The new budget was approved at a late night session at 129 trillion Iraqi dinars ($89 billion) and a budget deficit estimated at 28.7 trillion Iraqi dinars ($19.79 billion).
The 2021 budget set an oil price of $45 a barrel with expected oil exports of 3.25 million barrels per day.
Oil-rich Iraq is going through an acute economic and financial crisis largely due to low crude prices. In December, Iraq's Central Bank devalued the Iraqi dinar by over 20% in response to a severe liquidity crisis, a measure that sparked public outrage as the government struggled to cover its expenses.
It was the first reduction in exchange rates that the Iraqi government has made in decades.
Since an oil price crash last year, Iraq has been grappling with an unprecedented liquidity crisis. The crude-exporting country has had to borrow from the bank’s dollar reserves to pay the nearly $5 billion in monthly fees for public salaries and pensions. Oil revenues, which account for 90% of the budget, have brought in an average of $3.5 billion.
Efforts to introduce reforms have been met with opposition and to date, the government has been borrowing internally to foot state bills. The 2020 budget was not passed due to political deadlock.
The parliament on Wednesday also voted to dissolve itself on October 7, three days before Iraq is to hold general elections.