Iraq Could Slash Deficit Next Year

The high price of oil could prove the latest projection of a USD14.5bn budget deficit in 2012 as being too pessimistic.

The Cabinet approved a $100bn budget for 2012 in the first week of December, although it is still waiting for Parliament to give its approval. The budget is based on oil at an average $85 dollars per barrel. With around 95% of Iraqi government revenue coming from oil, the price of a barrel is the most important factor to forecast.

At the end of 2010 the government had forecast a budget surplus for 2012, but in its latest budget it has instead committed to greater expenditure to speed up infrastructure investment and growth. Iraq’s budget has risen by around $30bn since 2010, leading to a forecast of a $14.5bn deficit in 2012.

With oil now at $100/barrel or more, it is possible that the government will cut into this deficit in 2012 if prices remain higher for most of the coming year. In the past two years, Cabinet and Parliament have based their budgets on conservative oil price estimates. If these latest projections also turn out to be conservative enough, the projected deficit could come down significantly.

The second tricky number to project is the number of barrels of oil the country will produce. The final numbers are not in, but it looks like the government was pretty close to its target of 2.2m/bpd target in 2011.  The 2012 budget is projecting an average 2.65m barrels per day.

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