Iraq Ends Up With Another Budget Surplus In 2010

For the past several years, the Iraqi government has planned for a budget deficit, but has never ended up with one. 2010 was no different. First, while Baghdad has increased its execution rate over the last few years it still has never spent its entire allocation for a fiscal year. Second, oil profits were above what was projected. That resulted in a $19.6 billion surplus out of the $72.3 billion 2010 budget.

Iraq’s 2010 budget was like previous ones with the government ending up with a sizeable surplus. Iraq’s parliament drafted a $72,356.8 million budget, and ended up spending 76% of it, $55,001.7 million. Originally, officials believed that the country would end up with a $19.6 billion deficit, but instead it ended up not spending $17,355.1 million. Besides only executing three-quarters of the budget, Iraq brought in much higher profits than expected for the year. Petroleum will accounts for approximately 89% of this year's government revenue. The budget was based upon a $62.50 a barrel price of oil. Prices ended up ranging from $71.10 to $86.31 for Iraqi crude during the year. That helped to make up for the fact that the budget called for an average of 2.1 million barrels a day in exports, but only ended up with 1.89 million. Iraq has never been able to execute its entire budget because of the lack of capacity within the government, and red tape. Many offices simply lack the know how and staff to spend large amounts of money. The bureaucracy is run top down, so any expenditure needs the approval of a senior official, which slows down the flow of funds. Finally, there are many outdated and contradictory regulations, which also hinder projects moving forward.

These problems are why the Iraqi government has never spent its entire budget since it got its sovereignty back from the Americans in 2005. In 2006, Baghdad expended $23 billion, 68% of its $34 billion budget. In 2007, it spent $27 bill, 67% of the $41 billion budget. In 2008, $50.5 billion out of $72.2 billion was allocated, 70%, and in 2009, $46 billion out of the $58.6 billion budget, 78%, was executed. Slowly, but surely, the authorities have gotten better at carrying out the yearly budget. The percentage and amount of money spent each year has gradually gone up. The bureaucrats are obviously getting better at dealing with the many barriers that stand in their way.

2006-2010 Budget Execution

2006: $23 billion spent, $34 billion budgeted, 68% executed

2007: $27 billion spent, $41 billion budgeted, 67% executed

2008: $50.5 billion spent, $72.2 billion budgeted, 70% executed

2009: $46 billion spent, $58.6 billion budgeted, 78% executed

2009: $55 billion spent, $72.3 billion budgeted, 76% executed

With the 2010 budget, some ministries did better than others. The ones that did the best job were the Ministry of Displacement and Migration that spent 91% of its money, $178.5 million out of $195.2 million, and the Ministry of Trade, which spent $3,604.8 million out of $4,091.0 million, 88%. At the bottom, was the Ministry of Communication at 34%, $91.0 million out of $269.7 million, the Ministry of Industry at 32%, $184.1 million out of $567.5 million, and the Ministry of Agriculture, $204.3 million out of $650.8 million, 31%. Iraq’s security ministries did well with the Interior Ministry at 80%, $4,942.6 million out of $6,143.9 million, and the Defense Ministry at 73%, $3,581.6 million out of $4,900.7 million. The major economic and service agencies were all over the place. The Trade Ministry did the best job at spending 88% of its budget. It was followed by the Electricity Ministry at 75%, $4,426.0 million out of $5,889.1 million, the Ministry of Housing at 72%, $596.4 million out of $820.4 million, and the Water Ministry at 61%, $678.8 million out of $1,102.6 million. The Ministry of Health was in the middle, having spent 53%, $2,646.3 million, of its $4,992.6 million budget. At the other end of the spectrum was the Ministry of Oil at 42%, $1,738.9 million out of $4,064.4 million, the Ministry of Public Works at 37%, $743.0 million out of $2,001.0 million, the Ministry of Industry at 32%, $184.1 million out of $567.5 million, and the Ministry of Agriculture at 31%. The majority of this spending was on salaries and pensions however, with 72% of the total budget on operational costs, and only 28% on capital spending that goes to investments and infrastructure. The Electricity Ministry has been trying to spend large amounts of money on new power plants and generators, but many of its projects have run into problems. On the other hand, the Oil Ministry, which is in charge of the country’s greatest asset didn’t even spend half of its money even though it desperately needs to upgrade its pipelines, ports, etc. so that the country can take advantage of the increased production made by foreign companies. The Ministries of Industry and Agriculture have been trying to reform the state-run businesses and farming in Iraq for the last several years, but with their paltry budget executions it can be questioned how much they were able to accomplish. On the other hand, the Trade Ministry did the best job with its budget, and runs the Food Ration system, but has been charged with massive corruption in the past, so who knows whether its money was well spent or not.

Click on image for larger view (Special Inspector General for Iraq Reconstruction)

Iraq still has a state-run economy, and needs massive rebuilding after decades of war and sanctions. Executing the budget is especially important. The government is the largest employer in the country, and Iraq has one of the largest public sectors in the world as a percentage of the population. The government provides 43% of all jobs, and 60% of full time-work. Large numbers also rely upon their public pensions. Following through with the budget therefore, puts money in people’s hands. The authorities are also responsible for services, and reconstruction projects to repair the damage done to the country over the years of Saddam’s rule and the U.S. occupation, and to expand the economy. In that department, Baghdad is running into problems because it has always had difficulties with its capital budget aimed at these goals. The government needs to re-prioritize its spending. It needs to allocate more money for development and execute it to open up new businesses, expand and repair its infrastructure, and encourage the private sector. When that’s achieved it needs to cut back on the operational budget, so that it can begin to reduce the bloated private sector. For now though, Baghdad is simply trying to spend more of its budget, and maintain the status quo.

SOURCES

Department of Defense, “Measuring Stability and Security in Iraq,” March 2010

Ibrahim, Waleed, “Iraqi parliament approves $72.4 bln 2010 budget,” Reuters, 1/26/10

Ideas Synergy, “Private Sector in Iraq: Creating Jobs and Enhancing Sustainable Development?” Iraq Insights, July 2011

Rubin, Alissa, “Oil Revenues Dropping, Iraq’s Parliament Cuts the Budget,” New York Times, 3/6/09

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

- “Quarterly Report to the United States Congress,” 4/30/09

- “Quarterly Report to the United States Congress,” 4/30/10

- “Quarterly Report to the United States Congress,” 10/30/11