Baghdad Hoping For Supplemental Budget Later In 2009

World oil prices have slowly crept back up in recent months. A barrel of oil is selling for around $70 per barrel on international markets. Iraq crude sells at a lower price, but it has been going up as well, along with exports. Baghdad is hoping that if the trend continues, the government will be able to pass a supplemental budget later in 2009 that will help alleviate some of the country’s financial problems.

At the beginning of April Iraq passed its 2009 budget. The budget went through three revisions before it was finally passed, and was still expected to run a $20 billion deficit. That was because it was based upon 2 million barrels a day average in exports and a $50 a barrel price, neither of which Iraq was achieving at that time. By May the Oil Ministry claimed Iraqi crude had reached the $50 mark, but was still only selling 1.905 million barrels a day. To make up the difference the Finance Ministry took out a two-year $7 billion loan from the International Monetary Fund.

The budget crunch is being felt already in the provinces. At the end of May, Maysan officials announced that they were going to run a deficit in 2009, and had no new money for development projects. They were looking for outside investment to fund growth. At the beginning of June, IraqSlogger reported a similar situation in Basra. The head of the reconstruction committee there said they too had no money for new projects, and were short about $84 million for what they needed.

With oil prices going up, Baghdad is now more optimistic about its money problems. Prime Minister Nouri al-Maliki recently said that he was hoping that the central government could pass a supplementary budget later this year if Iraqi crude continued to accrue in price. That would hopefully add much needed money to the ministries and provinces, all of which have had to cut their budgets. Of course, there’s also the issue of spending their funds, something Baghdad and the provinces still struggle with.

Iraq needs billions of dollars to improve its governance, services, and economy. U.S. reconstruction is coming to an end, so Iraq is increasingly on its own to provide money for development. The 2009 budget problems then, come at a bad time. Even if Iraq is able to meet its oil production and price goals, it will still be in debt to the IMF, and many of Iraq’s provinces will be left wanting until if and when a supplemental budget is passed. That will mean much needed rebuilding will be delayed.

SOURCES

Abdul-Zahra, Qassim, “Iraq passes sharply reduced budget for 2009,” Associated Press, 3/5/09

Agence France Presse, “Iraq presidency approves slashed budget,” 4/3/09

Aswat al-Iraq, “Finance ministry to sign new agreements with IMF,” 5/27/09
- “Increase in oil exports contributes to budget balance – ministry,” 6/2/09

Iraq Directory, “Maysan province seeks to attract foreign investment to compensate the fiscal deficit in budget,” 5/30/09
- “New supplementary budget with the rise of oil prices,” 6/10/09

IraqSlogger.com, “Basra: Moritorium on New Development Projects,” 6/3/09

Reuters, “As oil prices rise, Iraq nurtures budget hopes,” 6/8/09

Going Into Debt To Cover Budget Deficit

On April 3, 2009 the Presidential Council passed the $58.9 billion 2009 Iraqi budget. It was based upon 2 million barrels a day in oil exports at a price of $50 a barrel. In that month the country was only able to sell 1.82 million barrels a day at $47 a barrel. As a result, the country is expected to run anywhere from a $25 billion to $30 billion deficit. Parliament originally believed that this would be covered by the country’s large foreign reserves that had built up since 2005 due to rising oil prices and an inability of Baghdad to spend most of its money. The Finance Minister Baqir Jabr said this stands at $75 billion, $44 billion in the Central Bank of Iraq and $30 billion held by the Finance Ministry itself. On April 27 Minister Jabr however said that the government couldn’t use that fund. That was followed by the Central Bank announcing in May that it had turned down the government’s request to cover the deficit. That leaves Baghdad with only two means to make up the difference. One, it can hope that the Oil Ministry is able to boost oil production to bring in more money. That’s unlikely to happen anytime soon. The other option is for the government to get a loan from the International Monetary Fund (IMF). That’s the route Baghdad is currently following.

It seems that parliament was completely unaware of the rules governing the budget when it was passed or were misinformed about them. There were several reports that lawmakers expected the budget deficit to be covered by the country’s reserves. It was only after that it was passed that the Finance Minister let them know that they could not use this money. The legislature either never talked to the Ministry or the Central Bank when it was debating the budget or were misled. In the end, parliament ended up passing a budget, almost half of which it can’t pay for. To make matters worse, it will go further in debt, borrowing money from the IMF to cover the difference, despite the fact that it has a massive reserve. Hopefully that can be used to pay the loan back, otherwise the situation will get worse in the next fiscal year unless petroleum prices skyrocket up again.

For more on Iraq's budget see:

Falling Oil Revenues, and Uneven Production

Baghdad Failing To Invest In Its Future

Presidential Council Vetoes 2009 Budget

Ups and Downs Of Iraq's Oil Industry And Its Implications For The Budget

Iraq's Budget Stalled

How Are The Current Provincial Councils Doing?

Iraq Revises Budget Once Again

Iraq Cuts Budget

Are Budget Cuts Ahead For Iraq?

Iraq's New Budget Woes

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

NY Times Finds Iraq Spends Even Less Of Its Budget

GAO August 2008 Report On Iraq's Budget And Spending

SOURCES

Abdul-Zahra, Qassim, “Iraq passes sharply reduced budget for 2009,” Associated Press, 3/5/09

Agence France Presse, “Iraq presidency approves slashed budget,” 4/3/09

Aswat al-Iraq, “MP expects 50% deficit in 2009 budget,” 4/27/09

Azzaman, “Iraq’s hard cash reserves estimated at more than $70 billion, minister says,” 3/18/09

Cockburn, Patrick, “Collapse in Iraqi oil price shatters hope of recovery,” Independent, 3/20/09

Cordesman, Anthony, “The Changing Situation in Iraq: A Progress Report,” Center for Strategic and International Studies, 4/4/09

Hafidh, Hassan, “UPDATE: Iraq April Oil Exports 1.82M B/d, Up 0.33% On Month,” Dow Jones, 5/3/09

Al-Hashemi, Mostafa, “Iraq not to tap hard cash reserves despite fall in oil prices,” Azzaman, 4/27/09

Iraq Directory, “Central Bank of Iraq (CBI) declined government’s request to borrow from Reserved funds,” 5/5/09

Levinson, Charles, “Toll Rises as Iraq Slows Surge,” Wall Street Journal, 5/9/09

Sly, Liz, “Economic downturn finally hits Iraq,” Los Angeles Times, 5/11/09