Are Budget Cuts Ahead For Iraq?

Iraq’s financial woes seem to only be beginning. A member of the Iraqi parliament’s Finance Committee said that the country’s 2009 budget would have a 23% deficit, that could increase to 50% if oil prices keep on dropping. The budget was based upon a $62 a barrel price of oil, which was a conservative estimate at the time when oil was at over $100 a barrel. The problem stems from the fact that on December 8, oil was selling at $45 a barrel. The politician criticized the government saying that other countries in the region had planned budgets based upon a $40 a barrel price. As reported earlier, Iraq is far more dependent upon oil revenues that its Arab neighbors.

The budget problems are going to have a negative affect upon government services. Finance Minister Bayan Baqir Jabor has already called on ministries, government offices, and the provinces to cut spending. A financial expert from the Central Bank of Iraq told Aswat al-Iraq that austerity measures were probably in order to balance Iraq’s budget. He said Baghdad could cut spending by 20 trillion dinars. Otherwise the advisor suggested Iraq could issue bonds or seek international loans, but he discouraged that last one. Iraq is still struggling to come out from under Saddam era debts.

When the price of oil dropped a few observers noted this would have a dire affect upon Iraq. Calls for reducing spending and austerity measures are probably only the beginning of an approaching budget crisis. Reconstruction and programs for the needy could be the targets of cuts as most of the budget goes towards salaries, pensions, and paying operating costs. This would adversely affect the populace, up to 60% of which lives below the international poverty line. The fact that the economy was under sanctions for years, mismanaged by the Americans, flooded with cheap imports, and been underdeveloped by the current government will all mean that Iraq will continue to be dependent upon world oil markets for revenue, something they have no real control over.

SOURCES

Aswat al-Iraq, “Austerity could save 20 trillion dinars for 2009 budget – expert,” 12/9/08
- “Deficit in 2009 budget may reach 50% - MP,” 12/9/08
- “Finance ministry urges expenditure cuts,” 12/7/08

Bruno, Greg, “Transparency and Surpluses in Iraq’s Oil-Dependent Budget,” Council on Foreign Relations, 10/28/08

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

IRIN, “Iraq: Low oil prices could affect government aid to IDPs,” 12/11/08

Sachet, Khalid Hantoush, “Results of the Field Survey For Needs and Opinions of The Poor in Iraq,” Iraqi Al Amal Association, University of Baghdad, September 2008

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