Having generously (if not obliviously) stepped up to the plate to bail out Ukraine (with open-ended bond guarantees), US taxpayers are opening their wallets again - this time for Iraq. As Reuters reports, cheap oil has ravage Iraq's state finances just as the government faces rising military spending from the war it is waging against ISIS; and so it has decided to issue $5 billion in international bonds. However, Iraq is considering other ways to cover its budget deficit, including asking the IMF (i.e. US taxpayers) for relief funding and also requesting the controversial U.S. Export-Import Bank (US Taxpayers) finance the purchase of 10 planes from Boeing Co, which cost the government $500 million.
Cheap oil is ravaging Iraq's state finances, just as the government faces rising military spending from the war it is waging against Islamic State militants. As Reuters reports, Iraqi Finance Minister Hoshyar Zebari said the government was facing a budget deficit of $25 billion, out of a budget of approximately $100 billion. Iraq's 2015 budget is based on an oil price of $56 per barrel, he said.
Iraq has decided to issue $5 billion in international bonds and is negotiating the terms as one of several measures as it seeks to relieve the pressure of low oil prices on its finances.
Iraq is considering a number of other measures to cover its budget deficit, including asking the International Monetary Fund for relief funding of between $400 million and $700 million, Zebari said.
"We haven't made a decision, but I think they (the IMF) are willing to provide that support, but they need the government to do more cuts on the public spending," he said. "Not as a precondition, but really they have advised that is the way to release these funds."
Iraq is also requesting the U.S. Export-Import Bank finance the purchase of 10 planes from Boeing Co, which cost the government $500 million, Zebari said.
"We are seeking to finance those planes ... through the Ex-Im Bank, and they (Boeing) will pay us back the money we have paid already," Zebari said.
Iraq has also been building up debts to the companies developing its oilfields. Zebari said Iraq had started paying back its debts to the international oil companies, but declined to say how much.
"We are paying them actually, not according to their expectation but at least we started paying them," he said.
The government has also managed to borrow some $7 billion from semi-state-owned Iraqi banks to cover its shortfall, Zebari said.
What is perhaps even more worrying, for a nation in such chaos already, is the Iraqi people's dependence on government handouts...
Though Iraq's finances are no longer in a panic state, Zebari said, fundamental changes are needed to ensure Iraq's economic health in the future, including reforming a bloated government bureaucracy that he said employs some four million Iraqis at a cost of $3.5 billion per month for wages.
"This rentier state government has been overburdened by this social commitment ... to a large section of the population," he said.
And what that means should the money dry up...
We wonder how struggling Shale Oil producers will feel as they approach bankruptcy when US taxpayer funds are bailing out Iraqis suffering from low oil prices.