Oil hopes power 2004 Iraq budget

We [The UK] would encourage others to be as generous as they are able within the limits of their own spending plans UK pledges £300m for Iraq

Iraq's interim administration is relying on oil sales to balance its books in 2004 - and foreign aid to cover the cost of reconstruction.

The administration has unveiled its 2004 budget, with projected spending of $13.5bn and a deficit of $600m.

The funding gap will be plugged by unspent cash from the United Nations oil for food program that ended in May, the administration said.

Cash from frozen bank accounts and resources confiscated from members of Saddam Hussein's regime will also come into play, it added.

Surplus hopes

The Iraqi interim administration said it expects oil exports to generate about $12bn in 2004 of expected total revenues of about $12.8bn.

IRAQ RECONSTRUCTION NEEDS UNTIL 2007 World Bank/UN estimate - $36bn: Covers administration, health, education, employment, infrastructure, water agriculture US estimate - $19bn: Covers security, oil industry, foreign affairs, culture and religious affairs, environment Total needs $55bn

The budget document also includes estimates for oil revenues in 2005 and 2006 at $18.5bn and $19.3bn.

Iraq's oil exports continue to be disrupted by the sabotage of pipelines.

But Iraq's finance minister Kamel Al-Kilani said the projections contained in the budget document took into account the worst case scenarios.

"We do not only look at the glass half empty, and we prefer to see it half full.

"Oil prices may be higher than we expect next year, and we could even have a surplus," he told reporters.

Government wages

If Iraqi revenues were to fall below expectations, "either expenditures would need to be reduced, or other revenue sources identified", the 2004 budget document said.

WHO MIGHT PAY? US administration asking Congress for $20.3bn emergency non-military spending Expected commitments: Japan $5bn, UK $910m, Canada $300m, European Union $233m

The administration's budget will be used to pay the salaries of more than a million government workers.

It will also be pumped into state-owned enterprises - many of them unprofitable - that employ another 500,000 Iraqis.

Mr Al-Kilani hailed the budget document as a major improvement on the half-year 2003 budget announced by the coalition in July, which had a projected deficit of $3bn.

"This budget represents an important step toward the rebuilding of Iraq by Iraqis," he said.

"The budget was prepared by a team of Iraqi experts, with a series of budget hearings attended by representatives from the various Iraqi ministries and chaired by the officials of the Minstry of Finance."

The budget would be "funded by available Iraqi resources" and not "increased borrowing, printing money or foreign assistance", he added.

UK pledge

But the mammoth cost of rebuilding Iraq's shattered infrastructure must still be met by foreign donors.

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"As a consequence of over two decades of neglect by the former regime, Iraq has immediate reconstruction needs well in excess of available revenues," the budget document says.

The World Bank has estimated $55bn will be needed over the next four years.

The interim administration in Bahgdad is counting on $20bn pledged by the Bush administration - but currently being debated in the US Congress - to rebuild its electricity infrastructure, Mr Al-Kilani said.

Much also hinges on the outcome of an international donors conference in Madrid on 23 October, he added.

Earlier on Monday, the UK pledged an extra £300m to help rebuild Iraq in addition to the £200m it has already committed.

The announcement came at a meeting of European Union foreign ministers who endorsed a pledge of 200m euros ($236m).

Iraq's economy will shrink 22% this year, having fallen 21% in 2002 and 12% in 2001, the United Nations and the World Bank have estimated.