Higher Oil Prices And Lack Of Spending Leading To Iraqi Budget Surplus

When Iraq’s parliament passed its 2010 budget in January for $72.4 billion, it was expected to run a $19.6 billion deficit. The problem was that it called for 2.15 million barrels a day in oil exports, something that has not been achieved since the 2003 invasion. At the same time, it was based upon a price of $62.50 a barrel, which was below what Iraqi crude was going for at that moment. Rather than coming up short, the government may actually finish the year with another surplus.

The possible surplus would come from higher than expected oil prices, a lack of spending, and loans. For the first six months of 2010 Iraqi petroleum has been selling at an average price of $74.93 per barrel. It reached a high of $79.66 per barrel in April. That has brought in $25.2 billion in revenue, and if it stayed at that level Iraq would earn around $50.4 from oil this year. In 2009 the country only earned $37.02 billion.Another factor is that it has been five months since Iraq’s parliamentary elections and the country still has no government. One isn’t expected to be formed until the fall when Ramadan ends. That has held up government expenditures. Baghdad and the provinces have also never been able to spend all of their money. The 2009 budget for example, was predicted to run a $16 billion deficit, but ended up having a $2.5 billion surplus partly because of lower than expected capital spending, which goes towards infrastructure. The same is likely to happen this year. Iraq has also secured several loans, starting with $3.6 billion from the International Monetary Fund in February, and $250 million from the World Bank, both of which were to go to covering any budget deficit.

Iraq has had surpluses every year since it got back its sovereignty in 2005 from the United States. That’s mainly because the government bureaucracy lacks the capacity to deal with all of the money that it has. That’s especially true for the capital budgets each year. Oil prices have also recovered after being hit by the world recession. Together, these mean that the 2010 budget will be little different from previous ones with extra funds leftover.

SOURCES

Special Inspector General for Iraq Reconstruction, “Quarterly and Semiannual Report to the United States Congress,” 7/30/10
- “Quarterly Report and Semiannual Report to the United States Congress,” 1/30/10
- “Quarterly Report to the United States Congress,” 4/30/10