The real battle in Iraq is not a salary crisis, but the end of the rentier state model.
The real battle in Iraq is not a salary crisis, but the end of the rentier state model.
12-3-2025
Researcher Shatha Khalil* argues that the upcoming battle in Iraq is not merely a passing financial shock or a salary crisis that can be resolved with an exceptional decision or a temporary grant. The deeper battle, which many are unwilling to acknowledge, is the battle to change the economic model itself: from a rentier state that finances almost everything from oil to a state that regulates and participates in a diversified, productive economy where society shares responsibility, not just those who benefit from the rent.
This is not a budgetary crisis, but a crisis of perspective, social contract, and an entire way of life that Iraqis have been accustomed to for decades.
First: From Transient Crises to a Historic Turning Point.
It’s easy for some to speak as if everything is linked to the price of a barrel of oil or to the fluctuations of the global market, as if the problem ends simply with a rise in prices or the signing of a new political agreement. But what is happening is much deeper than that, because Iraq is simultaneously facing:
• An economy that depends almost entirely on oil revenues
• Rapid population growth that increases the pressure on jobs and services
• A dilapidated infrastructure and education and health in a state of chronic decline
• A growing threat to water and food security
• A hostile investment environment and weak internal and external confidence.
All these elements mean that the crisis is not just a budget deficit, but rather that the “welfare state” model has reached its limits.
Second: Three layers of the crisis… Deeper than talk of “financial deficit.”
To grasp the magnitude of the challenge, we must examine reality through three interconnected layers:
1. A crisis of a rentier economic model
: o The state is the largest and perhaps only employer
. o Citizens wait for salaries, they do not generate wealth.
o The private sector is weak, confused, and besieged by bureaucracy and corruption.
o There is no real productive base in agriculture, industry, or technology.
2. A crisis of governance and management
: o Weakness in long-term planning and its replacement with a “firefighting” policy.
o An institutional system intertwined with patronage, corruption, and weak accountability.
o Massive public spending, but its developmental return is weak or almost nonexistent.
3. A crisis of societal economic culture:
o A constant expectation of solutions from the “state” versus the absence of broad productive initiatives.
o A consumer culture that prefers immediate spending to investing in the future.
o Social resistance to any reform, which is immediately perceived as a “diminution of rights,” even if it is in reality a protection of rights in the long term.
These three layers make the crisis continuous and complex, not one that explodes and then ends, but rather one that seeps into every detail of life: from schools to hospitals, from jobs to basic services.
Third: Two options that appear simple… but are in reality two paths to different futures.
The economic decision-maker is faced with two choices, but from a deeper perspective, they are two paths to two contradictory futures:
1. The path of “managing the collapse slowly,”
which includes policies such as:
• Expanding government appointments as popular pressure increases
• Increasing operational expenses at the expense of investment
• Borrowing to cover the deficit instead of addressing its root causes
• Resorting to printing money and financing the deficit through undeclared inflation.
This path gives a temporary sense of stability, but in reality, it means:
• Eroding the citizen’s purchasing power
• Declining the value of the currency and confidence in it
• Increasing pressure on future generations who will pay the price for debts and postponed decisions
• Continued collapse of education, health, and infrastructure, no matter how many “salaries” are available in the short term.
In other words, this path preserves the form of the state but empties it of its essence: the ability to provide decent services and guarantee a minimum level of dignity for the citizen.
2. The path of “rewriting the economic contract”
is the most difficult, but it is the only one that gives Iraq a real chance for a different future. It requires:
• Restructuring public spending in favor of investment, infrastructure, and basic services
• Rationalizing salaries and subsidies in a fair way that protects vulnerable groups instead of supporting everyone regardless of their need
• Launching a genuine tax reform that links taxes to services and makes citizens feel like partners, not burdens
• Liberating and regulating the private sector instead of stifling it with bureaucracy and corruption
• Building a smart social protection system that targets the poor and unemployed in an organized and well-thought-out manner.
This path will be disliked by many at first, because genuine reform means:
• A change in spending habits
• Confronting entrenched interests that benefit from chaos
• A clash with corruption networks that see any reform as a direct threat to them.
But the price of reform today, however painful, is much less than the price of collapse tomorrow.
Fourth: Why do regimes often reject reform until the last moment?
If reform is so important, why do governments run away from it?
Because reform means:
• Losing popularity in the short term
• Confronting powerful lobbies and networks of interests
• The necessity of making decisions that cannot be easily embellished in the media.
Therefore, governments often choose:
• Buying time through “painkiller” solutions
• Using the media to create a false sense of reassurance
• Accusing or discrediting anyone who warns of the reality with figures and analysis.
But the problem is that time in economics is unforgiving: every year of postponement increases the cost of reform and complicates the crisis.
Fifth: The Role of Society… Not as a Spectator but as a Partner.
The most neglected aspect of Iraqi economic discourse is the role of society itself.
A sustainable economy cannot be built if:
• Citizens continue to see themselves as perpetually entitled to benefits without contributing to production
. • The culture of “the state paying for everyone” remains the norm.
• Entrepreneurs remain trapped by bureaucracy, extortion, and nepotism.
The upcoming battle is not only about government decisions, but also about:
• Establishing the value of work and production at the expense of favoritism and rent-seeking
. • Supporting small and medium-sized enterprises instead of stifling them with red tape.
• A genuine demand for transparency and accountability, not a surrender to the “it’s no use” rhetoric.
• Involving Iraqi universities and expertise, both at home and abroad, in formulating solutions.
Conclusion: The battle is over the quality of the future, not the timing of the collapse.
The question is no longer,
“Will there be a salary crisis or not?”
The more important question has become:
What kind of future do we want?
• A future based on a fragile rentier economy, subject to the fluctuations of oil prices and short-sighted political decisions.
• Or a future based on a diversified, productive economy, where responsibility is shared between the state and society, the poor are protected, the productive are rewarded, and the corrupt are held accountable?
The coming battle is not an “economic war” on the citizen, but a war against the logic of postponement, complacency, and escapism.
True reform does not seek fleeting applause, but rather the sustainability of a dignified life for today’s generation and tomorrow’s.
Those who reject reform today under the pretext of protecting their “rights” may discover years from now that they have not preserved any rights, but have instead squandered a historic opportunity to save an entire nation from a slow but inevitable collapse.
Economic Studies Unit / North America Office,
rawabetcenter.com
