Iraq and Gulf Analysis

An Iraq Blog by a Victim of the Human Rights Crimes of the Norwegian Government

Decentralisation Bonanza in the Iraqi Budget

Posted by Reidar Visser on Wednesday, 27 January 2010 10:33

“Pork barrel” may perhaps come across as supremely insensitive in the Iraqi context and yet this very American expression may be the best way of explaining the political compromise that facilitated the passage of the 2010 budget in the Iraqi parliament yesterday.The key to understanding at least some of the underlying dynamic here is hidden in article 43 of the new budget law, which specifies special rates of added income for a number of Iraqi governorates according to their economic structure… Full story here.

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21 Responses to “Decentralisation Bonanza in the Iraqi Budget”

  1. Reidar Visser said

    Note the correction added to the article: The same expression about Turkey exports can also be found in the 2009 budget, indicating that no radical change is implied by this heading in itself. The alternative explanation relates to Turkish pipeline surcharges.

    Nonetheless, the 20 January budget leak is interesting enough to be reproduced here in full:

    أعلن الناطق الرسمي بإسم الحكومة العراقية أن مجلس الوزراء قرر الموافقة على تعديل مشروع قانون الموازنة العامة الإتحادية لسنة 2010 بموجب طلب مجلس النواب / اللجنة المالية بتخصيص مبلغ (267,385,000,000) دينار كموازنة لمجلس النواب و (313,569,650,000) دينار كموازنة لمجلس القضاء الأعلى و (250) مليار دينار كموازنة لمؤسستي الشهداء والسجناء السياسيين و(263,511,000,000) دينار عن حصة إقليم كردستان العراق عن تنمية الأقاليم مع إضافة مبلغ (416) مليار دينار عن كلفة إنتاج النفط الخام المصدر وإضافة مبلغ (84) مليار دينار كتخصيصات إضافية عن أجور نقل النفط الخام عبر تركيا

    Should we read anything into the juxtaposition of the oil-production items to the Kurdistan share of the budget?

  2. Joel Wing said

    Reidar I think you’re missing the most important part of the budget, the fact that it has an estimated $19 bil deficit to add to the current $16 bil deficit. The parliament is piling on debt that they can’t cover because they still have a state run economy and just about everyone relies on the public sector for something. The mechanisms to cover the deficit (using past surpluses, treasury bonds, IMF/World Bank loans) failed to come through last year and probably won’t happen again thus time.

  3. Reidar Visser said

    Joel, I wouldn’t want to pretend that I know a lot about the budget in general, I am not an economist. The ambition behind this short piece is a lot more modest: It’s just a couple of reflections on those aspects of the budget that intercede with areas that I work on, like centre-periphery and federalism issues, and political alliance formation.

  4. Salah said

    The mechanisms to cover the deficit (using past surpluses, treasury bonds, IMF/World Bank loans) failed

    Simple answer and reality check on the ground there is thuggish have given all that money expecting they will use them wisely??

    So don’t how some wisdom mind need to understand the reality of people whom they put in positions to use wherever mechanisms to solve the stateless country.

  5. Joel Wing said

    Reidar,

    Completely understand what the article is about, but I think it’s important to point out that amongst all the horse trading behind the passage of the budget, it is fiscally unsound and so was the last one.

  6. al-Saffar said

    Joel,
    Though most people were forecasting that Iraq’s deficit was high in 2009 (around 11% of GDP), a lot have now revised this downwards, and some (international) governmental organisations estimate that it was in fact in surplus.

    As far as I recall, Iraq had a stand-by agreement for a US$5bn loan with the IMF but it has not called on it yet. The government plans to finance the next deficit with that in addition to $3bn in private borrowing.

  7. Salah said

    As far as I recall, Iraq had a stand-by agreement for a US$5bn

    al-Saffar, the amount of money you talking about, I think is laughable if we take all the oil deals as that Al-Shurstani with big cartel of oil companies.

    I don’t know full details but this 5bill looks to me very minor if compared with vast deals of oils with already oil exports which in level of 2.5mill barrel with today oil pricing around $70-$80.

  8. Salah said

    Some intersting discussion about Iraq’s 2010 budget; the missing pages.Look to the struggle of this matter there was compromise things one of them by paying the members and may be the more the bosses to reach this agreement.

    As we know this subject was up and down in parliament but the surprising thing here the a majority voted for it, which unusual in these case where more opposition and unhappiness with the details of new resolution. but looks USD have the final say in this matter more that other things here.

  9. Joel Wing said

    al-Saffar,

    The Oct. 09 Special Inspector General for Iraq Reconstruction Report said that Iraq was running a $16 bil deficit at that time. They have some of the best, most accurate numbers available about Iraq’s economy

    2nd, the 2009 budget was based upon 2 mil/bar/day in exports at $50 a barrel. Iraq didn’t reach $50 a barrel until May 2009 and only exported 2 mil/bar/day 2 out of 12 months that year. Oil provides around 90-90% of government revenue.

    3rd the $5.5 bil loan is going towards the 2010 budget. It will help, but not a lot. Plus $2.4 billions in bonds that were sold last year went to a single contract with General Electric and Siemens for power generators.

    Add to that the fact that all of the provinces ran deficits last year and are expected to still have that problem last year, probably accounts for the projected $19 bil deficit in the 2010 budget.

  10. Salah said

    مع إضافة مبلغ (416) مليار دينار عن كلفة إنتاج النفط الخام المصدر وإضافة مبلغ (84) مليار دينار كتخصيصات إضافية عن أجور نقل النفط الخام عبر تركيا

    But Iraq still with Shurstani as oil Minster importing Iranian oil products includes gas.

    Last week Iraq ink a deal with Iran to importing Iranian gas.

  11. Reidar Visser said

    Salah, the discussion about the “presidential” spending is certainly interesting, but note that the budget that is linked to in that article is from last year, it is not the 2010 budget. It has a better level of detail; I have still not seen anything similar for 2010 but hopefully it gets published soon.

    The problem for Shahristani in this case is that while the latest deals certainly look good in the long term, their budgetary impact in the shape of increased production for the financial year of 2010 appears to be very limited. The daily production level for oil still barely hovers above the 2 million bpd mark.

  12. al-Saffar said

    Joel,
    I understand what you’re saying, I realise that most were forecasting a large deficit for 2009, but I suspect even the Special Inspector General for Iraq Reconstruction Report will go the way of DFID and revise their projections. This is because investment spending did not reach its target in Iraq, bringing down total expenditure.

    Salah, I referred to the IMF loan in reply to a previous post that mentioned it as a means of financing a deficit.

    The 2010 predicts a deficit of ID21tr, this is based on the assumption that Iraq exports 2.1m b/d at a price of US$62.5 and an increase in investment spending of 34.7%. I doubt the deficit will be as high as this, firstly because the government will be unable to disburse the investment allocation, just like it did this year (with perhaps an even more pronounced inability due to the likely change in government and the usual delays in forming a cabinet), and because the forecast of US$62.5 p/b is a conservative one (they probably learnt from last year). The EIU has the most conservative commodity price forecasts and they are putting the barrel at US$78 per barrel in 2010, dropping to US$73 in 2011 as the effect of the global economic stimulus starts to dry out and growth in the OECD slows.

  13. Joel Winig said

    My take on the budget:

    http://musingsoniraq.blogspot.com/2010/01/2010-iraq-budget-passed.html

  14. Joel Winig said

    Al-Saffar,

    In last year’s budget less than 20% was for investment, the rest was for operational costs, i.e. salaries, pensions, etc. That part of the budget usually gets 80% or so spent.

  15. Ruba said

    Reidar, the additions of allocations approved by the council of ministers, including for the cost of oil produced and transported, has nothing to do with the Kurds. Every year there is an estimate of the operational costs for exported oil and the approval of the additions came as a result of expectation that exports will increase in 2010, albeit marginally. The inaccurate wording in the government’s spokesman statement is the source of the confusion.

  16. Reidar Visser said

    Ruba, thanks so much for the clarification and for putting this into its proper perspective. The mention of the Turkey exports in relation to Kurdistan in that report from Ali al-Dabbagh’s briefing made me think that something could be going on since the Kurds have been quite active lately in pressing for possible concessions by Baghdad even before the elections. But I got suspicious when I found the same expression in the 2009 budget, and I think the explanation you offer makes a lot more sense.

  17. Salah said

    Reidar & al-Saffar, thank you both of the clarification.

    There is another aspect that may be a concern about Iraqi money handling

    The United Nations Compensation Commission paid Thursday that they paid 674.2 millions dollars collected from Iraqi oil exports for different claimers.

    The UN Commission not stated in its announcement names, governments and companies who got paid?

    دفعة تعويضات عن غزو الكويت

  18. Salah said

    Two things that also happened during these days which also much of concerns:

    1- Maliki announced the former army and police who served as army and police officers
    (About 70,000 personal) will be considering to rewards them retirement pensions after the election in March. This looks Maliki’s bribe like to gain votes for his Kutla.

    2- The United Nations has authorized the extension of the U.S. President memo to protect the DFI funds

  19. al-Saffar said

    It seems the government was conservative in its oil price forecast for the previous (2009) budget. The average Iraqi crude price last year was US$58.94 according to MEES.

  20. Joel Wing said

    The parliament was conservative with the price per barrel in the 2010 budget this year, unlike the last one. That’s not the problem however. The problem is that this year’s budget calls for 2.15 mil/bar/day in exports. 2009 was the first time in four years that avg. oil production actually went down. For the year Iraq avg. 1.59 mil/bar/day.

  21. al-Saffar said

    Joel,
    I would like to see the source you used for the 1.59m b/d claim. According to MEES (Feb 2010), the average production in 2009 was 1.91m b/d, peaking in July and August at 2.035m b/d. Making the increase to 2.15 for this year a bit more realistic.

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