Tuesday, January 1, 2019 08:41 pm | Number of readings: 491
The collapse of oil prices threatens the recovery of Iraq .. The government is not in an enviable position
The latest drop in oil prices has been a major blow to Iraq's stagnant economy, threatening the new government's ability to rebuild after the war with a staunch organization and provision of basic services to areas devastated by recent protests.
The price of Brent crude, used in international procurement pricing, briefly rose above $85 a barrel in October but has since fallen below $55
- a nightmare for a country like Iraq, which derives 95 percent of its revenue from oil exports.
A draft budget of $111.9 billion sent to parliament in October is a crude export project of 3.8 million barrels per day to be sold at $56 a barrel.
The bill, which includes a 23 percent increase in spending, would lead to a deficit of $22.8 billion.
But that will not begin even in the face of the enormous challenge of reconstruction after years of war.
About 1.8 million people have yet to return to their homes, according to the United Nations.
Mosul, the second largest city in the country, is partly in ruins, as in many other cities, towns and villages controlled by armed men.
The Iraqi Ministry of Planning estimates that the country needs about $88 billion for reconstruction.
In February, donors at the Kuwait summit pledged $30 billion in loans and investments to finance part of the bill, but little progress has been made to meet the pledges.
In the oil-rich south, which survived the devastation of the war, protests have erupted in recent months because of unemployment and poor public services.
The rolling power outage was a nationwide problem dating back to the US-led invasion in 2003, and in the south drinking water is unusable
"We were surprised by the decline in oil prices and we fell into a big problem," said MP Haneen al-Qaddu, who heads the parliament's economics committee.
"The government is not in an enviable position."
Iraqis elected a new government early in 2018, but dominated by the same rival political factions that have ruled the country for the past 15 years. Lawmakers have rejected the draft budget, calling for a new project that would estimate the price of oil lower and allocate more funds for public investments.
Al Qudu says they may not be able to approve the budget until the first quarter of next year. Until then, the government can only spend one portion of the previous year's allocations each month.
While international attention has focused on the devastation in northern and western Iraq and protests in the south, the budget crisis has inflicted heavy losses on Iraqis living in more stable areas.
Construction projects have been halted all over Baghdad for years, and half of the buildings have turned into rubbish dumps in neighborhoods.
The construction company of Kazem Nemeh Khudair signed contracts in 2014 to build four schools at a cost of $5 million.
By the following year, three of them had been completed by 80 per cent, but public funds had dried up when the Government began costly war against Dahesh.
When oil prices began to recover in 2017, the government began to pay premiums, but it is new for projects that have been mostly completed. Now the payments have stopped again pending the budget negotiations.
I just want to get back our capital, "Khudair said. "We've been fighting all these years, people are still knocking at my door and asking for their money."
Sami al-Araji, chairman of the National Investment Authority, told an economic conference in December that hundreds of projects worth about $54 billion were being delayed.
He called for a comprehensive economic reform that would boost investment and reduce the country's dependence on oil.
"We have to think about all the alternatives," he said. "The country has promising opportunities."
It is easier to say than to act. Efforts to diversify the economy have been frustrated by political fighting and corruption that fueled war and instability.