But Finance Minister Baqer Jabr Solagh estimates that Iraq needs 400 billion dollars to rebuild the country and economists say its dependence on oil for the vast majority of government revenues threatens its future prospects.
Solagh announced on Saturday that Baghdad is slashing projected 2009 budget spending to 67 billion dollars from the previously predicted 80 billion.
"The problem is that Iraq is highly dependent on oil," Ayad Sali al-Samarrai, chief of the financial committee in parliament, told AFP.
"The decline in oil prices will affect us a lot because up to 96 percent of our government budget is made up from oil profits," he said.
Iraq's revenues from crude oil will slump by at least 60 percent in 2009 unless they recover from their present levels of around 65 dollars a barrel amid the world wide credit crunch.
The halving of oil prices in the past three months will have severe consequences for the day to day running of the economy, analysts said.
"We will not be able to provide many of the public services for the society that had been scheduled," said Abdul Hussain Anbaki, an economic advisor to Prime Minister Nuri al-Maliki.
The US's Government Accounting Office has said little of the surplus from oil revenues as well as US reconstruction money has actually been spent on maintaining and rebuilding key Iraqi infrastructure.
Capital spending has been hampered by the lack of trained personnel, weak budgeting and procurement processes, and violence across the country, it said in a report released in August.
Out of 23.2 billion dollars for the reconstruction of Iraq's security, oil, electricity and water sectors, the nation has spent only 3.9 billion dollars in three years from 2005.
However, even if Baghdad authorities catch up with schedules and spend the reserves, the country will still be a long way from having the resources it requires.
Planning Minister Ali Baban has admitted the economy is in a "difficult" position and called for revenues to be raised through other sources and to develop a healthy financial network that would boost the private sector.
"There is no future for the Iraqi economy unless we attract domestic as well as overseas investments," he said at a meeting of Iraqi and US officials on Saturday to discuss economic progress.
More than five years after the US-led invasion, Iraq's anaemic farms and centralised industry are in desperate need of cash.
"Initial plans to invest or those who wished to invest -- there were economic and security issues. These were promises. Most of these plans will not go ahead," said Samarrai.
"There will be no improvement in the economy or probably even a decline," he added.
Iraq, a nation of 26 million, today imports rather than produces its food and industrial needs.
The World Bank says the economy grew in 2007 to 54 billion dollars from 48 billion dollars in 2006, and 45 billion dollars in 2005 but that growth has come almost exclusively from oil exports and US financial aid.
Government advisor Anbaki said that any kind of turnaround will also require looser monetary policy.
Inter-bank rates are set at 16 percent. That might help control inflation running at about five percent a year, but it more or less shuts down lending to the private sector, he said.
The way government spending is allocated serves to disguise the underlying weakness of the economy.
"We have disguised unemployment in state services or fields. We have five people doing the job of one," said Abdul Sahib Najim, head of Baghdad University's Institute for Accounting and Financial Studies.
Author: Jo Amey
