IMF warns of growing adoption of Iraq’s budget on oil revenues

Posted: January 28, 2014 in Iraqi Dinar/Politics

Tuesday January 28, 2014
An official at the International Monetary Fund, on Monday, said that the general budget in Iraq are increasingly prone to be affected by a drop in oil prices and the government may face difficulty in financing this year’s budget plan.

Said Carlo Sdraljevic, head of the IMF mission to Iraq, “there is a structural problem. Based fiscal policy largely on oil revenues and this dependence is growing. This trend is worrying because the price of oil, which achieves a balance between revenues and expenses on the rise a few years ago.”

The IMF estimated in October that Iraq, which relies on crude oil exports to reap about 93 per cent of government revenues he needs an average oil price of 106.1 dollars in 2013 to adjust the budget, up from $ 95 a barrel in 2011, due to increased expenses.

But Brent crude is currently hovering around $ 107 per barrel is expected to decline gradually in the next two years to $ 103 in 2014 and $ 100 in 2015, with continued enjoyment of the market supply of good in light of the oil boom of shale in the United States and increase the production of Iraq, according to a Reuters survey of the views of analysts.

Sdraljevic said that “there are another source of concern is the lack of flexibility of spending. There are many aspects of current spending, and when they do not find him the government end up sufficient income to reduce their investments and this in turn affects negatively on growth in the long term.”

The IMF estimated that the budget of Iraq turned into a deficit of 0.7 percent of GDP last year, the first since 2010, compared with a surplus of 4.1 per cent in 2012.

He continued by saying that Sdraljevic draft of this year’s budget currently being debated by Parliament, including a significant increase in spending in its current form and Iraq may face difficulty in funding.

Earlier this month, Kurdish ministers withdrew from the session to the Iraqi government because of disagreements about the draft revenue budget for 2014 estimated at 174.6 trillion dinars (150.1 billion dollars).

The head of the parliament’s finance committee, told Reuters that the budget grossly additional spending will collapse if the government continued to pay the share of the Kurdistan region amounting to 17 per cent of oil revenues, despite the detention of Kurdish oil export revenues.

This was followed by the draft budget predicts a deficit of 21 trillion dinars, assuming that the opponents of the Treasury Kurds oil export revenues of $ 400 thousand barrels per day. Sources in the oil sector that this goal is much higher than the current export capacity of Kurdistan, which amounted to about 255 thousand barrels per day.

Fund criticized in an earlier report Iraq because of poor planning and execution of the budget and overspending and poor implementation rates of investment.

Sdraljevic also said that Iraq must guarantee the independence of the central bank and the government’s policy to keep the Reserve Bank’s management is separate from the Development Fund for Iraq.

Abizaid and reserves the Development Fund for Iraq, which is used by the government for public investment projects amounted to 6.5 billion dollars at the end of 2013 from 18.5 billion dollars in 2012.

The smartest addition to this increased spending budget concerns that the government is using the ultimate foreign exchange reserves of the central bank’s 77 billion dollars to finance public spending, which could weaken the currency and increases inflation.

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