BAGHDAD, March 12 (Reuters) - Iraq will have to shelve most development and energy projects and borrow abroad to ensure it can pay public servants and food imports if an oil price crash continues, officials and lawmakers said.
The OPEC oil producer, which depends on oil revenue for 95 percent of its income, will have no choice to cut spending due to the spread of coronavirus and the collapse of an oil output deal between OPEC and its allies, they said.
Such a move is likely to fuel more dissent as Iraqis have been protesting for months against an elite they accuse of depriving them of basic services such as power supplies or decent hospitals despite the country’s oil wealth.
The crisis has hit Iraq at a time when it is rudderless after Prime Minister Adel Abdul Mahdi quit late last year over the protests and divided lawmakers have been unable to agree on a replacement. The coronavirus outbreak has been spreading from neighbouring Iran, the epicentre in the region.
Due to infighting, parliament has failed to approved a budget draft for 2020, which is now outdated anyway based on an oil price of $56 a barrel, almost double the current level.
“The proposed 2020 budget which stands at around 165 trillion Iraqi dinars already projects a deficit of more than 50 trillion Iraqi dinars at $56 a barrel,” said Mudhhir Salih, an economic advisor in the prime minister’s office.
“The oil price collapse ... means the deficit will be doubled and the only choice left for Iraq is to resort to international creditors,” he added.
Haitham al-Jabouri, head of the parliament’s financial committee, also said borrowing abroad would be the only way to avert a huge financial crisis.
Iraq will have postpone key energy projects such as the southern mega-deal including developing oilfields, expanding storage, transport, and export infrastructure, and building byproduct gas treatment units.
At risk are also projects to boost power supplies and revive Iraq’s industrial sector, a plan pursued since security has relatively improved after the defeat of Islamic State militants in northern Iraq in 2017.
Iraq used to be a major producer of dates and other agricultural products but now imports most needs.
Two officials in the trade ministry in charge of importing basic foodstuffs said Iraq had enough rice and wheat, and could make up shortages with local production.
But the ministry has struggled to import subsidised basic foods such as cooking oil, sugar and lentils, which are distributed through ration cards.
“We already short of enough financial allocations to purchase food,” one official said, asking not to be named. “We simply don’t have money and the government must find a solution or we will face complicated problems.”
The delay in the budget has also hampered the signing of new grain contracts, trade ministry sources told Reuters earlier this month. (additional reporting to Aref Mohammed in Basra and Moayed Kenany in Baghdad Writing by Ulf Laessing Editing by David Evans)