Iraq sees fall in deficit, Investment Increase

Istambul, 11 June 2010 - Reuters

Iraq will decrease its deficit to 8 percent over the next three years from 18 percent, the finance minister said on Wednesday, and envisioned a substantial increase in investment as a percentage of the budget.

Bayan Jabor also told Reuters he would issue more bonds to finance power generation deals with General Electric and Siemens.

"About the deficit I think it will be decreased from 18 percent till 8 percent (of the budget) in the next three years (in 2013)," he said in an interview on the sidelines of a Turkish-Arab economic forum in Istanbul.

"The investment now is around 26 percent of the budget, in 2013, it will be around 40 percent (of the budget)," he said.

Battered by years of war and crippling economic sanctions, Iraq struggles to witness steady, strong growth. A senior central bank official said growth, excluding the key oil sector, dipped to 4 percent of GDP last year from 10 percent in 2008.

Jabor said the 2010 Iraqi budget was $70 billion and would increase incrementally over the next three years.

"Now our budget in total is around $70 billion, in 2011 it will be $80 billion, in 2012 it will be $90 billion and in 2013 it will be $100 billion."

In 2008, Iraq signed multibillion dollar deals with General Electric (GE.N) and Siemens (SIEGn.DE) to add nearly 9,000 megawatts of capacity over the next few years.

But the country has scrambled for ways to finance the purchase after a plunge in oil prices in 2008 deprived it of revenues and forced it to slash its 2009 budget three times.

"We do treasury bills and we pay for GE and also for Siemens and we'll continue the process."

When asked if he would issue more bonds, Jabor said yes, adding that, "Until now we issued $2.4 billion, we will increase it to $4 billion," but declined to give a time frame.


Jabor said the deficit was being covered by the difference in oil prices set in the budget versus the actual selling price.

"The budget foresees $62.5 per barrel and now we're selling at $72, $74, $76 sometimes. We are covering the deficit from the difference in the oil price," he said, adding Iraq currently had a $10 billion surplus.

He added the budgets of 2011-2013 were based on an average oil price of $74 per barrel and said he thought $80 per barrel was "good for the producer and good for the others."

Jabor also said he would sign a letter stating the central Iraqi government would repay foreign oil companies working in Kurdistan for exploration expenses.

"I received the order from the cabinet and I will sign in the next few days a letter to the region of Kurdistan that the Iraqi government will pay for all the equipment for the foreign oil companies," he said, but declined to give an amount.

Kurdistan and Baghdad have been at loggerheads for months over oil deals Kurdistan signed independently with foreign firms, a move the central government in Baghdad considers illegal.

The Arab-led government in Baghdad refuses to pay the firms, and oil exports from Kurdistan stopped last year.

A joint committee that includes officials from the oil and finance ministries along with representatives of the KRG were meant to study the expenses foreign firms incurred in developing oil fields.

Jabor said private Turkish banks are interested in setting up joint ventures with private Iraqi banks, further strengthening the two countries' economic ties.

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