BAGHDAD: Iraq’s budget deficit for 2011, now expected to reach $13.6 billion, would be eliminated if oil prices stay at their current levels, a finance ministry official said on Tuesday.
The budget remains subject to negotiations between political factions, having been passed several times between parliament and the cabinet.
The latest version foresees spending of $80 billion and is based on average oil prices of $76.50 a barrel and crude exports averaging 2.25 million barrels per day. It also projects a $13.6 billion deficit.
Deputy Finance Minister Fadhil Nabi said Iraq would not need to borrow to cover a fiscal gap, either by issuing bonds or from the International Monetary Fund or World Bank, if oil remained at around $97 per barrel this year.
"If the (oil) price stays high, we will be safe. We will cover the whole deficit with no need for internal or external loans," Nabi told Reuters in an interview.
Budget shortfalls challenge Iraq’s ability to rebuild after years of conflict following the US-led invasion in 2003. Violence has subsided in the last three years and the government has launched major projects to refurbish oilfields and infrastructure and to construct housing.
Last year the IMF approved a $3.64 billion loan and the World Bank the first of two $250 million loans to help plug a gap in the government’s income caused by an earlier slump in global oil prices.
Nabi said he expected oil prices to average around $80 a barrel in 2011, which would allow the deficit to be financed through domestic T-bills, sold to Iraqi banks.
Nabi said borrowing from the Central Bank of Iraq was not considered an option.
Iraq’s cabinet had previously asked parliament to approve an addendum to the budget that would allow the government to borrow from the central bank. But Nabi said the finance ministry has asked parliament to cancel that provision.
Last week, Iraq’s federal court, ruling on a request from Prime Minister Nuri Al-Maliki, decided that the central bank should be put under the supervision of the cabinet, not parliament. The ruling outraged critics, who said Maliki was trying to consolidate power.
Nabi said he expected the IMF to pressure Iraq to reverse that decision.
2012 budget
Nabi said he expected Iraq’s 2012 budget to be 10 trillion dinars ($8.5 billion) larger than this year’s, boosted by increased oil exports. The government depends on oil for more than 95 percent of its revenue.
The OPEC producer has signed deals with global oil firms that could boost its output capacity to 12 million bpd from the current 2.5 million, rivalling top producer Saudi Arabia.
Nabi said the 2011 budget includes 2.5 trillion dinars to pay international oil companies working in Iraq, including the ones in semi-autonomous Iraqi Kurdistan.
Oil exports from Iraqi Kurdistan have been held up by disagreement between the Arab-led government in Baghdad and the Kurdish authorities over the legality of contracts signed by the Kurds with foreign oil firms.
Baghdad has agreed to pay only the exploration costs of the companies.
"We are committed to pay … we as a finance ministry are waiting for the supreme audit to give us a report in which it states ‘pay such amount of money,’ and we will pay immediately," he said.
