Iraq: Subsidies and Deficits

While the US military continues to fight terrorist insurgents in Iraq, the Iraqi planning minister has been readying to fight subsidies:

BAGHDAD, Oct 23 (AFP) - The Iraqi government plans to phase out slowly subsidies on basic products, such as oil and electricity, which comprise 50 percent of public spending, equal to 15 billion dollars, the planning minister said on Saturday.

Unveiling a three year economic plan, compiled by in cooperation with the World Bank and the International Monetary Fund, Madhi al-Hafez pledged "a progressive programme to suppress subsidies... (which) constitute a significant burden on public finances."

Most Iraqis relied on subsidised fuel, electricity and food rations under a United Nations-sponsored oil-for-food programme during the regime of Saddam Hussein.

This could seriously hurt real incomes of many Iraqis if not done in conjunction with a plan to distribute some oil profits to Iraqis.

Also of note are the simple means of creating a budget deficit--i.e. an excuse for international aid--just use an incredibly conservative estimated price of oil:

Iraq itself is predicted to generate revenues (profit?--ed) of 19.4 billion dollars which, coupled with external aid, will bring total revenues to 23.7 billion dollars.

But the budget is seen at 30.4 billion dollars, meaning a deficit of some 6.7 billion dollars, including foreign help, and 11 million (sic) dollars without.

The 2005 budget is based on a price of oil of 26 dollars-per-barrel -- a hugely conservative estimate, considering the price of oil, which ended the week at a record 55.50 dollars a barrel.

"We have put very conservative figures on oil prices and if it continues to rise we might be able to cover the deficit," said Hafez.


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This page contains a single entry by Kevin published on October 23, 2004 2:12 PM.

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