Thursday, October 27, 2005

Fuel prices in Iraq to be increased by January:

The government made a decision to cut back on subsidizing fuel for the domestic consumption. According to the announced plan, super gasoline price will rise from 50 to 150 dinars/liter, regular gasoline will rise from 20 to 50/liter also and kerosene will rise from 5 to 10 dinars/liter while the cost of refilling a propane canister usually used at homes for cooking and heating will increase from 250 to 500 dinars.

Although the prices will be at least doubled, this will not be enough to discourage smuggling activities that cost the economy billions of dollars a year.
The price of one liter of gasoline in neighboring countries will still be twice-five times as much as in Iraq and this will still encourage smugglers to continue their activities unless further decisions to increase the prices are made in future steps.

It is expected that people will start complaining from the sudden increase of prices but I don’t think it would take long before they get used to the new rates and here the government should start a campaign to educate the consumers about the actual reasons behind the increase and should explain its new economic policy to a peoples who are very skeptical about a free market.
Most Iraqis right now think about the immediate effects of such moves which are obviously more pressure on their households’ budgets and they do not see the catastrophic impact of continuing to subsidize fuel and other services.

Some time ago I got to read a little about the state’s budget for 2005 and I found out that more than 75% of Iraqi’s income goes to paying salaries (mostly for idle employees), subsidizing fuel and food rations leaving less that 25% (a little less than 7 billion $) of the income to provide funding for all other items. And with over 30 ministries in Iraq, most ministries get less than 1% of the allocations and this includes the ministries of education, higher education and health. This renders these ministries unable to implement their projects and execute their plans.

It is easy to conclude from this that Iraq cannot be rebuilt and developed without a comprehensive plan for privatization and endorsing the ways of the free market and it seems that the government and economic institutes are trying to put such a sequence of plans but the question is: why isn’t this being explained to the public? And how are the people expected to back decisions made according to undisclosed plans?

The longer the government waits to get their message to the people, the more credibility they lose, and that’s the thing that can be afforded the least right now.

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