Baghdad are beginning to realize that the Iraqi government is running low on cash owing to the global financial crisis. "There have been some delays, but we did not have to wait too long for pay," says Abaje, a member of the volunteer Sunni watchmen-fighters known as the Awakening in the Baghdad neighborhood of Mansour. But Abaje, like scores of other Awakening members across Iraq, worries that the pay may dry up altogether. "If the government wanted to end the Awakening program, no one could stop them."

To date the Iraqi government has shown no signs of halting the ongoing program aimed at bringing hundreds of Awakening volunteer fighters onto the government payroll. But the initiative could be under threat nonetheless as Iraq moves to trim its budget amid falling revenues. Already the Iraqi Ministry of Interior, which runs the Awakening program, is scaling back. And signs that the global economic crisis has settled heavily in Iraq are increasingly apparent. (See pictures of the Iraqi revival that is now endangered by the faltering economy.)

Iraq's economic woes stem mainly from the huge drop in the price of oil, which accounts for 90% of the country's revenues. Last summer the price of oil soared to nearly $150 a barrel. Now the price is roughly a third of that, leaving Iraq struggling to fend off a financial collapse within its government. Iraq has an estimated $30 billion in surplus funds generated from oil sales in years past, but that money is dwindling. Iraq expects to run a deficit this year of roughly $20 billion, which could be covered by the surplus funds. How the Iraqi government can continue to generate enough cash to fund itself going into 2010 is largely unclear to American and Iraqi officials looking at the problem now. (See how relative stability has helped bring new life into Iraq's streets.)

The worsening revenue picture for the Iraqi government apparently stirred talk among leadership in Baghdad of allowing the export of oil from Kurdish northern Iraq. Kurdistan, as the semi-autonomous region is known, has long sought to export its significant oil reserves. But the central government in Baghdad has always objected to any such move, insisting that Baghdad control the country's oil exports and its revenues. The dispute has proven to be one of the most intractable impasses in Iraqi politics. Early reports of a possible deal buoyed hopes for a breakthrough, but so far no agreement has emerged, and the Iraqi government in Baghdad still officially considers any oil exports from Kurdish territory illegal.

Other sources of revenue have gone dry or are about to. Foreign investors have been slow to spend in Iraq because of the violence and huge uncertainty surrounding the security situation following the U.S. drawdown going forward this summer. U.S. reconstruction funds are dwindling as American troops move to go. And Iraq at present cannot sell government bonds on the international market without risking them becoming entangled in a myriad of reparations lawsuits related to Iraq's invasion of Kuwait in 1991.

Nationwide unemployment is somewhere between 23% and 38% and likely to go higher in the months ahead because of government cuts. The Iraqi government employs an estimated 2.5 million people while private sector enterprises barely register. Slots on the payroll are dwindling rapidly.

Abaje says he is uncertain whether the government will indeed keep offering a salary for him and his fellow Awakening members given the current economic picture and is unsure how he would support his family if not. His case is one of hundreds that worry U.S. and Iraqi officials, who fear that the lingering insurgency will lure Awakening members into its ranks with financial incentives the government may no longer be able to afford.

How the Economy Could Crush Iraq's Hopes -  Source