Thursday, December 17, 2009

Iraq Still Has Problems Spending Its Money

The new Special Inspector General for Iraq Reconstruction report to Congress was released at the end of October 2009. It notes that Iraq is still having problems spending its budget. By June 2009 50% of Iraq’s $58.6 billion budget had been released, but only $16.4 billion, 27.9%, had been spent as of that month. $1.6 billion of that was for capital projects that are investments in infrastructure and services. The provinces had $16.4 billion, and only spent 30% of that during the same time period.

80% of the 2009 budget is for operational costs such as salaries, pensions, and the food ration system. Of the money spent in the first six months of the year, 90.3% came from the operational budget. That’s because from 2005 to 2008 Iraq’s spending increased each year and the ministries and agencies went on a hiring spree. In 2005 for example, there were 1.2 million government employees. By 2008 that had more than doubled to 2.8 million. Last year the country was also flush with money due to high oil prices and doubled most salaries for public employees. Now Iraq has no money to cover those costs because the global recession has caused a drop in the oil market, which is the nation’s main source of revenue.

Since Iraq got its official sovereignty back in 2005 its budgetary expenditures have gone up and down, with the majority of spending going to operational costs. In 2005 Iraq did its best, spending 73% of its $30.2 billion budget. Then followed 67% in 2006, 65% in 2007, and 69% in 2008. Barely any of the capital budgets were spent during those years, while the majority of the operational budgets were. In 2005 91% of the operational budget was spent, compared to 23% for the capital budget. In 2006 it was 83% operational versus 19% capital, 2007 it was 80% operational versus 28% capital, and in 2008 Baghdad did its best job spending 39% of its capital budget. Iraq’s major ministries responsible for security and services did an even worse job. In 2005 they spent 14% of their budgets, in 2006 13%, 2007 11%, and 2008 23%.

Iraq is now facing the triple pressures of reduced American and international aid, low to moderate petroleum prices, and increasing government costs. The bureaucracy, centralized control, and lack of trained staff has gotten no better since 2005, which are some of the main reasons why expenditures have so many problems. What that’s leading to is a bloated government, with limited money for development to raise the standard of living for its public.

Iraq’s Budget Expenditures

2005 73% of total budget, (4) 91% of operational budget, 23% of capital budget
2006 67% of total budget, 83% of operational budget, 19% of capital budget
2007 65% of total budget, 80% of operational budget, 28% of capital budget
2008 69% of total budget, 39% of capital budget

Budget Expenditures By Security and Services Ministries
2005 14%
2006 13%
2007 11%
2008 23%

SOURCES

Cockburn, Patrick, “Collapse in Iraqi oil price shatters hope of recovery,” Independent, 3/20/09

Department of Defense, “Measuring Stability and Security in Iraq,” June 2009

Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 1/30/09
- “Quarterly Report to the United States Congress,” 10/30/09

United States Government Accountability Office, “IRAQ Key Issues for Congressional Oversight,” March 2009
- “Iraqi Revenues, Expenditures, and Surplus,” August 2008
- “Progress Report: Some Gains Made, Updated Strategy Needed,” June 2008

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