Sunday, December 21, 2008

Iraq Cuts Budget

Iraq’s High Economic Committee met on December 16 and cut Iraq’s 2009 budget in the face of sinking oil prices. The committee consists of the ministers of Finance, Oil, Planning, Electricity, Industry, and Trade, along with advisors to Maliki, and experts from the ministries. The new budget is for $58 billion. That is $12 billion less than the 2008 budget. The government is planning on cutting spending for the provinces, reconstruction, ministries, and perhaps the food ration system as a result. More reductions could happen in the future.

Iraq’s new budget cuts billions of dollars from the original estimates. When Iraq’s 2009 budget was first announced it was $78.8 billion, and based upon an $80 a barrel oil price. Petroleum accounted for 94% of the government’s expected 2009 revenue according to the Finance Ministry. At the time this was a conservative estimate as oil prices peaked at $147 a barrel in July, but they quickly plummeted with the growing economic crisis. In mid-December crude prices stand at around $45. In November, Iraq’s cabinet made their first revision to the budget, reducing it to $67 billion, based upon a $62 a barrel price. The newest budget cuts another $9 billion, and is based upon $50 a barrel. The budget may be adjusted again before it is sent to parliament for final approve if oil continues to drop in value.

In order to achieve these cuts Iraq will face a series of austerity measures. First, the government promised pay increases for all government workers and the security forces. This is now off. Instead, the ministries will be asked to reduce their operational budgets, the only money they have proven to be able to spend, while the provinces’ spending will be trimmed by about 50%. The country’s $5 billion food ration system may also be reduced. There are also plans to slow the pace of reconstruction projects. Even after these moves, Iraq is still likely to run a deficit. It may even be forced to ask for international aid to make up for the difference.

These budget cuts are only the most recent problems to face Iraq’s economy. There is no real tax system and tariffs are low to non-existent. To add to the difficulties, an oil expert estimated that exports could drop 13% in 2009 because of deteriorating infrastructure. That’s why it’s likely that Iraq’s budget will face deficits and more cuts in the coming years until oil prices stabilize, and the recession ends. Iraq’s public will feel the effects as the government still dominates the economy. Reconstruction might come to a stand still as Iraq is now almost completely responsible for it. Iraq will probably take years to recover, when it still hasn’t even gotten over the decade of sanctions, the destruction from the U.S. invasion, and the mismanagement of the Americans.

SOURCES

Abedzair, Kareem, “Oil price drop forces government to tighten belt,” Azzaman, 12/14/08

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

Aswat al-Iraq, “No decrease in salaries because of oil prices – planning minister” 12/19/08

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

Mawloodi, Aiyob, “Iraq may ask for foreign economic assistance,” Kurdish Globe, 12/19/08

Michaels, Jim, “Declining oil prices threaten Iraqi stability,” USA Today, 12/16/08

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

Swartz, Spencer, “Iraqi Oil Exports Could Fall Amid Maintenance Problems,” Wall Street Journal, 12/2/08

United States Government Accountability Office, “Iraqi Revenues, Expenditures, and Surplus,” August 2008

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