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Mazhar Saleh: No impact of oil price drop on operating budget
Economic 2024/11/06
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The financial advisor to the Prime Minister, Mazhar Mohammed Saleh, dispelled fears of the impact of the decline in oil prices in the global market from their hypothetical price on the country’s general budget. While he denied any impact of the decline on the operating budget, he added that the impact would be limited to the investment budget.
Saleh said in an interview with Al-Sabah: The general budget faces, when it is prepared, expected problems due to its reliance on a hypothetical price of a barrel of oil in the global market, indicating that it is usually implemented with a hypothetical or precautionary deficit financed through internal or external borrowing, to ensure the limits of governing expenses such as salaries and wages, which alone constitute about 50 percent of annual general spending, in addition to other operating expenses, including debt services.
Saleh added that the investment budget is the most worrying aspect during the implementation of the budget, especially if oil prices fall below the hypothetical price in the budget, explaining that if the decline occurs, it exposes investment projects to halting or faltering.
He pointed out that over the course of two decades, the implementation cycle of investment projects has become synonymous with the oil assets cycle, with the exception of development projects financed by ongoing international loans, which are mostly limited and constitute only 10 percent of the balance of various government projects, as well as with the exception of oil licensing rounds projects, which often continue to be implemented because their expenses are paid in crude oil.
For his part, the economic expert, Dr. Ahmed Al-Rawi, recalled that oil revenues constitute the largest part of the revenue items that finance the general budgets in most oil-producing countries, noting that the risks resulting from the fluctuation of oil prices in the international market and the instability of oil financial revenues have prompted many countries to search for new sources of funding, to avoid the issue of adopting those revenues as a primary source of budget funding.
Al-Rawi added to Al-Sabah that Iraq still depends entirely on oil revenues to finance its annual budgets, as oil revenues dominate other revenue items due to the weakness of the tax and service system, noting that the oil market differs from other commodity markets in that it is a strategic commodity sensitive to economic, political and security variables.
Al-Rawi agreed with the Prime Minister's financial advisor that the impact of the decline in oil will be limited to the investment budget, stressing that the operating budget will not be affected at all.
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