Iraq's oil exports drop worsens budget outlook 

(MENAFN - Jordan Times) Iraq's budget deficit could soar to $25 billion this year if oil exports stay at their current low levels, prompting the government to consider new taxes and import duties to bolster revenues, the finance minister said.

Bayan Jabor said the concerns about state finances stemmed from oil exports that averaged 1.8 million barrel per day (bpd) in the first quarter of 2009, at least 200,000 bpd below the target set in 2009 budget.

"The only problem we now face which efforts must be exerted to solve is the drop in exports below the two million bpd factored in the 2009 budget," Jabor told Reuters in the Jordanian capital of Amman.

The drop in global oil prices from a high of $147 per barrel last summer to close to $48 now has slashed Iraq's income from oil exports, its main source of revenues, just when it desperately needs money to rebuild after years of war.

The 2009 budget has already been cut twice, from an initial $80 billion to $58.6 billion by a parliament that says the government is squandering money on luxuries and salaries of senior officials.

"Our deficit is around $17 billion but if this drop in oil prices and exports continues, the 2009 deficit would rise to $25 billion and this will impact negatively the economy," Jabor added.

But the last version was still dependent on an average oil price of $50 per barrel, above current market rates.

Growth estimates for Iraq, a country with the world's third biggest reserves of crude, are now down to 4.5 per cent in 2009 from a previous 8 per cent, Jabor added.

The Cabinet was deliberating on ways to raise domestic revenues by wider taxation and higher import duties and customs without hurting low income groups or reducing public sector pay.

"If we fail to boost oil exports in the coming months we will face a crisis and then no doubt we will have to resort to other measures to maximise revenues, whether widening the taxation base or customs or tariffs on imports," he said.

Jabor said the impact of current fast-track efforts to boost oil production by seeking foreign investors for its antiquated infrastructure would not be felt any time soon.

"...Unfortunately the belated entry of large international firms this year into the oil sector will not come to our rescue in the coming short term period," Jabor said.

"It's a late step but it's a step on the road and will no doubt help Iraq boost revenues in the coming years," he said.

The last Cabinet meeting on Tuesday discussed ways to spur domestic investment through a broad stimulus package that cuts red tape and includes new incentives to local and foreign investors under a revamped investment law, Jabor said.

Jabor said the Cabinet had also approved lifting restrictions on land ownership by Arab and foreign investors that waives existing cumbersome restrictions.

"Arab and foreign investors can now set up projects while owning the land without the existing conditions that were very complicated," Jabor added.

Businessmen say the top hurdles to investing are red tape, inconsistent laws, and delays in land leases where investors wait too long for permits to be granted.

Jabor also urged the central bank to further cut interest rates to an average of 5 to 6 per cent from a current 9 per cent to spur growth as the steep fall in oil prices threaten to drag the country into recession.

The effect of these measures on the broader economy should begin to be felt by the second half of the year.

"These stimulus measures will dramatically improve the investment climate and attract more foreign investors and help ease the impact of the drop in oil prices on our economy," Jabor said.