December 9, 2011The Cabinet has passed its largest draft budget yet, calling for spending of 117 trillion Iraqi dinars ($97.5 million) next year, a 22 percent increase over 2011.
The budget reflects Iraq's priorities as it takes its first steps into full sovereignty, dedicating nearly half of state spending to three sectors: energy, security, and social services.
Iraq still depends almost exclusively on oil for its income. The budget anticipates revenues of 102 trillion dinars (about $85 billion), based ...
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December 9, 2011
BAGHDAD – The Cabinet has passed its largest draft budget yet, calling for spending of 117 trillion Iraqi dinars ($ 97.5 million) next year, a 22 percent increase over 2011.
The budget reflects Iraq’s priorities as it takes its first steps into full sovereignty, dedicating nearly half of state spending to three sectors: energy, security, and social services.
Iraq still depends almost exclusively on oil for its income. The budget anticipates revenues of 102 trillion dinars (about $ 85 billion), based on projected oil exports of 2.6 million barrels per day (bpd) at a price of $ 85 per barrel, according to a Cabinet statement.
The projected deficit is 15 trillion dinars (about $ 12.5 billion). The Cabinet statement claimed the shortfall will be largely covered by a combination of excess cash from 2011 and existing reserves; the government also anticipates borrowing at least $ 2 billion, and as much as $ 6.5 billion, from the International Monetary Fund (IMF).
Iraq’s high revenue projections come weeks after the Oil Ministry announced October exports of just 2.09 million bpd – the lowest average since December, 2010. Exports rebounded in November to 2.135 million bpd, according to an Iraqi oil industry source.
Despite this uneven trend, Iraq is on pace to exceed the $ 82 billion in spending called for in the 2011 budget, which overestimated the year’s average exports at 2.2 million bpd but underestimated oil prices at $ 76.50 per barrel.
The projected increase in 2012 oil sales appears to count on two factors: expanding export infrastructure and increasing flow from the semi-autonomous Kurdistan region.
The Oil Ministry expects to boost export capacity by 700,000 bpd early next year through its Iraq Crude Oil Export Expansion (ICOEE) project. Having signed billions of dollars in contracts with Leighton Offshore and Italian firm Saipam, the ministry plans to add a total of 4.5 million bpd of exports by 2014.
To date, the flow of crude has been constrained by export pipelines that are years beyond their expiration dates and risk imminent failure. In bad weather, ships in the northern Arabian Gulf are often delayed when they cannot dock at old tanker terminals, also affecting exports.
Another constraint has been the political impasse between the Kurdistan Regional Government (KRG), which has signed oil and gas contracts with 43 companies, and the central government, which claims sole rights to sign such deals and calls the Kurdish contracts illegal. The dispute has often stymied the KRG’s ability to sell crude through Baghdad’s northern pipeline to the Turkish port of Ceyhan.
A political breakthrough in January re-started Kurdish exports, which are on target to average more than 100,000 bpd this year, according to KRG Minister of Natural Resources Ashti Hawrami. The 2012 budget anticipates Kurdish exports of 175,000 bpd, consistent with an agreement reached between Prime Minister Nouri al-Maliki and KRG Prime Minister Barham Salih in October.
Under a long-standing agreement, the KRG will receive 17 percent of the general budget – in this draft, 12.6 trillion dinars ($ 10.5 billion).
The single largest budgetary priority is the energy sector, which has been allotted 17 percent of the budget (20.46 trillion dinars, or $ 17 billion). Just behind energy, security will take 17.16 trillion dinars ($ 14.3 billion) and social services 15.54 trillion dinars ($ 13 billion).
The spending priorities reflect the anxieties and ambitions of the government, which survived the Iraqi aftershocks of the Arab Spring by promising improved services. Protesters began taking to the streets in January and February by the thousands demanding more electricity,
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