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Government Facing Budget Woes

As budget predictions suggest a huge deficit, economists urge government to diversify revenue streams.
By Safaa al-Mansoor

Iraq is expected to have a budget deficit of more than 4.4 billion US dollars this year - a sevenfold increase on last year - despite the government’s attempts to tackle the shortfall.


Economists are meanwhile calling on officials to reduce their dependency on oil revenue, severely hit by corruption and the insurgency, by developing other sources of revenue.


An official from the ministry of finance, who spoke on condition of anonymity, told IWPR that the ministry estimates 2005 revenues at slightly less than 19.2 billion dollars, with expenditures totalling 23.6 billion.


The anticipated revenue is a significant increase over the 2004 figure of 13.3 billion dollars, but slightly lower than the government had been hoping to see this year.


The predicted deficit represents a sevenfold increase on the 2004 outcome of 611.2 million dollars. The government had hoped for a surplus of 13.3 million dollars.


The 2005 budget is still being drafted, having been delayed by the formation of the new government. Officials from the finance ministry declined to speculate on when a final document would be ready.


IWPR’s finance ministry source said that 94 per cent of spending this year will be divided among 27 ministries involved with economic investment and reconstruction. The oil ministry will receive the biggest allocation, followed by the defence and security agencies.


As Iraq’s biggest export item, oil is the major contributor to the government budget, accounting for more than 90 per cent of revenue in 2004. Finance ministry officials were not prepared to reveal the expected figure for 2005, but it is unlikely that there will be much change from last year’s 12.4 billion dollars since the sector has not been able to significantly boost production figures, as a result both of smuggling and of attacks on pipelines.


“We are optimistic about Iraq’s economic future although the current state of affairs is not to our liking,” said the IWPR source.


Outgoing planning minister Mahdi al-Hafiz said the government is working on policies and projects that will improve conditions for ordinary people and also stimulate the economy.


“We want to achieve the required balance between supplying public services and encouraging economic development,” he said. “We are focusing on vital projects which will have a rapid impact on developing the Iraqi economy.”


Many Iraqi economists are, however, critical of the government’s economic policy and the secrecy surrounding the budget.


Economist Karim Manhal said there should be greater transparency when it comes to budget deliberations, and more of an emphasis on diversifying the revenue base to make it less heavily dependent on oil.


Tahir al-Janaby, professor of finance and budgeting at the University of Mustansiriyah in Baghdad, agreed, saying officials should develop sectors such as agriculture and mineral extraction.


Economist Saleem al-Wardi urged the government to make general taxation into a more important component of its revenue.


Under the Coalition Provisional Authority, a flat tax system went into effect in January 2004, setting both personal income and corporate taxes at 15 per cent. This generated 31 million dollars of revenue last year, and the contribution is expected to rise to 82.7 million dollars this year.


Safaa al-Mansoor is an IWPR trainee in Baghdad.


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