Iraq fuel cost, public services entwined

DUBAI, United Arab Emirates, Sept. 5 (UPI) -- Iraq needs to stop subsidizing its fuels but step up quality of life services to citizens, a top government adviser said.

Kamal Field al-Basri, senior economic adviser to Maliki and executive director of the Iraq Institute for Economic Reform, told UPI on the sidelines of an Iraq energy summit that fuel subsidies are too subjective to benefit the entire country.

Fuels subsidies are “not distributed equally, they benefit only those who have a car, not the poor,” Basri said at the Iraq Oil, Gas, Petrochemical and Electricity Summit organized by the London-Based Iraq Development Program.

He said the funds dedicated to subsidizing fuels could be best used in other sectors “that can improve the standard of living … hospitals and things like that.”

“In 2005 the total value of the subsidies that the government gives to fuels amounted to $809 billion, which is a huge amount,” he said, adding it would be a strike against the growing fuels black market. “That explains why we have smuggling of fuel to neighboring countries. The government is committed to reform on these issues.”

Iraq has long subsidized transportation, heating and cooking fuels, but two years ago began phasing them out as part of an agreement with international creditors, the International Monetary Fund and World Bank.

He said the goal is to price Iraqi fuels the same as those bought in other countries in the area.

When asked about reports that the finance minister wants to curb the pace of subsidy removal next year, Basri said, “Unfortunately, when we implemented the reform, the situation deteriorated with respect of public services.

“We cannot do this reform in isolation of the other services. So fuel becomes expensive and any other expenses become hard for government. So it affects the standard of living dramatically so the rate of the poverty increased because of this,” he said. “So we need to do two things: reform and parallel to this, increasing the public services to the populations.”

Iraqis suffer from 54 percent poverty and 20 percent unemployment, Basri said. Other Iraqi and U.S. figures put Iraq’s unemployment at two to three times higher.

They also largely lack basic services like regular electricity and clean water, mixed with a deteriorating healthcare and educational system, and the violence that has engulfed the country since the war began.

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Ben Lando, UPI Energy Editor