Saturday, November 8, 2008

Iraq Cuts Its 2009 Budget, But Still Can’t Spend It

During the summer of 2008 the government of Iraq planned a massive budget. Based upon an estimate of $80 a barrel for oil, a conservative figure at the time when prices were above $100, Iraq’s planners came up with a $78.8 billion budget. By October, crude prices dropped below that figure, forcing Baghdad to reduce its budget to $67 billion. That too might have to be redone as the new budget is based upon $62 a barrel, but with fears of a deep recession, prices of oil continue to plummet.

To add to the government’s problems, oil exports dropped from a post-war high of 2 million barrels a day in May 2008, down to 1.64 million barrels in September. 90% of the country’s revenues come from petroleum. That makes it more vulnerable to fluctuations in oil prices than any of its neighbors. The International Monetary Fund for example, estimated that the countries in the Persian Gulf needed $47 a barrel to maintain a balanced budget. Iraq in comparison needed $111 a barrel.

No matter what final amount the budget will be, Iraq’s bureaucracy has been unable to spend much of its capital budget. That is spending aimed at infrastructure and development. The Special Inspector General for Iraq Reconstruction’s (SIGIR) new Quarterly Report noted that many of Baghdad’s major ministries have only been able to expend a small fraction of their 2008 budgets as of June. The Oil Ministry has appropriated $2 billion of its capital budget, but only $410 million, 20.5%, has been spent. The Electricity Ministry has obligated $1.3 billion, but only $229 million, 17.6%, has been spent. The Water Ministry has $375 million for improving the sanitation and sewage system, but only 30.1%, 113 million has actually been paid out. Finally, the Health Ministry has $83 billion for infrastructure, but only $8 million, 9.6%, has been spent. Iraq’s ministries can pay salaries and their bills, but when it comes to rebuilding their country, they are still lagging far behind.

More importantly the Inspector General pointed out that the government’s budgets have not improved the lives of most Iraqis. Iraq has a per capita income of $1,214. The SIGIR compared Iraq to other Arab countries and found that some countries that spent around the same amount or far less, but with similar populations had higher per capita incomes. Syria for example, with 7.6 million fewer people than Iraq, spent $31.9 billion less than Iraq, but had a higher per capita income of $1,760. Algeria has 6.4 million more people than Iraq, a budget $2.6 billion less, and a per capita income of $3,620.

Special Inspector General for Iraq’s Reconstruction’s Comparison Of Budgets and Per Capita Income - 2008

Iraq

  • Population: 27.5 mil
  • Budget: $43.1 billion
  • Per Capita Income: $1,214
Saudi Arabia
  • Population: 24.1 million
  • Budget: $118.3 billion
  • Per Capita Income: $15,440
Syria
  • Population: 19.9 million
  • Budget: $11.2 billion
  • Per Capita Income: $1,760
Algeria
  • Population: 33.9 million
  • Budget: $40.5 billion
  • Per Capita Income: $3,620
Yemen
  • Population: 22.4 million
  • Budget: $8.4 billion
  • Per Capita Income: $870

Iraq has to both improve its budget process, and use the money for projects that will actually improve the living standards for its population. To date, much of Iraq’s spending has been ineffectual. For example, the government just completed a freeway section in Baghdad for $60 million in August. This has not improved the daily life of anyone in the capitol where people only have a few hours of electricity, lack access to clean and safe water, and suffer high unemployment and underemployment, not to mention the continued violence. The U.S. also focused upon large infrastructure projects for most of the last five years as well, which also had limited affect on the country. Since then it has changed its focus to small, localized projects like re-opening markets, opening wells and water treatment plants, etc. This have proven much more effective. The U.S. is trying to get Baghdad to take over many of these projects, as well as plan and carry them out themselves. The process has been very slow as the Iraqi bureaucracy suffers from various problems such as a brain drain, a paper system, lack of experience and capacity, to name just a few.

SOURCES

Associated Press, “Iraq plans to cut 2009 budget by $13 billion,” 10/31/08

Badkhen, Anna, “Petrodollars fail to help ordinary Iraqis,” Christian Science Monitor, 8/26/08

Chon, Gina, “As Crude Falls, Iraqi Leaders Scramble to Plan Budget,” Wall Street Journal, 10/22/08

Karouny, Mariam, “Iraq reviews 2009 budget due to falling oil price,” Reuters, 10/23/08

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 10/30/08

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