By Stephen Kalin
BAGHDAD (Reuters) - Iraqi paramilitaries seen as essential in fighting Islamic State are resisting moves to rein in their budget, highlighting the challenge of imposing government authority on one of the country's most powerful forces.
Facing lower revenue because of declining oil prices, OPEC oil exporter Iraq is planning widespread budget cuts next year, with government expenditure set to drop by nearly 10 percent to around $95 billion.
The paramilitary forces, which include Iranian-backed Shi'ite Muslim militias under a state-run umbrella called the Hashid Shaabi, complain that instead of accepting their request to fund 156,000 fighters next year, Baghdad plans to cut tens of thousands from its ranks.
Saad al-Hadithi, a spokesman for Prime Minister Haider al-Abadi, denied Hashid fighters' jobs were being cut.
He said only about 100,000 had registered in 2015 and the government would continue funding them, at a cost of around $1 billion, but it would remove 50,000 salaries set aside for fighters who were expected to register but never did.
Hadithi insisted financing would be available if recruitment rose next year, but the Hashid wants the cash to be guaranteed now.
The dispute reflects resistance to the government's direct control over the Hashid, which is run out of the prime minister's office but comprises fighters with ties and loyalties to various militia commanders, politicians and religious leaders.
"The Hashid prefer a lump sum to distribute to fighters as it sees fit, to control its own budget, similar to the defense and interior ministries. And at the moment, the government does not want to approve that," said Sajad Jiyad, an Iraqi analyst who advises the government.
Hashid spokesman Ahmed al-Assadi said an additional $550 million had been requested for weapons, ammunition and other non-personnel items.
Jiyad said that by controlling next year's funding, Abadi hopes to prevent the Hashid Shaabi from becoming a formal state institution that could, for example, propel its leaders to office through elections expected in 2017 and 2018.
But the prime minister must also be careful not to be seen as standing in their way, which could spark criticism and drive them towards non-government paymasters.
Iraqi militias armed and trained by Iran have grown in influence and popularity since rushing to the front lines in June 2014 after Islamic State declared a modern-day caliphate in northern and western areas stretching across the Syrian border.
The Hashid denies receiving funding from outside the Iraqi government, but some militias which supply thousands of Hashid fighters engage separately in other activities and are believed to maintain alternative funding sources.
The militias' leaders and political allies pose one of the biggest potential challenges to Abadi, who has struggled to strengthen his hand since coming to office in September 2014 despite backing by both the United States and Iran.
While the Hashid Shaabi denies having political aspirations, many militias have political wings and enjoy broad popular support after a string of victories against Islamic State while the army has nearly collapsed twice in the face of the hard-line Sunni insurgents.
Assadi, the Hashid spokesman, said the forces aimed to be part of the security establishment, though not necessarily by integrating into existing institutions like the army or police.
"They realize that now is the time ... to get the respect that they should have from the politicians and formalize their relations with the state," said the analyst Jiyad. "Get their funding sources sorted, get their paperwork in order, take care of their guys, their injured."
Last December the prime minister, as part of reforms and in response to corruption, scrapped 50,000 "ghost soldiers" – army members who don't exist but whose salaries are collected.
The practice enriched commanders and hollowed out the military force, accelerating the military's collapse in the face of Islamic State.
QUESTIONS OVER NUMBERS
Some have questioned whether competition for funding between groups in the Hashid has led their numbers to be inflated. "There's definitely a concern in the government that whatever is being paid out is not completely accurate," said Jiyad.
Assadi said this was not the case. "This is illogical and based on false charges. We must increase our current numbers by 50 percent in order to push the fronts we are holding."
He said since February the Hashid had paid salaries to 130,000 fighters, including 20,000 for the wounded and families of those killed.
Hadi al-Amiri, the powerful head of the Badr Organisation, a political movement whose armed wing provides thousands of fighters to the Hashid, addressed parliament last week to make the case for increasing allocations for the fighters.
"We are capable of liberating Iraq, but it will take the required numbers, capabilities and equipment," said Amiri, who rushed to the front lines last year to halt Islamic State's advance towards Baghdad despite then being transport minister.
Supporters fear Abadi's critics may use the Hashid's budget to score political points on an issue that attracts broad support among lawmakers and ordinary Iraqis.
"There is already anti-Abadi feeling in parliament, because of the reforms plan; people don't want to lose their economic interests or political power. This is going to be another obstacle before him because the PMF (Hashid Shaabi) is popular," said Mowaffak al-Rubaie, a senior lawmaker from Abadi's ruling coalition and a former national security adviser.
Emboldened by popular protests, Abadi announced reforms in August aimed at scrapping senior political offices that have become a vehicle for patronage for some of the most powerful people in Iraq and rooting out incompetence which undermined the battle against Islamist State.
But the premier has suffered setbacks in recent weeks from parliament and his ruling coalition, with opponents criticizing him as an authoritarian. The threat of a no-confidence vote, which looked possible earlier this month, has subsided for now.
In contrast, the Hashid Shaabi, which denies accusations of human rights violations by rights groups, remains popular as it claims one victory after another against Islamic State, most recently in Baiji, a northern town and oil refinery.
(Editing by Peter Millership)