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Iraq to phase out all subsidies

Unveiling a three-year economic plan, compiled by the government in cooperation with the World Bank and the International Monetary Fund, Madhi Al-Hafez pledged “a progressive programme to suppress subsidies... (Which) constitute a significant burden on public finances.”

Most Iraqis relied on subsidised fuel, electricity and food rations under a United Nations-sponsored oil-for-food programme during the regime of Saddam Hussein.

After Saddam’s overthrow, the interim government adopted the system, which still provides a vital lifeline for many of Iraq’s estimated population of 23 million, many of whom are unemployed or earn only a meagre wage. Seeking to soften the blow, the minister promised that the government would cancel subsisides slowly to ensure a minimal impact. “They will progressively be reduced over the coming years,” Hafez stated.

Direct and indirect oil subsidies cost Iraq eight billion dollars -- 2.4 billion of which are spent on imports to satisfy the local market, according to ministry figures.

The price of a barrel of oil sold to local refineries is 300 dinars (0.2 dollars) and some 550,000 barrels are sent to the refineries daily to satisfy domestic need. At petrol stations, fuel is sold at between 0.01 and 0.025 dollars-per-litre -- underscoring the huge expense shouldered by the government. Oil in the financial year 2005 is expected to comprise 93 percent of the country’s revenue, at some 18.1 billion dollars.

Iraq itself is predicted to generate revenues of 19.4 billion dollars which, coupled with external aid, will bring total revenues to 23.7 billion dollars. But the budget is seen at 30.4 billion dollars, meaning a deficit of some 6.7 billion dollars, including foreign help, and 11 million dollars without. The 2005 budget is based on a price of oil of 26 dollars-per-barrel. In New York on Friday, oil closed out the week at a record 55.50 dollars a barrel.