Thursday, January 28, 2010

2010 Iraq Budget Passed

After a few delays Iraq’s parliament passed its 2010 budget on January 26, 2010. It’s for $72.4 billion, a substantial increase over the previous $58.6 billion one. It is also the largest amount authorized since Iraq got its sovereignty back in 2005. As usual, around 70% of the spending will be on operational costs, which go towards salaries, pensions, the food ration system, etc., while 30% will be for investing in infrastructure, development projects, and the like in the capital budget. It also puts a freeze on appointing new bureaucrats until the next parliament is seated, probably to prevent Prime Minister Nouri al-Maliki and other ministers who represent various political parties, from using jobs as patronage to gain votes in the coming March 2010 elections. In an interesting turn, the budget also cuts top officials’ salaries by 20% and medium ranked officials’ pay by 10%, and that money will go towards the provinces’ capital spending. High ranking politicians, such as Iraq’s president for example gets a monthly salary of $8,000 and a $45,000 allowance for spending. The last major change is that southern and northern provinces such as Tamim and Basra that produce oil and natural gas will be paid $1 per barrel or 150 cubic meters of gas produced. Local officials say that this money will go towards job creation and development projects. There is no word yet whether the amounts that the governorates will get is an increase over the first draft of the budget, which many provinces complained about would not be enough for their needs earlier in the year. 

The new budget calls for 2.15 million barrels a day in oil exports, at $62.50 a barrel, as petroleum accounts for the vast majority of the government’s revenue. While Iraqi crude sold for $73.39 a barrel in December 2009, it only exported an average of 1.59 million barrels a day in 2009, and has never exported more than 2.08 million barrels a day for a month.

As a result, the 2010 budget has an expected $19.6 billion deficit. That will be in addition to the current $16 billion deficit. Parliament said that they would cover the difference by asking the International Monetary Fund (IMF) and World Bank for up to $6.5 billion in loans, domestic barrowing, and using past surpluses. There are major problems with that however. First, when the legislature was drafting the 2009 budget they said the exact same thing, and the funds never materialized. The Central Bank refused to allow the surplus to be used or treasury bonds to be sold to cover the budget. International institutions have also been unwilling to give Iraq large loans. In 2009 the country was only able to get a $5.5 billion loan from the IMF, which was to go to the 2010 budget. In previous years, Iraq was only allowed to borrow $2 billion from the IMF in two separate loans.

This reveals the unwillingness of Iraqi politicians to face up to their country’s financial difficulties. The 2010 parliamentary elections are just two months away so the legislature wants a large budget to increase spending to their constituents whether the government can afford it or not. Lawmakers also act like the deficit will be taken care of, even though Iraq has not been able to borrow large sums of money in the past. Last, after the 2003 invasion, the U.S. made a concerted effort to reduce Iraq’s large Saddam era debt so that it would have more money for reconstruction. Now Iraq seems intent on building its debt right back up.

Iraq’s Budgets 2005-2010
2005 $24.4 bil 
2006 $34 bil
2007 $41 bil
2008 $71.2 bil (includes supplemental budget)
2009 $58.6 bil
2010 $72.4 bil

SOURCES

Abbas, Mohammed and Ibrahim, Waleed, “Iraq fears budget crisis, urges oil export boost,” Reuters, 12/3/08

AK News, “Iraq’s 2010 budget passed by unanimous vote,” 1/26/10

Alsumaria News, “Kirkuk welcomes the allocation of every barrel of oil provinces,” 1/26/10

Aswat al-Iraq, “Iraq’s oil revenues up by $300m in Dec. 2009,” 1/23/10

Department of Defense, “Measuring Stability and Security in Iraq,” December 2008
- “Measuring Stability and Security in Iraq,” June 2009

Ibrahim, Waleed, “Iraqi parliament approves $72.4 bln 2010 budget,” Reuters, 1/26/10

Reuters, “Iraq PM Says Cannot Cut Public Pay To Suit IMF,” 10/7/09
- “Iraq sets expected 2010 oil exports at 2.15 mln bpd,” 1/27/10

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 10/30/09

UR News, “Iraqi President, Two Deputies Earn $2 Million Annually,” MEMRI Blog, 11/12/09

Visser, Reidar, “Decentralisation Bonanza in the Iraqi Budget,” Historiae.org, 1/27/10

Zawya, “Iraq Central Bank Opposes Issuing Treasury Bills To Finance Projects,” 9/27/09

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