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Sat 28 Feb 2009 06:45 PM

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Iraq parliament likely to cut budget, again

Weak oil prices continue to have major impact as state budget faces cut for third time.

Iraq's parliament is likely to cut the country's oil-dependent budget, already slashed twice because of the collapse in global crude prices, before approving government spending plans, lawmakers said on Saturday.

The 2009 budget had been due to be put to a vote on Saturday but negotiations over further cutbacks delayed the session. Iraq is struggling with slumping income from oil exports.

Lawmakers on the chamber's finance committee said one of about 50 proposals involved a cut of 5 trillion Iraqi dinars, or around $4.3 billion, off the current $62 billion budget. Another called for a cut of 5 percent, or around $3 billion.

"We in the financial committee will work hard and hope to cut back the budget by 5 trillion Iraqi dinars to achieve a reasonable and acceptable deficit," said Ayad al-Samarai, head of the committee.

"We hope to put it to a vote the day after tomorrow."

Iraq, which depends on oil exports for 90 percent of its income, has already cut its spending plans for this year twice as global oil prices slumped from a record high of $147 per barrel last summer to nearer $40 now.

The drop in revenues has hit just as violence unleashed by the 2003 US-led invasion declines and the country desperately needs money to start to rebuild.

The original spending plans amounted to $80 billion. Investment spending on infrastructure like power stations, bore the brunt of the cuts when the budget was last slashed.

The bulk of Iraq's government spending is dedicated to payroll and operational costs, such as food rations, which are difficult to scale back for political reasons. A large proportion of Iraqis depend one way or another on public sector wages.

Sami al-Atrushi, a member of parliament's finance committee, said the current proposal would result in a gap of 32 percent between spending and likely income because it was dependent on oil prices averaging $50 per barrel this year.

"It's true the Iraqi economy isn't directly affected by the world financial crisis, except through oil prices," Atrushi said.

"But that doesn't mean we shouldn't base our calculations on oil prices and have concerns about the coming years. We can be sure that if the economic crisis continues next year and longer, then it will start to have a direct and clear impact on the Iraqi economy. For that reason we are cutting the budget."

He said lawmakers opposed plans to fund this year's expected deficit with budget surpluses of prior years, adding the war chest should be kept in reserve for unexpected crises. (Reuters) 

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