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Iraq needs $100-150 bln for reconstruction: Finance minister
August 20, 2007 / 5:44 PM / 10 years ago

Iraq needs $100-150 bln for reconstruction: Finance minister

AMMAN (Reuters) - Iraq needs at least $100 billion to rebuild its shattered infrastructure after four years of violence and lawlessness following the U.S.-led invasion of 2003, Finance Minister Bayan Jabor said on Monday.

<p>Residents stand near the rubble of a house that was damaged after a mortar attack in Baghdad August 19, 2007. REUTERS/Kareem Raheem</p>

“The country is devastated and we are in need of at least $100 billion to $150 billion to restore infrastructure -- from sewerage to water to electricity to bridges and basic needs of the country,” he told Reuters in Amman.

He said about $4 billion had been spent on infrastructure projects so far this year, more than in all of 2006, when internal violence and the limited capacity of the Iraqi private sector meant only about 40 percent of $6 billion allocated in the budget was used.

“What happened last year was ... a failure in the government’s ability to execute,” Jabor said.

Iraq’s 2007 budget allocated $14 billion for capital investment and Jabor said the government had withdrawn $7.4 billion from the Development Fund for Iraq (DFI), where Iraq’s oil income is deposited and audited by the United Nations.

“There is much better execution of projects (this year), with some ministries and governors spending over 60 percent of their 2007 budget allocations so far. This is almost double last year,” Jabor said.

More than $10 billion of oil revenues deposited in the DFI’s account at the Federal Reserve Bank of New York were last year left unspent because projects could not be executed, he said.

A report in July by the U.S. special inspector general for Iraq reconstruction blamed the government for failing to take responsibility for reconstruction projects. It said it had spent only 22 percent of its capital budget in 2006 but predicted that figure could reach 50 percent in 2007.

Jabor said next year’s draft budget was expected to total about $36 billion, depending on oil production estimates, against $41 billion in 2007.

OIL PRODUCTION RISES

The finance minister said oil production had risen to 1.6 million barrels per day (bpd) in July from an average 1.5 million bpd in the first half of 2007, when output was affected by the sabotage of a pipeline to Ceyhan in Turkey from fields around Kirkuk in northern Iraq.

“We hope it will go to 1.7 million bpd soon and our plans in the ministry of finance are based on Iraq returning to exporting 3.4 million bpd which is its OPEC quota. The economy will recuperate when it reaches this level,” Jabor said.

Iraq sits on the world’s third-largest proven oil reserves and depends on oil sales for almost all its foreign currency earnings. These funds will be vital for rebuilding its infrastructure and public services, badly degraded by the war and years of international sanctions that preceded it.

Jabor said he expected economic growth to accelerate from 3.4 percent in 2006, fuelled partly by reconstruction spending.

“We expect 7 percent growth this year ... The economic outlook is much better this year,” he added.

Jabor said inflation, which has added to the hardships facing Iraq’s population, was 46 percent in the period to June 2007, down from 57 percent in the first half of last year. Core inflation, excluding fuel and transportation, fell to 19 percent from 32 percent.

To keep inflation in check, Iraq will not hike official fuel prices further despite a commitment to phase out fuel subsidies under a $715 million economic program agreed with the International Monetary Fund, Jabor said.

“I used to implement previous agreements but this time I will sign a new standby arrangement with the IMF that will be free of any rise in petroleum products,” he said.

Jabor said the $3.75 billion sale of three 15-year mobile phone licenses to mainly Gulf Arab operators on Friday signaled investor confidence in Iraq’s long-term economic prospects.

Iraq will tap cheap donor funds for development projects, Jabor said, including a $1 billion soft loan from Iran to be signed soon. The loan will be repayable over 40 years with 10 years’ grace, he said. Japan has also offered up to $3.5 billion of soft loans, Jabor added.

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