Wednesday, March 5, 2014

Iraq Getting Better At Executing Its Budget But Large Problems Still Remain

 
Since 2003 Iraq’s budget has steadily increased. That year it was a measly $6 billion and by 2013 it was over $116 billion. In the first couple years Baghdad struggled to execute its budget, but that rate has improved as well with time. Unfortunately the government still has major problems spending its investment money holding back the rebuilding of the country.

As Iraq regained its sovereignty and petroleum profits picked up so did the size of its budget. In 2003 the Americans only allocated $6.1 billion for the Iraqis to spend. That quickly jumped to $19.9 billion the following year, then $24.4 billion in 2005, $34 billion in 2006, $41.1 billion in 2007, $72.2 billion in 2008, before dipping to $58.6 billion when oil prices dropped in 2009. That quickly recovered to $72.4 billion in 2010, $82.6 billion in 2011, $100 billion in 2012, and $118.6 billion in 2013. The budget is divided into two parts. One is the operational budget, which goes largely to salaries, pensions, and costs. With the government being the main employer in the country this is by far the largest portion of the overall budget. The other part is the capital budget, which is used for investment. As the overall budget has climbed so has the amount apportioned for development. In 2004 there was no capital budget, then it went up to $3 billion in 2005, $11 billion in 2006, $12 billion in 2007, $24 billion in 2008, $25.7 billion by 2011, and $31.88 billion in 2012. From 2009 to 2013 the proportion of the capital budget to the overall budget went from 25% to 40%. Iraq needs to increase the amount of money that it invests because it is in such great need after decades of wars and sanctions. The move towards a larger capital budget shows that the government is finally thinking of the future. The problem is spending all of the money that is appropriated.

Size Of Iraqi Budget 2003-2013
2003 $6.1 bil
2004 $19.9 bil
2005 $24.4 bil
2006 $34 bil
2007 $41.1 bil
2008 $72.2 bil
2009 $58.6 bil
2010 $72.4 bil
2011 $82.6 bil
2012 $100 bil
2013 $118.6 bil

In recent years Baghdad has increased its efficiency, but there are still major issues. As the amount of money appropriated in the budget has increased the overall execution rate has improved. In 2005, the government executed 73% of the budget. That went down to 68% in 2006, where it would remain for the next two years. By 2009 it jumped to 80% where it stayed at until 2012. In 2013 the Planning Ministry reported that only 27.4% of the 2012 budget was completed. Execution of the capital budget has been lower with only 23% in 2005, 22% in 2006, 28% in 2007, and 39% in 2008. The United Nations claims that Baghdad made vast improvement from 2009-2012 spending 60-70% of its capital budget.  The United States Agency for International Development (USAID) however reported that the central government still struggled only executing 22% in 2009, 28% in 2010, 31% in 2011, and 32% in 2012. Given Iraq’s history, the USAID figures might be more accurate. The overall execution rate has continued to go up since most of the budget is for operational costs, which are necessary to keep the government running. Spending the capital budget is far more complicated because it involves planning, contracting, the completion of project, etc. These problems are largely why Iraq has an annual surplus despite predicted deficits, because so much money is leftover each year.

Execution of Budget 2005-2013
2005 73%
2006 68%
2007 67%
2008 68%
2009 80%
2010 83%
2011 79%
2012 27.4%

Execution Of Iraq Capital Budget 2005-2008
2005 23%
2006 22%
2007 28%
2008 39%

Execution Of Iraq Capital Budget 2009-2010 – U.N. Figures
2009-2010 60-70%

Execution Of Iraq Capital Budget 2009-2012 – USAID Figures
2009 22%
2010 28%
2011 31%
2012 32%

When broken down by ministry some have consistently underperformed, while others have done quite well in implementing their budgets. The Oil Ministry is one of the most important because it is responsible for developing and selling the main source of revenue for the nation. In 2009 the Oil Ministry was only able to spend 15% of its budget. In 2010 it more than doubled that rate to 44%, but then went down to 32% in 2011. On the other hand the security ministries, Interior and Defense have done quite well. In 2009 both ministries executed 90% of their budgets, followed by 87% for Defense and 82% for the Interior in 2010, and 76% for Interior and 70% for Defense in 2011. The Ministry of Migration and Displacement has also bee at the top of the list spending 114% of its budget in 2009, 92% in 2010, and 144% in 2011. In total, in 2009 17 out of 26 ministries executed 70% or more of their budgets, 18 did so in 2009, before dipping to 11 ministries in 2011. The ministries have proven inconsistent in spending their budgets. Just because one year a ministry might do a good job executing their money doesn’t mean they will do the same or better the next. Some like Oil have consistently been at the bottom. This again holds up development.

The provinces do an even worse job. In 2010, only six out of 18 governorates spent 70% or more of their budgets. Those were Maysan 73%, Dhi Qar 75%, the Kurdistan Regional Government (KRG) 80%, and Baghdad 91%. Some like Qadisiyah, 9%, Basra, 11%, Diyala, 12%, Ninewa, 14%, Tamim, 22%, Wasit, 22%, and Najaf, 23%, didn’t even spend a quarter of their appropriations. In 2011 they did slightly better with eight provinces spending 70% or more of the budget, with only two, Basra 8% and Ninewa 24%, below the 25% mark. A major issue with the governorates is that the ministries wield most of the power in the country, leaving the provinces with limited ability to spend their funds. The Oil Ministry for example, controls most of the land in Basra, which held up 25% of its budget in 2010 and 2011 for things like housing construction.

Provincial Budget Execution 2010
Qadisiyah 9%
Basra 11%
Diyala 12%
Ninewa 14%
Tamim 22%
Wasit 22%
Najaf 23%
Salahaddin 25%
Babil 39%
Karbala 48%
Muthanna 50%
Anbar 52%
Maysan 73%
Dhi Qar 75%
KRG 80%
Baghdad 91%

Provincial Budget Execution 2011
Basra 8%
Ninewa 24%
Diyala 34%
Tamim 37%
Babil 41%
Maysan 47%
Baghdad 48%
Karbala 57%
Qadisiyah 61%
Wasit 65%
Dhi Qar 71%
Muthanna 76%
Najaf 78%
Salahaddin 84%
KRG 100%
Anbar 100%

There are a number of other problems holding up the government from spending all of its appropriations. Poor management is one. In 2009, the state-owned Iraqi Oil Tankers Company leased two tankers for 5.2 billion dinars, but stopped using them for a loss of 1.7 billion dinars. At the Public Works Ministry seven out of 15 projects in 2011 had an execution rate of 50% or less due to the lack of oversight. There is bad planning. In 2010 the Industry Ministry’s General Company for Sugar stopped producing for a year, because it said it wasn’t given any money to rehabilitate its factories. Many times provinces, ministries and other agencies create overlapping projects, because there is a lack of coordination between the different offices and levels of government. Red tape leads to huge delays within the government. In 2011, delays in approving and funding projects meant the Planning Ministry only spent 10% of its capital budget. The top down management style means that many decisions must go all the way to the minister for approval no matter how miniscule they are before anything can move forward. Political disputes in parliament are leading to longer and longer delays in the passage of the budget. That was a major reason why less than 30% of the 2012 budget was ever executed. There are problems with the bidding process for public projects, and no penalties for delays or not completing contracts. Corruption takes a huge chunk out of every budget. Finally, the lack of consistent electricity holds up development and leads to additional costs. There have been several suggestions to fix these issues. The Finance and Planning Ministry have demanded better accountability and transparency in the budget. They have also called for consisted reporting on projects, and for those with less than 25% execution rate to be questioned by the cabinet and parliament. The central government has also discussed integrating the provinces into the planning process more to improve their performances. Unfortunately, Iraq has a disjointed and dysfunctional government. Different political parties run each ministry and they are jealous of their power and largely unwilling to cooperate with each other. The ministries also refuse to appear before parliament, and recent court rulings have said the legislature has no authority to question a minister unless there is evidence of a crime being committed. The result is that the status quo is likely to be maintained for the foreseeable future rather than any meaningful reforms being carried out despite the huge costs this imposes upon the country.

There are both positives and negatives when analyzing Iraq’s budget. The amount of money appropriated has consistently gone up with the exception of 2009 when oil prices dipped. The proportion going to the capital budget has increased as well, which is especially important because that means parliament is thinking about the future. The overall execution rate has improved as well. On the other hand, the structural problems within the government are still daunting. Poor discipline within the ministries means that too many projects are either not finished or never even executed. That’s why the spending rate for the capital budget has not improved much. The centralization of power by the ministries also means that many of the plans of the provinces are useless, because they lack the authority to carry them out. Baghdad needs to prioritize the capital budget, and implement serious accountability and transparency rules so that projects are well planned and completed. There is little impetus from the top to implement these reforms even though they have been talked about for several years now and recommended by outside groups like the World Bank, the International Monetary Fund, and the United States. Until there is political will from the top nothing will change.

SOURCES

Associated Press, “Iraqi lawmaker defends country’s spending record,” 8/8/08

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

Jafar, Seerwan, “never enough: how much money does iraq really need for budget?” Niqash, 12/13/12

Joint Analysis Unit, “Iraq Budget Execution,” U.N. Iraq, February 2014

Sabah, Mohammad, “The rate of implementation of state institutions for the 2012 budget did not exceed 28% and communication are the lowest,” Al-Mada, 10/10/13

Salaheddin, Sinan, “Parliament approves national budget for Iraq,” Associated Press, 3/7/13

Al-Salhy, Suadad, “Iraqi lawmakers pass 2011 budget,” Reuters, 2/20/11

Special Inspector General for Iraq Reconstruction, “Quarterly and Semiannual Report to the United States Congress,” 7/30/08
- “Quarterly Report to the United States Congress,” 4/30/12

Tijara Provincial Economic Growth Program, “Assessment of Current and Anticipated Economic Priority In Iraq,” United States Agency for International Development, 10/4/12

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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