By SAMEER N. YACOUB – Dec 12, 2008

BAGHDAD (AP) — Iraq's finance minister warned Friday that he will make more cuts in government spending next year and urged ministries to curb expenses to offset the effects of the drop in world oil prices.

Iraq depends on oil revenues for more than 90 percent of its budget. On Friday, oil prices fell below $45 a barrel — down from a peak of more than $147 a barrel last summer.

Finance Minister Bayan Jabr said in a statement that the Finance Ministry will reconsider the budget in early 2009 and order austerity measures if necessary to make up for the revenue shortfall.

Last month, the Iraqi government adopted a revised 2009 budget of $68.6 billion. The original budget for next year was $79 billion. Revenues are based on an oil price of $62.50 per barrel, down from an original estimate of $80.

He said that the ministry is watching the falling oil prices carefully and would take measures next year to "revise the budget and scale down unnecessary expenditure as a way to ensure the continuity of the economy."

Such moves would impact on the government's stumbling reconstruction efforts aimed at rebuilding the country's crumbling infrastructure — especially energy, electricity and oil facilities.

Earlier this year, Jabr said that about $15 billion of the 2009 budget had been earmarked for reconstruction.

"We call on all ministries and local governments to continue reconstruction, but at the same time reducing expenditures and cutting down any unnecessary expenses," Jabr said in the statement.

Talk of cutbacks and austerity is a strong setback to optimistic forecasts for the Iraqi economy last summer where oil prices were soaring.

In August, the U.S. Government Accountability Office said the Iraqi government could end the year with as much as a $79 billion budget surplus thanks to soaring oil revenues piled on top of leftover income the Iraqis hadn't spent on their national rebuilding effort.

The report produced an outcry from Congress that Iraq should pay more of the bill for its own reconstruction, which had been heavily supported with U.S. funds.

Iraqi official urges austerity measures -  Source