Iraq's Proposed 2012 Budget Based on $85 Oil Price

Source: Reuters 5/26/2011, Location: Middle East

Iraq government spending will rise by around a quarter in 2012 to 115 trillion Dinars ($98.45 billion), and higher oil prices will allow it to balance state finances this year, its finance minister said.

Rafie al-Esawi said he saw current oil prices as "good" and that higher-than-expected prices over the past weeks would help to cover Iraq's budget deficit in 2011.

The 2012 budget would be based on a world oil price of $85 a barrel, he said, compared to current levels of around $115 for Brent crude.

In February, Iraq's parliament approved an $82.6 billion budget for 2011 based on an average oil price of $76.50 per barrel and 2.2 million barrels per day in crude exports.

"We expect the rise in revenue coming from the difference in the (projected) oil price will be enough to cover the deficit planned in the 2011 budget," al-Esawi told reporters on the sidelines of a banking event.

"Any increase in oil prices or a rise in oil production will be allocated to cover the deficit," he added. The new budget for 2012 allocates 40 trillion Dinars for investments, the minister said. It still needs the final approval of the Iraqi cabinet and parliament.

The 2011 deficit was projected at $13.4 billion, although Iraqi officials have said the shortfall will be eliminated if world oil prices remain at current levels. Oil prices have rallied above $100 a barrel for most of the year LCOc1. Separately, the central bank governor Sinan al-Shibibi told Reuters he expected Iraq's Gross Domestic Product excluding its key oil sector to grow by 6 percent in 2011.

If oil was included, the GDP for this year could reach 12 percent, said the bank governor, reiterating a previously announced estimate. He added that the goal was to try to maintain this level of growth in 2012.

Iraq is starved of investment and the process of rebuilding a nation still emerging from years of conflict triggered by a 2003 U.S.-led invasion to topple Saddam Hussein has been slow.

The economy is still largely disconnected from the global financial system and is dominated by oil, with exports from the third biggest stock of reserves in the world accounting for more than 95 percent of state revenues.

Budget shortfalls are challenging Iraq's ability to rebuild. Iraq has announced massive projects to build hundreds of thousands of new homes and to boost electricity generation.


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