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Cablegate: Iraq's Civil Service April Pay Raise

VZCZCXRO8981
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #1297 1181048
ZNR UUUUU ZZH
R 271048Z APR 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 7047
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS BAGHDAD 001297

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IZ
SUBJECT: IRAQ'S CIVIL SERVICE APRIL PAY RAISE

1. (SBU) On April 10, the Iraqi Council of Representatives
(CoR) passed the Civil Service Salary Law in its third
reading; the law now awaits endorsement at the Presidency
Council. This law will substantially increase the monthly
wages for the first time since 2004 of the approximately 2
million member civil service (not including those employed by
the Kurdistan Regional Government (KRG), who are paid from
the KRG's 17 percent allocation of the 2008 federal budget).
Although we still do not have a translated copy of the final
law, discussions with GoI officials indicate this pay raise
could cost an extra 1.7 trillion Iraqi dinar (ID) (USD 1.42
billion at 1200 ID/USD) this year. The Iraqi civil service
pay scale comprises ten degrees, with the 10th degree the
lowest and the 1st degree the highest. The monthly base
salary increases, for example, include a 6 percent raise for
those with a primary school education from ID 144,000 (USD
120) to ID 152,000 (USD 127), to a 35 percent raise for those
with a master's degree or medical degree from ID 278,000 (USD
232) to ID 374,000 (USD 311). Also included within the law
is an approximately ID 10,000 - 15,000 (USD 8 - 12) monthly
supplement per child for up to four children per family of a
government employee.

2. (SBU) In an April 17 meeting with Ministry of Finance
(MoF) advisor Dr. Aziz Hassan Jaffar, EconOff asked if the
MoF had discussed the civil service pay raise proposal with
the IMF. Dr. Aziz said he explained to the IMF that this was
the first civil service-wide pay raise since 2004, in spite
of periods of high inflation; Dr. Aziz said when accounting
for inflation, this pay raise restores to parity the
purchasing power of civil service employees. In fact, Dr.
Aziz said, he had heard prices in Baghdad had already risen
in anticipation pay raise approval. He asserted that the
raise would have no negative effect on Iraq's Standby
Arrangement with the IMF because the substantial raise was
necessary to offset the low wages characteristic of the
Saddam Hussein regime, which were no longer sustainable
because many of the previous subsidies (including fuel) had
since been removed.

3. (SBU) CoR Finance Committee members meeting with EconOffs
on April 23 also were supportive of the civil service pay
raise and viewed it as necessary to bring public sector wages
in line with inflation. Finance Committee (and Tawafuq/IIP)
member Ala'a Alsadon told EconOffs that with oil export
revenue based on a price of USD 57/barrel and world prices at
USD 119/barrel, the government should be easily able to
afford the pay increase. Finance Committee Kurdish member
Sami Atroshi told EconOffs he believed the Presidency Council
would pass the new law because it benefits many Iraqis, and
employees were already expecting the raise. On April 16, CoR
Economic Committee deputy head Yonadam Kanna told EconOff
while the pay raise was necessary to cover inflation for
civil service workers, he was very concerned about the
negative impact on Iraq's farmers who would not be eligible
to receive any pay raise. He believes rising prices will
continue to dampen growth in the agriculture sector and make
it more difficult for Iraqi farmers to earn a living wage.

- - - -
Comment
- - - -

4. (SBU) We will send a follow up report with a more detailed
analysis of the civil service pay raise once the Presidency
Council endorses the law. At first glance, this pay raise is
good step for the central government to illustrate it is
looking out for the interests of the Iraqi people and is
seeking to share growing oil revenue windfalls. Because
civil service wage increases have not kept pace with
inflation, this raise is necessary, but assessing its
inflationary impact will be difficult until we determine its
exact cost, about which none of our interlocutors could
proffer an estimate. However, Yonadam Kanna raises a
compelling point in that Iraq's fledgling private sector
workers will receive no wage increase and are unlikely to
benefit from increased prices in the marketplace. Moreover,
this civil service wage increase likely could come at the
expense of funds being used for critical job creation needed
to promote stability and growth. End Comment.
CROCKER

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