Stabilizing and Rebuilding Iraq
Iraqi Revenues, Expenditures, and Surplus Gao ID: GAO-08-1031 August 5, 2008Iraq has an estimated 115 billion barrels of crude oil reserves, the third largest in the world. Oil export revenues are critical to Iraq's reconstruction, accounting for over 90 percent of the Iraqi government's revenues. In June 2008, GAO reported low 2007 spending rates by the Iraqi government for some critical sectors in the face of declining U.S. investments in these sectors. This report examines (1) Iraq's estimated revenues from 2005 through 2008, (2) Iraq's estimated expenditures from 2005 through 2008, (3) Iraq's financial deposits through 2007 and budget surpluses, (4) U.S. cumulative expenditures on stabilization and reconstruction activities in Iraq since 2003, and (5) factors affecting Iraq's efforts to accelerate spending. GAO analyzed relevant data and reviewed documents, including Central Bank of Iraq oil receipts data, International Monetary Fund's (IMF) reports, translated copies of Iraqi budget and expenditures, and U.S. agency funding data and reports. GAO also interviewed officials from the Departments of Defense (DOD), Energy, State, Treasury, and the IMF. This report contains no recommendations. Treasury agreed with the report's findings and stated that Iraq has adequate funds to make and maintain capital investments that deliver services and foster economic growth. State provided technical comments. DOD had no comments.
From 2005 through 2007, the Iraqi government generated an estimated $96 billion in cumulative revenues, of which crude oil export sales accounted for about $90.2 billion, or 94 percent. For 2008, GAO estimates that Iraq could generate between $73.5 billion and $86.2 billion in total revenues, with oil exports accounting for between $66.5 billion to $79.2 billion. Projected 2008 oil revenues could be more than twice the average annual amount Iraq generated from 2005 through 2007. These projections are based on actual sales through June 2008 and projections for July to December that assume an average export price from $96.88 to $125.29 per barrel and oil export volumes of 1.89 to 2.01 million barrels per day. From 2005 through 2007, the Iraqi government spent an estimated $67 billion on operating and investment activities. Ninety percent was spent on operating expenses, such as salaries and goods and services, and the remaining 10 percent on investments, such as structures and vehicles. The Iraqi government spent only 1 percent of total expenditures to maintain Iraq- and U.S.-funded investments such as buildings, water and electricity installations, and weapons. While total expenditures grew from 2005 through 2007, Iraq was unable to spend all its budgeted funds. In 2007, Iraq spent 80 percent of its $29 billion operating budget and 28 percent of its $12 billion investment budget. For 2008, GAO estimates that Iraq could spend between $35.3 billion and $35.9 billion of its $49.9 billion budget. As of December 31, 2007, the Iraqi government had accumulated financial deposits of $29.4 billion, held in the Development Fund for Iraq and central government deposits at the Central Bank of Iraq and Iraq's commercial banks. This balance is the result, in part, of an estimated cumulative budget surplus of about $29 billion from 2005 to 2007. For 2008, GAO estimates a budget surplus of between $38.2 billion to $50.3 billion. If spent, a proposed Iraqi budget supplemental of $22 billion could reduce this projected surplus. Since fiscal year 2003, the United States appropriated about $48 billion for stabilization and reconstruction efforts in Iraq; it had obligated about $42 billion of that amount as of June 2008. U.S. agencies spent about $23.2 billion on the critical security, oil, electricity, and water sectors. From 2005 through April 2008, Iraq spent about $3.9 billion on these sectors. U.S. government, coalition, and international officials have identified a number of factors that have affected the Iraqi government's ability to spend more of its revenues on capital investments. These factors included the shortage of trained staff; weak procurement and budgeting systems; and violence and sectarian strife. The United States has funded activities to help build the capacity of key civilian and security ministries to improve Iraq's ability to execute its capital project budget.
GAO-08-1031, Stabilizing and Rebuilding Iraq: Iraqi Revenues, Expenditures, and Surplus
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
August 2008:
Stabilizing And Rebuilding Iraq:
Iraqi Revenues, Expenditures, and Surplus:
GAO-08-1031:
GAO Highlights:
Highlights of GAO-08-1031, a report to congressional committees.
Why GAO Did This Study:
Iraq has an estimated 115 billion barrels of crude oil reserves, the
third largest in the world. Oil export revenues are critical to Iraq‘s
reconstruction, accounting for over 90 percent of the Iraqi
government‘s revenues. In June 2008, GAO reported low 2007 spending
rates by the Iraqi government for some critical sectors in the face of
declining U.S. investments in these sectors.
This report examines (1) Iraq‘s estimated revenues from 2005 through
2008, (2) Iraq‘s estimated expenditures from 2005 through 2008, (3)
Iraq‘s financial deposits through 2007 and budget surpluses, (4) U.S.
cumulative expenditures on stabilization and reconstruction activities
in Iraq since 2003, and (5) factors affecting Iraq‘s efforts to
accelerate spending.
GAO analyzed relevant data and reviewed documents, including Central
Bank of Iraq oil receipts data, International Monetary Fund‘s (IMF)
reports, translated copies of Iraqi budget and expenditures, and U.S.
agency funding data and reports. GAO also interviewed officials from
the Departments of Defense (DOD), Energy, State, Treasury, and the IMF.
This report contains no recommendations. Treasury agreed with the
report‘s findings and stated that Iraq has adequate funds to make and
maintain capital investments that deliver services and foster economic
growth. State provided technical comments. DOD had no comments.
What GAO Found:
From 2005 through 2007, the Iraqi government generated an estimated $96
billion in cumulative revenues, of which crude oil export sales
accounted for about $90.2 billion, or 94 percent. For 2008, GAO
estimates that Iraq could generate between $73.5 billion and $86.2
billion in total revenues, with oil exports accounting for between
$66.5 billion to $79.2 billion. Projected 2008 oil revenues could be
more than twice the average annual amount Iraq generated from 2005
through 2007. These projections are based on actual sales through June
2008 and projections for July to December that assume an average export
price from $96.88 to $125.29 per barrel and oil export volumes of 1.89
to 2.01 million barrels per day.
From 2005 through 2007, the Iraqi government spent an estimated $67
billion on operating and investment activities. Ninety percent was
spent on operating expenses, such as salaries and goods and services,
and the remaining 10 percent on investments, such as structures and
vehicles. The Iraqi government spent only 1 percent of total
expenditures to maintain Iraq- and U.S.-funded investments such as
buildings, water and electricity installations, and weapons. While
total expenditures grew from 2005 through 2007, Iraq was unable to
spend all its budgeted funds. In 2007, Iraq spent 80 percent of its $29
billion operating budget and 28 percent of its $12 billion investment
budget. For 2008, GAO estimates that Iraq could spend between $35.3
billion and $35.9 billion of its $49.9 billion budget.
As of December 31, 2007, the Iraqi government had accumulated financial
deposits of $29.4 billion, held in the Development Fund for Iraq and
central government deposits at the Central Bank of Iraq and Iraq‘s
commercial banks. This balance is the result, in part, of an estimated
cumulative budget surplus of about $29 billion from 2005 to 2007. For
2008, GAO estimates a budget surplus of between $38.2 billion to $50.3
billion. If spent, a proposed Iraqi budget supplemental of $22 billion
could reduce this projected surplus.
Since fiscal year 2003, the United States appropriated about $48
billion for stabilization and reconstruction efforts in Iraq; it had
obligated about $42 billion of that amount as of June 2008. U.S.
agencies spent about $23.2 billion on the critical security, oil,
electricity, and water sectors. From 2005 through April 2008, Iraq
spent about $3.9 billion on these sectors.
U.S. government, coalition, and international officials have identified
a number of factors that have affected the Iraqi government‘s ability
to spend more of its revenues on capital investments. These factors
included the shortage of trained staff; weak procurement and budgeting
systems; and violence and sectarian strife. The United States has
funded activities to help build the capacity of key civilian and
security ministries to improve Iraq‘s ability to execute its capital
project budget.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-1031]. For more
information, contact Joseph A. Christoff at (202) 512-8979 or
christoffj@gao.gov.
[End of section]
Contents:
Letter:
Summary:
Background:
Iraq's Estimated Revenues from 2005 through 2008:
Iraq's Estimated Expenditures from 2005 through 2008:
Iraq's Financial Deposits through 2007 and Budget Surplus:
United States Funding on Stabilization and Reconstruction Activities in
Iraq and Iraqi Funding for Similar Activities:
Factors Affecting Iraq's Efforts to Accelerate Spending:
Conclusion:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Estimates of Iraqi Crude Oil Export Revenues from 2005
through 2007:
Appendix III: GAO Projections of Iraqi Crude Oil Export Revenues for
2008:
Appendix IV: GAO's Analysis of Iraq's Budget:
Appendix V: Government of Iraq Expenditures for Select Ministries:
Appendix VI: Comments from the Department of the Treasury:
Appendix VII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Projections for 2008 Iraqi Total Revenues:
Table 2: Government of Iraq Expenditures and Annual Growth Rates, 2005
through 2008:
Table 3: Financial Deposits of the Iraqi Government, as of December 31,
2007:
Table 4: Estimated Total Revenues, Expenditures, and Surplus, 2005
through 2008:
Table 5: Comparison of Iraq and U.S. Allocations and Spending for
Selected Sectors:
Table 6: Assumptions for Six Scenarios Projecting Iraqi Crude Oil
Export Revenue for July through December 2008:
Table 7: Projections for 2008 Iraqi Oil Export Prices, Volume, and
Revenue:
Table 8: Iraq Budget Classification of Expenditures Reported by the
Ministry of Finance:
Table 9: Expenditures and Annual Growth Rates of Iraqi Security
Ministries (Defense and Interior), 2005 through April 2008:
Table 10: Expenditures and Annual Growth Rates of Iraqi Ministries of
Oil, Water, and Electricity, 2005 through 2008:
Table 11: Iraq Investment Budget and Expenditures for Ministries of
Oil, Water, and Electricity, 2005 through 2007:
Figures:
Figure 1: Estimates of World Oil Reserves, as of December 2005:
Figure 2: Iraq Crude Oil Exports, January 2004 through June 2008:
Figure 3: Comparison of Iraq Crude Oil Export Prices with World Crude
Oil Price Benchmarks, January 2005-June 2008:
Figure 4: Iraqi Government Expenditures in Relation to Budget, 2005
through 2007:
Figure 5: Iraqi Crude Oil Export Revenues, from 2005 through 2007:
Figure 6: Projected 2008 Cumulative Iraqi Oil Export Revenue:
Abbreviations:
CBI: Central Bank of Iraq:
CPA: Coalition Provisional Authority:
DFI: Development Fund for Iraq:
EIA: Energy Information Administration:
IAMB: International Advisory and Monetary Board:
IMF: International Monetary Fund:
KRG: Kurdistan Regional Government:
mbpd: million barrels per day:
UN: United Nations:
WTI: West Texas Intermediate:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
August 5, 2008:
Congressional Committees:
Iraq's large oil reserves coupled with surging oil prices offer the
government of Iraq the potential to contribute to the country's
reconstruction efforts and thereby enhance essential services to the
Iraqi people. Iraq has an estimated 115 billion barrels of crude oil
reserves--the third largest in the world. Oil export revenues are
critical to Iraq's economy, accounting for over half of the country's
gross domestic product and over 90 percent of its revenues. In June
2008, we reported low spending rates by the Iraqi government for the
critical oil, electricity, and water sectors in 2007 in the face of
declining U.S. investments in these sectors.
This report provides information on (1) Iraq's estimated revenues from
2005 through 2008, (2) Iraq's estimated expenditures from 2005 through
2008, (3) Iraq's financial deposits through 2007 and budget surpluses,
(4) U.S. cumulative expenditures on stabilization and reconstruction
activities in Iraq since 2003, and (5) factors affecting Iraq's efforts
to accelerate spending.
Senator Carl Levin, Chairman, and Senator John Warner, member, of the
Senate Armed Services Committee requested that GAO complete this work.
Due to broad congressional interest in Iraq issues, we completed this
report under the Comptroller General's authority to conduct evaluations
on his own initiative.
This report builds upon an extensive body of GAO's work on Iraq,
including our May 2007 report assessing reconstruction efforts in
rebuilding Iraq's oil and electricity sector, our January 2008 report
assessing Iraq's efforts to spend its budget, and our June 2008 report
assessing progress made in meeting key goals in The New Way Forward.
[Footnote 1] To address these objectives, we analyzed relevant data and
reviewed documents, such as Central Bank of Iraq export oil receipts
data; International Monetary Fund's (IMF) stand-by arrangement for
Iraq; translated copies of Iraqi documents, including budget and
capital spending; and Departments of State and Defense funding data and
reports for Iraq reconstruction and stabilization efforts. We
interviewed officials from the Departments of State, Defense, and the
Treasury; Department of Energy's Energy Information Administration
(EIA); and the IMF. The 2005 through 2007 data on Iraqi bank deposits,
surpluses, annual budget revenues, and expenditures had limitations,
but we found the data to be sufficiently reliable for the purpose of
reporting estimates of Iraqi government's cumulative budget surplus,
financial deposits, revenues, and spending. We found limitations in the
reliability of 2004 revenue, budget, and expenditure data and,
therefore, excluded these data from our analysis. For Iraqi crude oil
export and price data, we found the Central Bank of Iraq export oil
receipts data to be sufficiently reliable to present Iraqi oil export
revenue. For US funding of Iraq reconstruction and stabilization
efforts, we found the funding data were sufficiently reliable for broad
comparisons in the aggregate and the category descriptions we have made
in this report.
We did not use Ministry of Finance special reports for our analysis of
expenditures because the reports contained unreliable data. The reports
combine Iraq's commitments to spend with actual expenditures but do not
define commitments. In addition, columns and rows do not add up and the
reports show inconsistent use of poorly defined budget terms. Appendix
I contains a more detailed description of our scope and methodology.
We conducted this performance audit from May to August 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Summary:
Our analysis of Iraq's revenue and expenditure data and U.S.
expenditures in Iraq found the following:
* From 2005 through 2007, the Iraqi government generated an estimated
$96 billion in cumulative revenues, of which crude oil export sales
accounted for about $90.2 billion, or 94 percent. For 2008, we estimate
that Iraq could generate between $73.5 billion and $86.2 billion in
total revenues, of which oil exports will account for between $66.5
billion to $79.2 billion. Projected oil revenues for 2008 could be more
than twice the average annual amount Iraq generated from 2005 through
2007. The 2008 projections are based on actual sales through June 2008
and projections for July to December that assume an export price for
Iraqi oil ranging from $96.88 to $125.29 per barrel and oil export
volumes ranging from 1.89 to 2.01 million barrels per day.
* From 2005 through 2007, the Iraqi government spent an estimated $67
billion on a variety of operating and investment activities. According
to Iraqi Ministry of Finance data, Iraq spent 90 percent of the $67
billion on operating expenses, such as salaries and pensions; goods,
services, and maintenance;[Footnote 2] social benefits; and interest
payments. The remaining 10 percent was spent on investment
expenditures, such as structures, machinery, and vehicles. The Iraqi
government spent only 1 percent of total expenditures on maintaining
Iraq-and U.S.-funded investments, which includes the maintenance of
roads, bridges, vehicles, buildings, water and electricity
installations, and weapons. Although total expenditures grew from 2005
through 2007, the Iraqi government was unable to spend all the funds it
budgeted, especially for investment activities. For example, in 2007,
Iraq spent 80 percent of its $29 billion operating budget and 28
percent of its $12 billion investment budget. For 2008, we estimate
that the Iraqi government could spend between $35.3 billion and $35.9
billion of its $49.9 billion budget.
* As of December 31, 2007, the Iraqi government had accumulated
financial deposits of $29.4 billion, held in the Development Fund for
Iraq and central government deposits at the Central Bank of Iraq and
Iraq's commercial banks. The balance of these deposits was, in part,
the result of an estimated budget surplus of about $29 billion from
2005 to 2007. For 2008, we estimate a budget surplus of between $38.2
billion to $50.3 billion based on our projections for revenue and
expenditures. If spent, a proposed Iraqi budget supplemental of $22
billion, with about $8 billion dedicated to capital spending, could
reduce this projected surplus.
* Since fiscal year 2003, the United States has appropriated about $48
billion for stabilization and reconstruction efforts in Iraq; it had
obligated about $42 billion of that amount, as of June 2008.[Footnote
3] U.S. agencies spent about $23.2 billion on four critical sectors--
security, oil, electricity, and water. As of June 2008, the United
States spent 70 percent of the amount it allocated for these four
sectors from fiscal year 2003 through June 2008. Iraq spent 14 percent,
or $3.9 billion, of the $28 billion it allocated for similar activities
in these sectors from 2005 through April 2008.
* U.S. government, coalition, and international officials have
identified a number of factors that have affected the Iraqi
government's ability to spend more of its revenues on capital
investments intended to rebuild its infrastructure. These factors
include Iraq's shortage of trained staff, weak procurement and
budgeting systems, and violence and sectarian strife. As we have
previously reported, the United States has funded, since 2005,
activities to help build the capacity of key civilian and security
ministries and thereby improve the Iraqi government's ability to
execute its budget for capital projects.
* We provided a draft of this report to the Departments of State, the
Treasury, and Defense for review. We received written comments from
Treasury, which we have reprinted in appendix VI. Treasury agreed with
the findings of this report and stated that the report accurately
highlights that Iraq's revenues have grown substantially in recent
years. Treasury stated that the increase in Iraqi revenues places the
Government of Iraq in a stronger position to ultimately shoulder the
full burden of its development, reconstruction, and security programs.
Treasury also stated that Iraq has adequate funds to make and maintain
capital investments that deliver services and create conditions that
foster economic growth. Treasury agreed that Iraq's budget surplus is
likely to grow significantly over the course of 2008, but that the
Government of Iraq still needs to improve the effectiveness of its
budget execution. Treasury commented that the pace of Iraqi spending
has been held back by various factors, including deficiencies in
capacity and security. State provided technical comments, which we
incorporated as appropriate. DOD did not provide any comments.
Background:
Iraq possesses the third largest oil reserve in the world, estimated at
a total of 115 billion barrels.[Footnote 4] As shown in figure 1, only
Saudi Arabia and Iran have larger proved world oil reserves.[Footnote
5]
Figure 1: Estimates of World Oil Reserves, as of December 2005:
[See PDF for image]
This figure is a horizontal bar graph depicting the following data:
Estimates of World Oil Reserves, as of December 2005 (billions of
barrels):
World Total: 1,201.33;
Saudi Arabia: 264.21;
Iran: 137.49;
Iraq: 115;
Kuwait: 101.50;
United Arab Emirates: 97.80;
Venezuela: 79.73;
Russia: 74.44;
Libya: 39.13;
Nigeria: 35.88;
United States: 29.92;
Canada: 16.50.
Source: EIA data.
[End of figure]
Iraq's ability to extract these reserves has varied widely over time
and Iraq's oil infrastructure has deteriorated over several decades due
to war damage, inadequate maintenance, and the limited availability of
spare parts, equipment, new technology, and financing. In addition,
Iraq's crude oil production and export capacities were further affected
by considerable looting after Operation Iraqi Freedom and continued
attacks on crude oil and refined product pipelines. Nonetheless, crude
oil production and exports have recovered since 2003. As of June 2008,
Iraq's crude oil export averaged 2.01 million barrels per day (mbpd),
according to Iraqi oil export receipt data (see fig. 2).
Figure 2: Iraq Crude Oil Exports, January 2004 through June 2008:
[See PDF for image]
This figure is a vertical bar graph depicting the following data:
Date: January 2004;
Millions of barrels per day: 1.52.
Date: February 2004;
Millions of barrels per day: 1.51.
Date: March 2004;
Millions of barrels per day: 1.5.
Date: April 2004;
Millions of barrels per day: 1.7.
Date: May 2004;
Millions of barrels per day: 1.63.
Date: June 2004;
Millions of barrels per day: 1.46.
Date: July 2004;
Millions of barrels per day: 1.37.
Date: August 2004;
Millions of barrels per day: 1.29.
Date: September 2004;
Millions of barrels per day: 1.45.
Date: October 2004;
Millions of barrels per day: 1.62.
Date: November 2004;
Millions of barrels per day: 1.56.
Date: December 2004;
Millions of barrels per day: 1.34.
Date: January 2005;
Millions of barrels per day: 1.61.
Date: February 2005;
Millions of barrels per day: 1.45.
Date: March 2005;
Millions of barrels per day: 1.43.
Date: April 2005;
Millions of barrels per day: 1.36.
Date: May 2005;
Millions of barrels per day: 1.39.
Date: June 2005;
Millions of barrels per day: 1.35.
Date: July 2005;
Millions of barrels per day: 1.31.
Date: August 2005;
Millions of barrels per day: 1.62.
Date: September 2005;
Millions of barrels per day: 1.41.
Date: October 2005;
Millions of barrels per day: 1.57.
Date: November 2005;
Millions of barrels per day: 1.34.
Date: December 2005;
Millions of barrels per day: 1.23.
Date: January 2006;
Millions of barrels per day: 1.05.
Date: February 2006;
Millions of barrels per day: 1.11.
Date: March 2006;
Millions of barrels per day: 1.41.
Date: April 2006;
Millions of barrels per day: 1.36.
Date: May 2006;
Millions of barrels per day: 1.54.
Date: June 2006;
Millions of barrels per day: 1.45.
Date: July 2006;
Millions of barrels per day: 1.68.
Date: August 2006;
Millions of barrels per day: 1.68.
Date: September 2006;
Millions of barrels per day: 1.6.
Date: October 2006;
Millions of barrels per day: 1.6.
Date: November 2006;
Millions of barrels per day: 1.41.
Date: December 2006;
Millions of barrels per day: 1.54.
Date: January 2007;
Millions of barrels per day: 1.46.
Date: February 2007;
Millions of barrels per day: 1.18.
Date: March 2007;
Millions of barrels per day: 1.53.
Date: April 2007;
Millions of barrels per day: 1.58.
Date: May 2007;
Millions of barrels per day: 1.53.
Date: June 2007;
Millions of barrels per day: 1.53.
Date: July 2007;
Millions of barrels per day: 1.55.
Date: August 2007;
Millions of barrels per day: 1.74.
Date: September 2007;
Millions of barrels per day: 1.51.
Date: October 2007;
Millions of barrels per day: 1.67.
Date: November 2007;
Millions of barrels per day: 1.79.
Date: December 2007;
Millions of barrels per day: 1.93.
Date: January 2008;
Millions of barrels per day: 1.81.
Date: February 2008;
Millions of barrels per day: 1.69.
Date: March 2008;
Millions of barrels per day: 1.88.
Date: April 2008;
Millions of barrels per day: 1.87.
Date: May 2008;
Millions of barrels per day: 1.92.
Date: June 2008;
Millions of barrels per day: 2.01.
Source: Central bank of Iraq export oil receipt data provided by
Department of Treasury.
[End of figure]
Iraq generally receives a discounted export price for its crude oil, in
part due to its relatively lower quality compared with crude oil sales
of the U.S. West Texas Intermediate (WTI) and Brent--benchmarks for
world oil prices. Figure 3 shows Iraqi crude oil export prices in
comparison to world benchmark prices. According to data on Iraqi crude
oil export receipts reported by the Central Bank of Iraq (CBI) for
January through June 2008, Iraqi crude oil was priced at an average of
$96.88 per barrel. During this same period, WTI and Brent prices
averaged $110.95 and $109.17 per barrel, respectively. On average, the
CBI price was 12.9 percent and 12.7 percent less than the WTI and
Brent, respectively, from January 2007 through June 2008.
Figure 3: Comparison of Iraq Crude Oil Export Prices with World Crude
Oil Price Benchmarks, January 2005-June 2008 (dollars per barrel):
[See PDF for image]
This figure is a multiple vertical bar graph depicting the following
data:
Date: January 2005;
WTI: $46.84;
Brent: $44.51;
Iraq CBI receipt prices: $27.45.
Date: February 2005;
WTI: $48.15;
Brent: $45.48;
Iraq CBI receipt prices: $27.03.
Date: March 2005;
WTI: $54.19;
Brent: $53.1;
Iraq CBI receipt prices: $38.69.
Date: April 2005;
WTI: $52.98;
Brent: $51.88;
Iraq CBI receipt prices: $41.92.
Date: May 2005;
WTI: $49.83;
Brent: $48.65;
Iraq CBI receipt prices: $42.32.
Date: June 2005;
WTI: $56.35;
Brent: $54.35;
Iraq CBI receipt prices: $42.19.
Date: July 2005;
WTI: $59;
Brent: $57.52;
Iraq CBI receipt prices: $49.41.
Date: August 2005;
WTI: $64.99;
Brent: $63.98;
Iraq CBI receipt prices: $53.34.
Date: September 2005;
WTI: $65.59;
Brent: $62.91;
Iraq CBI receipt prices: $55.42.
Date: October 2005;
WTI: $62.26;
Brent: $58.54;
Iraq CBI receipt prices: $54.60.
Date: November 2005;
WTI: $58.32;
Brent: $55.24;
Iraq CBI receipt prices: $47.72.
Date: December 2005;
WTI: $59.41;
Brent: $56.86;
Iraq CBI receipt prices: $45.75.
Date: January 2006;
WTI: $65.49;
Brent: $62.99;
Iraq CBI receipt prices: $47.82.
Date: February 2006;
WTI: $61.63;
Brent: $60.21;
Iraq CBI receipt prices: $52.21.
Date: March 2006;
WTI: $62.69;
Brent: $62.06;
Iraq CBI receipt prices: $51.48.
Date: April 2006;
WTI: $69.44;
Brent: $70.26;
Iraq CBI receipt prices: $54.39.
Date: May 2006;
WTI: $70.84;
Brent: $69.78;
Iraq CBI receipt prices: $59.64.
Date: June 2006;
WTI: $70.95;
Brent: $68.56;
Iraq CBI receipt prices: $60.98.
Date: July 2006;
WTI: $74.41;
Brent: $73.67;
Iraq CBI receipt prices: $62.09.
Date: August 2006;
WTI: $73.04;
Brent: $73.23;
Iraq CBI receipt prices: $61.46.
Date: September 2006;
WTI: $63.8;
Brent: $61.96;
Iraq CBI receipt prices: $59.16.
Date: October 2006;
WTI: $58.89;
Brent: $57.81;
Iraq CBI receipt prices: $52.48.
Date: November 2006;
WTI: $59.08;
Brent: $58.76;
Iraq CBI receipt prices: $48.94.
Date: December 2006;
WTI: v61.96;
Brent: $62.47;
Iraq CBI receipt prices: $51.87.
Date: January 2007;
WTI: $54.51;
Brent: $53.68;
Iraq CBI receipt prices: $49.62.
Date: February 2007;
WTI: $59.28;
Brent: $57.56;
Iraq CBI receipt prices: $48.23.
Date: March 2007;
WTI: $60.44;
Brent: $62.05;
Iraq CBI receipt prices: $50.47.
Date: April 2007;
WTI: $63.98;
Brent: $67.49;
Iraq CBI receipt prices: $55.28.
Date: May 2007;
WTI: $63.45;
Brent: $67.21;
Iraq CBI receipt prices: $57.11.
Date: June 2007;
WTI: $67.49;
Brent: $71.05;
Iraq CBI receipt prices: $60.93.
Date: July 2007;
WTI: $74.12;
Brent: $76.93;
Iraq CBI receipt prices: $64.79.
Date: August 2007;
WTI: $72.36;
Brent: $70.76;
Iraq CBI receipt prices: $66.64.
Date: September 2007;
WTI: $79.91;
Brent: $77.17;
Iraq CBI receipt prices: $66.39.
Date: October 2007;
WTI: $85.8;
Brent: $82.34;
Iraq CBI receipt prices: $72.18.
Date: November 2007;
WTI: $94.77;
Brent: $92.41;
Iraq CBI receipt prices: $79.12.
Date: December 2007;
WTI: $91.69;
Brent: $90.93;
Iraq CBI receipt prices: $84.14.
Date: January 2008;
WTI: $92.97;
Brent: $92.18;
Iraq CBI receipt prices: $82.84.
Date: February 2008;
WTI: $95.39;
Brent: $94.99;
Iraq CBI receipt prices: $89.24.
Date: March 2008;
WTI: $105.45;
Brent: $103.64;
Iraq CBI receipt prices: $91.01.
Date: April 2008;
WTI: $112.58;
Brent: $109.07;
Iraq CBI receipt prices: $95.13.
Date: May 2008;
WTI: $125.4;
Brent: $122.8;
Iraq CBI receipt prices: $104.18.
Date: June 2008;
WTI: $133.88;
Brent: $132.32;
Iraq CBI receipt prices: $116.25.
Source: GAO analysis of EIA data for WTI and Brent and Central Bank of
Iraq export oil receipt data.
[End of figure]
Iraq's Estimated Revenues from 2005 through 2008:
The following section provides information on Iraq's revenues from 2005
through 2007 and estimated revenues for 2008.
Iraq's Revenues from 2005 through 2007:
From 2005 through 2007, the Iraqi government generated an estimated $96
billion in cumulative revenues.[Footnote 6] This estimate is based on
actual crude oil export sales of $90.2 billion as reported by the
Central Bank of Iraq and Iraqi taxes, interest, and other revenues, of
$5.7 billion as estimated by IMF.
Ninety-four percent of the total estimated revenues came from the
export sale of crude oil. The Central Bank of Iraq export oil revenue
data provided by Treasury are based on actual export oil receipts.
These data are generally consistent with estimates of Iraq's crude oil
export sales reported by the International Advisory and Monitoring
Board (IAMB),[Footnote 7] the IMF, and the EIA. (See app. II for data
on Iraqi crude oil export revenue from these different sources.) Crude
oil export revenues increased an average of about 30 percent each year
from 2005 to 2007 due to increases in oil exports and price.
Iraq's Estimated Revenues for 2008:
For 2008, we estimate that Iraq could generate between $73.5 billion to
$86.2 billion in total revenues. Table 1 displays the projected total
revenues, based on six scenarios projecting oil export revenues by
varying price and volume of exports.
Table 1: Projections for 2008 Iraqi Total Revenues (Billions of U.S.
dollars):
Revenues: Export oil revenues;
1: $66.5;
2: $68.7;
3: $73.3;
4: $75.9;
5: $76.4;
6: $79.2.
Revenues: Tax and other revenues;
1: $6.9;
2: $6.9;
3: $6.9;
4: $6.9;
5: $6.9;
6: $6.9.
Revenues: Total;
1: $73.5;
2: $75.7;
3: $80.2;
4: $82.8;
5: $83.3;
6: $86.2.
Source: GAO analysis of CBI and IMF data.
Note: Totals may not sum due to rounding.
[End of table]
These scenarios assume that tax and other revenues (a small portion of
total revenues) will be $6.9 billion for 2008 but that export oil
revenues will vary based on the price Iraq receives for its oil and the
volume it exports.[Footnote 8] As a result, we project that Iraq could
generate between $66.5 billion and $79.2 billion in oil revenues in
2008, more than twice the average annual amount Iraq generated from
2005 through 2007. These scenarios use the actual prices Iraq received
for its oil exports over the first 6 months of 2008, as reported by the
Central Bank of Iraq. For the last 6 months of 2008, we varied the
volume exported from 1.89 to 2.01 mbpd and price received from $96.88
to $125.29 per barrel. For a detailed discussion of these scenarios,
see appendix III.
Iraq's Estimated Expenditures from 2005 through 2008:
The following section provides information on the Government of Iraq's
estimated expenditures from 2005 through 2007, expenditure ratios from
2005 through 2007, and estimated expenditures for 2008.
Government of Iraq's 2005 through 2007 Expenditures:
From 2005 through 2007, the Iraqi government spent an estimated $67
billion on a variety of operating and investment activities, as
reported by the Ministry of Finance. As displayed in table 2, Iraq's
expenditures can be divided between operating and investment
expenditures. Operating expenses include salaries and pensions,
operating goods and services, interest payments, subsidies to public
and private enterprises, social benefits, and other transfers.
Investment expenses include capital goods and capital projects such as
structures, machinery, and vehicles.[Footnote 9]
Table 2: Government of Iraq Expenditures and Annual Growth Rates, 2005
through 2008 (Millions of U.S. dollars):
Types of expenditures: Total expenditures;
2005: $17,583;
2006: $22,788;
2007: $26,599;
Total 2005-07: $66,970;
January-April 2008: $10,796;
Percentage share of total 2005-07: 100;
Annual average growth rate 2005-07 dollars: $23;
Annual average growth rate 2005-07 Iraqi dinars: 13.
Types of expenditures: I. Operating expenditures;
2005: $16,151;
2006: $21,173;
2007: $23,164;
Total 2005-07: $60,489;
January-April 2008: $9,537;
Percentage share of total 2005-07: 90;
Annual average growth rate 2005-07 dollars: $20;
Annual average growth rate 2005-07 Iraqi dinars: 10.
Types of expenditures: A. Employee compensation;
2005: $6,062;
2006: $7,087;
2007: $9,936;
Total 2005-07: $23,085;
January-April 2008: $4,263;
Percentage share of total 2005-07: 34;
Annual average growth rate 2005-07 dollars: $28;
Annual average growth rate 2005-07 Iraqi dinars: 17.
Types of expenditures: B. Goods and services;
2005: $1,195;
2006: $1,445;
2007: $3,327;
Total 2005-07: $5,967;
January-April 2008: $1,115;
Percentage share of total 2005-07: 9;
Annual average growth rate 2005-07 dollars: $67;
Annual average growth rate 2005-07 Iraqi dinars: 53.
Types of expenditures: 1. Goods;
2005: $565;
2006: $663;
2007: $1,794;
Total 2005-07: $3,021;
January-April 2008: $578;
Percentage share of total 2005-07: 5;
Annual average growth rate 2005-07 dollars: $78;
Annual average growth rate 2005-07 Iraqi dinars: 63.
Types of expenditures: 2. Services;
2005: $392;
2006: $433;
2007: $1,174;
Total 2005-07: $1,998;
January-April 2008: $380;
Percentage share of total 2005-07: 3;
Annual average growth rate 2005-07 dollars: $73;
Annual average growth rate 2005-07 Iraqi dinars: 59.
Types of expenditures: 3. Maintenance;
2005: $238;
2006: $349;
2007: $360;
Total 2005-07: $947;
January-April 2008: $157;
Percentage share of total 2005-07: 1;
Annual average growth rate 2005-07 dollars: $23;
Annual average growth rate 2005-07 Iraqi dinars: 13.
Types of expenditures: C. Other operating expenditures[A];
2005: $8,894;
2006: $12,642;
2007: $9,901;
Total 2005-07: $31,437;
January-April 2008: $4,159;
Percentage share of total 2005-07: 47;
Annual average growth rate 2005-07 dollars: $6;
Annual average growth rate 2005-07 Iraqi dinars: -3.
Types of expenditures: II. Investment[B];
2005: $1,432;
2006: $1,615;
2007: $3,434;
Total 2005-07: $6,482;
January-April 2008: $1,259;
Percentage share of total 2005-07: 10;
Annual average growth rate 2005-07 dollars: $55;
Annual average growth rate 2005-07 Iraqi dinars: 42.
Source: GAO analysis of Iraqi Ministry of Finance budget expenditure
data.
Notes: The 2005 through 2007 time frame represents fiscal year spending
for January through December.
The government of Iraq adopted a new chart of accounts in 2007. To make
comparisons over time, we combine various budget categories to make
them comparable over time. See appendix IV for the groupings of the
underlying categories.
[A] Other operating expenses include interest payments, grants and
transfers, subsidies to public and private enterprises, war
reparations, and social benefits.
[B] Investment includes grants for reconstruction activities primarily
for provinces and regions for 2007 and 2008.
[End of table]
Our analysis of Ministry of Finance data on Iraqi expenditures from
2005 through 2007 found the following:
* Iraq spent 90 percent of the $67 billion on operating expenses and a
smaller portion of these funds--about 10 percent--on investment
expenses.
* Iraq's dollar expenditures grew by about 23 percent per year, from
$17.6 billion to $26.6 billion, largely due to increased spending on
Iraqi security personnel. (See app. V for details on expenditures by
the security ministries and other selected ministries.) However, annual
average growth rates computed in Iraqi dinars were 13 percent per year.
Growth rates in dinar may be more informative since Iraq spends its
budget in dinars. Using dollar-denominated expenditures inflates the
growth rates because the dinar appreciated 19 percent against the
dollar in 2007.[Footnote 10]
* The Iraqi government spent about $947 million, or 1 percent of its
total expenditures for the maintenance of Iraqi-and U.S.-funded
investments. These expenses include maintenance of roads, bridges,
vehicles, buildings, water and electricity installations, and weapons.
* Investment expenditures increased at an annual rate of 42 percent in
Iraqi dinars. However, most of this increase occurred in 2007 and was
due primarily to the increase in investment by the Kurdistan Regional
Government (KRG), not by the central ministries responsible for
providing critical services to the Iraqi people, including oil, water,
electricity, and security. For example, of the $1.8 billion increase in
investment expenditures in 2007, $1.3 billion, or more than 70 percent
was due to a reported increase in KRG investment. Investment by the
central ministries declined in 2007.[Footnote 11]
Government of Iraq's Expenditure Ratios from 2005 through 2007:
Although Iraq's total expenditures grew from 2005 through 2007,
Ministry of Finance data show that the Iraqi government was unable to
spend all of the funds it budgeted. Expenditure ratios are defined as
actual expenditures for a ministry or activity divided by the budgeted
amount for this ministry or activity. This ratio is a preliminary
measure as to how well the government is able to implement its
intentions and priorities. Figure 4 displays our analysis of Iraqi
expenditure ratios for the 2005 through 2007 budgets.
Figure 4: Iraqi Government Expenditures in Relation to Budget, 2005
through 2007:
[See PDF for image]
This figure is a multiple vertical bar graph depicting the following
data:
Total government:
2005: 73%;
2006: 67%;
2007: 65%.
Operating expenditures:
2005: 91%;
2006: 83%;
2007: 80%.
Investment;
2005: 23%;
2006: 19%;
2007: 28%.
Investment (Central ministries):
2005: 14%;
2006: 13%;
2007: 11%.
Source: GAO analysis of Iraq Ministry of Finance budget and expenditure
data.
Notes: The expenditure ratio is defined as actual expenditures as a
percentage of budget allocation.
The central government ministries include the ministries of oil, water,
electricity, public works, health, housing and construction, defense,
interior, and other spending units.
[End of figure]
Specifically, we found:
* While Iraq's total expenditures increased from 2005 through 2007,
Iraq spent a declining share of its budget allocations--73 to 65
percent from 2005 to 2007.
* In each year, Iraq spent a greater percentage of its operating
budget, including salaries, than its investment budget. For example, in
2007, the Iraqi government spent 80 percent of its $28.9 billion
operating budget and 28 percent of its $12.2 billion investment budget.
* The central ministries, responsible for providing essential services
to the Iraqi people, spent a smaller share of their investment budgets
than the Iraqi government as a whole. Further, their investment
expenditure ratios declined from 14 percent in 2005 to 11 percent in
2007. Specifically, while the central ministries budgeted $5.7 billion
and $8.1 billion for investments in 2005 and 2007, they spent $825
million and $896 million, respectively.[Footnote 12]
Estimated Government of Iraq's Expenditures for 2008:
In 2008, we estimate that the Iraqi government could spend between
$35.3 billion and $35.9 billion of its $49.9 billion 2008 budget. This
estimate is based on the assumption that the expenditure ratio in 2008
will be the same as the average expenditure ratios from 2005 to 2007
except expenditures for war reparations (5 percent of estimated oil
export revenues), which will vary with differing scenarios for oil
exports. [Footnote 13] This estimate implies a more than 21-percent
increase in dinar expenditures in 2008, compared with the annual
average of 13 percent over the past 3 years. However, the Iraqi
government is considering a supplemental budget for 2008. According to
Treasury, Iraq's Ministry of Finance introduced a $22 billion
supplemental budget, including about $8 billion dedicated to capital
spending, which would bring the total 2008 budget allocation to more
than $70 billion. This supplemental was submitted to the Council of
Representatives in July, according to Treasury. However, based on past
expenditure performance, it is unclear whether Iraq will be able to
spend this sizable budget.
Iraq also has outstanding foreign liabilities. In July 2008, Treasury
officials estimated that Iraq will owe between $50 billion to $80
billion in bilateral foreign debt.[Footnote 14] In addition, Iraq owes
$29 billion in war reparations to Kuwait.[Footnote 15] Oil revenues in
Iraq are currently immune from garnishment, liens, and other legal
judgments, but this immunity will expire in December 2008 absent
further UN Security Council action.
Iraq's Financial Deposits through 2007 and Budget Surplus:
As of December 31, 2007, the Iraqi government had financial deposits of
$29.4 billion held in the Development Fund for Iraq (DFI) at the New
York Federal Reserve Bank, central government deposits at the Central
Bank of Iraq (CBI), and central government deposits in Iraq's
commercial banks, which includes state-owned banks such as Rafidain and
Rasheed (see table 3).[Footnote 16] The data for the DFI financial
deposits are based on a July 2008 audited statement by IAMB. The
financial deposits in the Central Bank of Iraq and Iraq's commercial
banks come from the IMF's International Financial Statistics, as of
July 2008. The financial deposits at the end of 2007 result from an
estimated budget surplus of about $29 billion from 2005 to 2007 and
unverified balances prior to 2005.
Table 3: Financial Deposits of the Iraqi Government, as of December 31,
2007 (Billions of U.S. dollars):
Location: Development Fund for Iraq;
Amount (as of Dec. 31, 2007): $9.9.
Location: Central government deposits at the CBI;
Amount (as of Dec. 31, 2007): $5.7.
Location: Central government deposits in the banking sector;
Amount (as of Dec. 31, 2007): $13.8.
Total:
Amount (as of Dec. 31, 2007): $29.4.
Source: GAO analysis of Ernst & Young IAMB audit and IFS from IMF.
[End of table]
As displayed in table 4, we estimate that Iraq's budget surplus for
2008 could range from $38.2 billion to $50.3 billion, based on the six
scenarios we used to project export oil revenues by varying price and
volume of export. (See app. III for the six scenarios projecting export
oil revenues.) This estimate is based on the assumption that the
expenditure ratio in 2008 will be the same as the average expenditure
ratios from 2005 to 2007 except expenditures for war reparations (5
percent of estimated oil export revenues), which will vary with
differing scenarios for oil exports.
Table 7: Estimated Total Revenues, Expenditures, and Surplus, 2005
through 2008 (Billions of U.S. dollars):
Estimated total revenues:
2005-2007: $96.0;
2008 (1): $73.5;
2008 (2): $75.7;
2008 (3): $80.2;
2008 (4): $82.8;
2008 (5): $83.3;
2008 (6): $86.2.
Estimated total expenditures:
2005-2007: $67.0;
2008 (1): $35.3;
2008 (2): $35.4;
2008 (3): $35.6;
2008 (4): $35.8;
2008 (5): $35.8;
2008 (6): $35.9.
Estimated budget surplus:
2005-2007: $29.0;
2008 (1): $38.2;
2008 (2): $40.3;
2008 (3): $44.6;
2008 (4): $47.1;
2008 (5): $47.6;
2008 (6): $50.3.
Source: GAO analysis of EIA, IMF, Ministry of Finance, and Central Bank
of Iraq data.
[End of table]
However, as previously noted, Iraq is considering a supplemental budget
of $22 billion for 2008. If approved and then spent, the proposed
budget supplemental would reduce the projected surplus.
In addition, the IMF estimates that the Central Bank of Iraq had, as of
December 31, 2007, about $31.4 billion in gross foreign exchange
reserves. Gross foreign exchange reserves help support Iraq's monetary
policy and back the domestic currency to maintain confidence in the
Iraqi dinar and control inflation. It is important to note that adding
the $31.4 billion in gross foreign exchange reserves to the Iraqi
government's $29.4 billion in financial deposits may result in double
counting. For example, if the Iraqi government uses $1 billion to pay
for imported food, both its cash balances and gross foreign exchange
reserves would decrease by $1 billion.[Footnote 17] While the amount
the central bank may hold in reserve is not fixed, the IMF stand-by
agreement with Iraq specifies a floor of $21.1 billion. CBI's gross
foreign exchange reserves have, on average, increased by more than $7
billion per year from 2005 through 2007.
United States Funding on Stabilization and Reconstruction Activities in
Iraq and Iraqi Funding for Similar Activities:
Since fiscal year 2003, Congress has appropriated about $48 billion to
U.S. agencies to finance stabilization and reconstruction efforts in
Iraq, including developing Iraq's security forces, enhancing Iraq's
capacity to govern, and rebuilding Iraq's oil, electricity, and water
sectors, among others.[Footnote 18] As of June 2008, of the $48 billion
in appropriated U.S. funds from fiscal years 2003 through 2008, about
$42 billion (88 percent) had been obligated and about $32 billion (68
percent) had been spent.[Footnote 19]
Over two-thirds of the $32 billion spent, or $23.2 billion, have
supported reconstruction and stabilization activities in the security,
oil, water, and electricity sectors. Table 5 compares the allocations
and spending of comparable activities by the United States and Iraq in
these sectors.[Footnote 20] The Iraqi government developed its first
annual budget in 2005. From May 2003 through June 2004, the Coalition
Provisional Authority (CPA) was responsible for spending Iraqi oil
revenues for the benefit of the Iraqi people. We previously reported
that the CPA allocated approximately $7 billion in Iraqi funds for
relief and reconstruction projects, primarily for the import of refined
fuel products, security, regional programs, and oil and power projects.
Table 5: Comparison of Iraq and U.S. Allocations and Spending for
Selected Sectors (Billions of U.S. dollars):
Sectors: Security[B];
Government of Iraq: 2005-2008, Allocated: $12.3;
Government of Iraq: 2005-April 2008, Spent[A]: $2.9;
U.S. Government: Fiscal year 2003-June 2008, Allocated: $22.5;
U.S. Government: Fiscal year 2003-June 2008, Spent[A]: $13.7.
Sectors: Oil[C];
Government of Iraq: 2005-2008, Allocated: $0.5;
Government of Iraq: 2005-April 2008, Spent[A]: $0.3;
U.S. Government: Fiscal year 2003-June 2008, Allocated: $2.7;
U.S. Government: Fiscal year 2003-June 2008, Spent[A]: $2.5.
Sectors: Water resources[C];
Government of Iraq: 2005-2008, Allocated: $1.0;
Government of Iraq: 2005-April 2008, Spent[A]: $0.4;
U.S. Government: Fiscal year 2003-June 2008, Allocated: $2.9;
U.S. Government: Fiscal year 2003-June 2008, Spent[A]: $2.2.
Sectors: Electricity[C];
Government of Iraq: 2005-2008, Allocated: $4.2;
Government of Iraq: 2005-April 2008, Spent[A]: $0.4;
U.S. Government: Fiscal year 2003-June 2008, Allocated: $5.3;
U.S. Government: Fiscal year 2003-June 2008, Spent[A]: $4.8.
Sectors: Total;
Government of Iraq: 2005-2008, Allocated: $28.0;
Government of Iraq: 2005-April 2008, Spent[A]: $3.9;
U.S. Government: Fiscal year 2003-June 2008, Allocated: $33.4;
U.S. Government: Fiscal year 2003-June 2008, Spent[A]: $23.2.
Source: GAO analysis of Iraq Ministry of Finance budgets and
expenditures and State, DOD, USAID, and Treasury data.
Note: Totals may not sum due to rounding.
[A] This refers to funds disbursed by U.S. agencies and funds expended
by the respective Iraqi ministries.
[B] For security ministries, the Iraq figures for allocated and spent
exclude employee compensation.
[C] For oil, water, and electricity ministries the Iraq figures refer
to investment.
[End of table]
Iraq allocated $28 billion between 2005 and 2008 for the four sectors,
and U.S. agencies allocated $33.4 billion from fiscal years 2003 to
June 2008. Allocations in the security sector account for $22.5 billion
of the U.S. amount. As of June 2008, the United States spent 70
percent, or $23.2 billion, of the amount it allocated for these four
sectors. In contrast, as of April 2008, Iraq spent 14 percent, or $3.9
billion, of the amount it allocated for similar activities in these
sectors. The security sector received the largest share of funds from
the United States and Iraq.
Factors Affecting Iraq's Efforts to Accelerate Spending:
U.S. government, coalition, and international agencies have identified
a number of factors affecting the Iraqi government's ability to spend
more of its revenues on capital investments intended to rebuild its
infrastructure. These factors include Iraq's shortage of trained staff,
weak procurement and budgeting systems, and violence and sectarian
strife.
First, these officials have observed the relative shortage of trained
budgetary, procurement, and other staff with the necessary technical
skills as a factor limiting the Iraqi government's ability to plan and
execute its capital spending. Officials report a shortage of trained
staff with budgetary experience to prepare and execute budgets and a
shortage of staff with procurement expertise to solicit, award, and
oversee capital projects.
Second, weak procurement, budgetary, and accounting systems are of
particular concern in Iraq because these systems must balance efficient
execution of capital projects while protecting against reported
widespread corruption.
Third, these officials have noted that violence and sectarian strife
remain major obstacles to developing Iraqi government capacity,
including its ability to execute budgets for capital projects. The high
level of violence contributes to a decrease in the number of workers
available, can increase the amount of time needed to plan and complete
capital projects, and hinders U.S. advisors' ability to provide the
ministries with assistance and monitor capital project performance.
Since 2005, U.S. agencies have been working with the Iraqis to assist
the government in addressing challenges in executing its capital
budgets. As we have previously reported, the United States has funded
efforts since 2005 to build the capacity of key civilian ministries and
security ministries to improve the Iraqi government's ability to
effectively execute its budget for capital projects.[Footnote 21] In
2005 and 2006, the United States provided funding for programs to help
build the capacity of key civilian ministries and the Ministries of
Defense and Interior. Ministry capacity development refers to efforts
and programs to advise and help Iraqi government employees develop the
skills to plan programs, execute their budgets, and effectively deliver
government services such as electricity, water, and security. We found
multiple U.S. agencies leading individual efforts and recommended that
Congress consider conditioning future appropriations on the completion
of an integrated strategy for U.S. capacity development efforts.
In commenting on a draft of this report, Treasury stated that Treasury
and Embassy Baghdad are working to improve the pace of Iraqi budget
execution and ability to evaluate whether Iraqi capital spending
achieves its intended impact. To improve budget reporting,
transparency, and accountability, the U.S. and Iraqi governments
restarted the Iraq Financial Management Information System (IFMIS) on
July 5, 2008, with the expectation that the IFMIS will be operational
in all 250 Iraqi spending units by early 2009. In January 2008, we
reported that the U.S. Agency for International Development began the
IFMIS system in 2003, experienced significant delays, and suspended the
IFMIS system in June 2007.[Footnote 22]
Conclusion:
Iraq, with the third largest oil reserve in the world, has benefited
from the recent rise in oil prices and generated billions of dollars in
revenues. In 2008, Iraq will likely earn between $67 billion and $79
billion in oil sales--at least twice the average annual amount Iraq
generated from 2005 through 2007. This substantial increase in revenues
offers the Iraqi government the potential to better finance its own
security and economic needs.
Agency Comments:
We provided a draft of this report to the Departments of State, the
Treasury, and Defense for review. We received written comments from
Treasury, which we have reprinted in appendix VI. Treasury agreed with
the findings of this report. Treasury stated that the report accurately
highlights that Iraq's revenues have grown substantially in recent
years and presents a credible picture of Iraq's cumulative budget
surpluses and expected 2008 budget surplus. In addition, Treasury
stated that the increase in Iraqi revenues places the Government of
Iraq in a stronger position to ultimately shoulder the full burden of
its development, reconstruction, and security programs. Treasury noted
that Iraq has adequate funds to make and maintain capital investments
that deliver services and create conditions that foster economic
growth. Although Iraq's budget surplus is likely to grow significantly
over the course of 2008, Treasury stated that the Government of Iraq
still needs to improve the effectiveness of its budget execution and
accountability for Iraqi funds. Treasury commented that the pace of
spending has been held back by various factors, including deficiencies
in capacity and security. Treasury also provided technical comments,
which we incorporated as appropriate. State provided technical
comments, which we incorporated as appropriate. DOD did not provide
comments.
We are sending copies of this report to interested congressional
committees. We will also make copies available to others on request. In
addition, this report is available on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact Joseph A. Christoff, Director, International Affairs and Trade,
at (202) 512-8979 or christoffj@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report are listed in
appendix VII.
Signed by:
Joseph A. Christoff:
Director, International Affairs and Trade:
List of Congressional Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Joseph R Biden, Jr.
Chairman:
The Honorable Richard G. Lugar:
Ranking Member:
Committee on Foreign Relations:
United States Senate:
The Honorable Robert C. Byrd:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Committee on Appropriations:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Patrick J. Leahy:
Chairman:
The Honorable Judd Gregg:
Ranking Member:
Subcommittee on State, Foreign Operations, and Related Programs:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Duncan L. Hunter:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable Howard L. Berman:
Chairman:
The Honorable Ileana Ros-Lehtinen:
Ranking Member:
Committee on Foreign Affairs:
House of Representatives:
The Honorable Henry A. Waxman:
Chairman:
The Honorable Tom Davis:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable John F. Tierney:
Chairman:
The Honorable Christopher Shays:
Ranking Member:
Subcommittee on National Security and Foreign Affairs:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable David R. Obey:
Chairman:
The Honorable Jerry Lewis:
Ranking Member:
Committee on Appropriations:
House of Representatives:
The Honorable John P. Murtha:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
The Honorable Nita M. Lowey:
Chairwoman:
The Honorable Frank R. Wolf:
Ranking Member:
Subcommittee on State, Foreign Operations, and Related Programs:
Committee on Appropriations:
House of Representatives:
The Honorable John Warner:
United States Senate:
Appendix I: Scope and Methodology:
In this report, we discuss (1) Iraq's estimated revenues from 2005
through 2008, (2) Iraq's estimated expenditures from 2005 through 2008,
(3) Iraq's financial deposits through 2007 and budget surpluses, (4)
U.S. cumulative expenditures on stabilization and reconstruction
activities in Iraq since 2003, and (5) factors affecting Iraq's efforts
to accelerate spending. This report builds on GAO's extensive body of
work on Iraq, including our May 2007 assessment of reconstruction
efforts in rebuilding Iraq's oil and electricity sector, our January
2008 assessment of Iraq's budget execution, and our June 2008
assessment on the progress made in meeting key goals in The New Way
Forward[Footnote 23].
To complete this work, we analyzed relevant data, reviewed U.S. agency
and International Monetary Fund (IMF) documents, and interviewed
officials from the Departments of State, Defense, and the Treasury;
Department of Energy's Energy Information Administration (EIA); and the
IMF. We also reviewed translated copies of Iraqi documents, including
budget, capital spending, and Central Bank of Iraq export oil receipts
data. We provided drafts of the report to the Departments of the
Treasury, State, and Defense. We received formal comments from the
Department of the Treasury, which are included in appendix VI.
We conducted this performance audit from May to August 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
To estimate Iraq's budget revenues from 2005 through 2007, we used data
on export oil revenues and added estimates for other revenues. Crude
oil export revenues are based on export oil receipts data from the
Central Bank of Iraq (CBI) provided by the Department of the Treasury.
The data account for all export transactions including amount paid,
exported volume, price charged, date of shipment, payment date, and
destination. The transactions are recorded on a daily basis. Monthly
prices are calculated by dividing the total revenue by the total output
from that month; export volume is calculated by aggregating the output
from all the transactions from each month. We found that data were
sufficiently reliable to present Iraqi oil export revenue as part of
estimates of Iraqi revenues from 2005 through 2007. We determined that
the 2004 budget revenue and expenditure data were not reliable and did
not include this data in our review. To determine Iraq's tax and other
revenues, we added preliminary estimates of net domestic revenues from
oil-related public enterprises, taxes, and other revenues as reported
in IMF's stand-by arrangement with Iraq. We interviewed IMF officials
and made comparisons to other available sources to determine the
reliability of those estimates. We found that the data were
sufficiently reliable for the purpose of our analysis. We also
projected total revenues for 2008 by forecasting export oil revenues
and added those to IMF's forecast of net revenues from oil-related
public enterprises and taxes and other revenues. We developed six
alternative scenarios for export oil revenues. See appendix III for the
underlying assumptions about prices and export volumes for each
scenario.
To provide detailed information on the Iraqi government's estimated
expenditures, we reviewed Iraqi official Ministry of Finance monthly
and annual budget and expenditure data for fiscal years 2005 through
2008, which were provided by Treasury. We used Iraq dinar-dollar
exchange rates to convert dinar budget and expenditure figures to
dollars. To provide a preliminary view of spending trends for the 3-
year period 2005-2007, we calculated annual average growth rates using
an ordinary least squares regression technique. Although we computed
these growth rates for both dollar and dinar denominated spending, we
believe that growth rates in dinars are more informative because actual
expenditures are made in dinars. Using dollar-denominated expenditures
inflates the growth rates due to the 19-percent appreciation of the
dinar against the dollar during this period.
We did not use special reports developed by the Ministry of Finance
because they include Iraqi commitments to spend as well as actual
expenditures. We did not use the special reports for our analyses for
two reasons: (1) Treasury Department officials stated in our meeting
with them that the special reports contain unreliable data, and (2) the
special reports do not define commitments, measure them, or describe
how or when these commitments would result in actual expenditures. In
addition, our review of these special reports show inconsistent use of
poorly defined budget terms, as well as columns and rows that do not
add up.
Beginning in 2007, the government of Iraq adopted a new budget
classification to comply with an IMF requirement. To compare the same
expenditure categories over time, we re-grouped some sub-categories, as
explained in appendix IV. Detailed breakdowns of the goods and services
category are not available for individual ministries beginning in 2007.
For the three sub-categories goods, services, and maintenance, the
percentage shares were calculated for the years 2005 and 2006. Although
we included the latest available 2008 expenditure figures in our
tables, we did not use 2008 to calculate growth rates or shares of
total expenditures for the 2005 through 2007 period.
To provide some insight into how well the Iraqi government was able to
implement its intentions and priorities, we constructed an expenditure
ratio: actual expenditures divided by the budgeted amount for that
activity or ministry. This does not capture the quality or
effectiveness of expenditures, but only whether the government was able
to spend the money it had budgeted. Treasury officials informed us that
their analysis indicated that official Ministry of Finance data were
sufficiently reliable. In addition to our interviews of cognizant
officials, we examined and reviewed ministry data and compared monthly
and annual data for internal consistency. Although we did not
independently verify the precision of Iraqi expenditure data for 2005
through 2008, we believe that they are sufficiently reliable for the
purposes of our report. However, we found that the data for 2004 were
not sufficiently reliable and did not use them in our report.
To identify Iraqi financial deposits as of the end of 2007, we reviewed
IMF documents and interviewed IMF and Treasury officials. The data for
the DFI balances are based on a July 2008 audited statement by the
International Advisory and Monitoring Board (IAMB). The data on central
government deposits at the CBI and Iraq's commercial banks come from
the International Financial Statistics, as of July 2008. We determined
that these reported data were sufficiently reliable for our analysis.
To estimate Iraqi government's cumulative budget surplus from 2005 to
2007 and projected surplus for 2008, we subtracted estimated total
expenditures from estimated total revenues. The data source for Iraqi
spending is Iraq's Ministry of Finance. The projected expenditures for
2008 are based on the assumption that the 2005 through 2007 average
budget execution rate of 68 percent will remain the same in 2008. We
selected this approach because it provided the highest estimate of 2008
expenditures based on recent historic data and trends for 2005 through
2007 and the approved 2008 budget. We varied total expenditures since
the amount of war reparations varied. These reparation payments are
calculated at 5 percent of the estimated oil export revenues projected
in our six scenarios.
In addressing the amount of U.S. funds that have been appropriated,
obligated, and disbursed, we collected funding information from the
Departments of Defense and State and relied on prior GAO reporting and
data from the Departments of Defense, State, the Treasury, U.S. Agency
for International Development, and the Coalition Provisional Authority
to update the information where necessary. Although we have not audited
the funding data, we discussed the sources and limitations of the data
with the appropriate officials and checked them, when possible, with
other information sources. We found the data were sufficiently reliable
for broad comparisons in the aggregate and the category descriptions we
have made in this report.
To update information on factors affecting the Iraqi government's
ability to spend its revenues, we reviewed DOD, State, and IMF reports
and met with officials from State, Treasury, DOD, and IMF.
[End of section]
Appendix II: Estimates of Iraqi Crude Oil Export Revenues from 2005
through 2007:
We are providing estimates of Iraq's crude oil export revenues from
three sources to show how they compare with actual oil export receipt
data reported by the Central Bank of Iraq (CBI). Estimates of Iraq's
crude oil export revenues from different entities--the International
Advisory and Monitoring Board (IAMB), Energy Information Administration
(EIA), and International Monetary Fund (IMF)--ranged from about $80.2
to about $93.1 billion for the period 2005 through 2007. As shown by
figure 5, these sources are consistent with Iraq's export oil revenues
as reported by the CBI and show a consistent upward trend for that
period. For example, CBI crude oil export receipt data for 2007
reported revenues of $37.4 billion compared to estimates that ranged
from $33.3 billion to $37.5 billion. IAMB data are based on its audit
of Iraqi oil receipts and do not include the 5 percent of Iraq's export
oil revenues set aside into a United Nations compensation fund to
process and pay claims for losses resulting from Iraq's invasion and
occupation of Kuwait. The IMF data are estimates based on its own
analysis and Iraqi authorities' estimates, and EIA data are estimates
based on its own analysis of a variety of sources.[Footnote 24]
Figure 5: Iraqi Crude Oil Export Revenues, from 2005 through 2007:
[See PDF for image]
This figure is a multiple vertical bar graph depicting the following
data:
Fiscal year: 2005;
Central Bank of Iraq: $23.10 billion;
IAMB: $21.93 billion;
EIA: $23.8 billion;
IMF: $19.18 billion.
Fiscal year: 2006;
Central Bank of Iraq: $9.8 billion;
IAMB: $28.31 billion;
EIA: $31.8 billion;
IMF: $27.69 billion.
Fiscal year: 2007;
Central Bank of Iraq: $37.43 billion;
IAMB: $35.88 billion;
EIA: $37.5 billion;
IMF: $33.28 billion.
Source: GAO analysis.
[End of figure]
[End of section]
Appendix III: GAO Projections of Iraqi Crude Oil Export Revenues for
2008:
This appendix presents our methodology for projecting Iraq's crude oil
export revenues for 2008 and discusses the underlying price and export
volume assumptions. First, we calculated the average monthly prices and
volumes for Iraqi crude oil exports from January through June 2008, the
most recent months for which data were available. For those months, we
used data on the volume and price of crude oil exports as reported by
the Central Bank of Iraq (CBI). Second, we made assumptions about the
price and export volumes of Iraqi crude oil based on historical prices
and export volumes. We used these assumptions to project monthly prices
and export volumes for the period July through December 2008. Third, we
used the actual price and export volume data for the first half of the
year and the projected price and export volume data for the second half
of the year to project a range of crude oil revenues for Iraq, using
six alternative scenarios.
Prices and Export Volumes for Iraqi Oil for January through June 2008:
We calculated the average monthly prices of Iraqi oil and the
corresponding export volumes for January through June 2008 using actual
transaction prices and volume, as reported by CBI. These monthly
averages are based on the daily prices per barrel and export volumes
for each month. Monthly prices are calculated by dividing the total
revenue by the total output from that month; export volume is
calculated by aggregating the output from all the transactions from
each month.
Assumptions for Alternative Scenarios of Iraqi Crude Oil Export Prices
and Volume for July through December 2008:
We developed six scenarios of export oil revenues by varying price and
export volume. Table 6 summarizes alternative assumptions for export
prices and alternative assumptions for export volumes.
Table 6: Assumptions for Six Scenarios Projecting Iraqi Crude Oil
Export Revenue for July through December 2008:
Scenario: 1;
Export price assumption for July-December: 2008 Jan.-June average;
Export volume assumption for July-December: 2008 Jan.-June average.
Scenario: 2;
Export price assumption for July-December: 2008 June level;
Export volume assumption for July-December: 2008 Jan.-June average.
Scenario: 3;
Export price assumption for July-December: Discount from WTI's forecast
as of July 8;
Export volume assumption for July-December: 2008 Jan.-June average.
Scenario: 4;
Export price assumption for July-December: 2008 Jan.-June level;
Export volume assumption for July-December: 2008 June level.
Scenario: 5;
Export price assumption for July-December: 2008 June level;
Export volume assumption for July-December: 2008 June level.
Scenario: 6;
Export price assumption for July-December: Discount from WTI's forecast
as of July 8;
Export volume assumption for July-December: 2008 June level.
Source: GAO analysis using CBI and EIA data.
[End of table]
For the forecast period, we assume two constant levels of export volume
for each month from July through December 2008: the January through
June 2008 average export volume and the June 2008 export volume. This
assumption is based on the reasoning that the forecast time frame is
short and export volume is constrained by Iraq's oil production
capacity and capability, as well as the level needed for Iraq's
domestic consumption.
For each of the two export volumes, we developed a base case, an
optimistic scenario, and a pessimistic scenario for the behavior of
prices.[Footnote 25] For the base case, we set prices equal to the June
2008 level. This implies no growth in prices for the rest of the year.
For the optimistic case, we determined prices by applying a 12.9
percent discount from the average monthly prices of the West Texas
Intermediate (WTI), a key benchmark for world crude oil prices forecast
by EIA.[Footnote 26] This implies 1.12 percent growth in Iraqi crude
oil export prices from June to December 2008. Finally, for the
pessimistic case, we set prices equal to the January through June 2008
average value. This implies a price drop in July 2008 with no change
afterwards; thus, the average monthly growth rate in prices from June
to December 2008 is -1.93 percent.
Estimated Oil Revenue Based on Alternative Assumptions:
As shown in table 7, using a combination of our price and export volume
assumptions, we projected six scenarios for Iraqi oil exports for July
through December 2008.
Table 7: Projections for 2008 Iraqi Oil Export Prices, Volume, and
Revenue:
Scenario: 1;
Average percent change in price June-December 2008: -1.93;
2008 July-December average price (per barrel): $96.88;
2008 average export production (mbpd): 1.89;
Revenues for July-December 2008 (billions of dollars): $33.65;
2008 Total crude oil revenue (billions of dollars): $66.53.
Scenario: 2;
Average percent change in price June-December 2008: 0;
2008 July-December average price (per barrel): $116.26;
2008 average export production (mbpd): 1.89;
Revenues for July-December 2008 (billions of dollars): $40.38;
2008 Total crude oil revenue (billions of dollars): $73.26.
Scenario: 3;
Average percent change in price June-December 2008: 1.12;
2008 July-December average price (per barrel): $125.29;
2008 average export production (mbpd): 1.89;
Revenues for July-December 2008 (billions of dollars): $43.51;
2008 Total crude oil revenue (billions of dollars): $76.40.
Scenario: 4;
Average percent change in price June-December 2008: -1.93;
2008 July-December average price (per barrel): $96.88;
2008 average export production (mbpd): 2.01;
Revenues for July-December 2008 (billions of dollars): $35.85;
2008 Total crude oil revenue (billions of dollars): $68.73.
Scenario: 5;
Average percent change in price June-December 2008: 0;
2008 July-December average price (per barrel): $116.26;
2008 average export production (mbpd): 2.01;
Revenues for July-December 2008 (billions of dollars): $43.02;
2008 Total crude oil revenue (billions of dollars): $75.90.
Scenario: 6;
Average percent change in price June-December 2008: 1.12;
2008 July-December average price (per barrel): $125.29;
2008 average export production (mbpd): 2.01;
Revenues for July-December 2008 (billions of dollars): $46.36;
2008 Total crude oil revenue (billions of dollars): $79.24.
[End of table]
Source: GAO analysis using CBI and EIA data.
Figure 6 depicts the total export oil revenues for each of the two
levels of assumed export volume, 1.89 and 2.01 mbpd. Total actual
export oil revenues from January to June 2008 were $32.88 billion.
Figure 6: Projected 2008 Cumulative Iraqi Oil Export Revenue:
[See PDF for image]
This figure contains two multiple line graphs depicting the following
data:
Projected 2008 Cumulative Iraqi Oil Export Revenue, using 1.89 mbpd
volume:
Date: June 2008;
Revenue Scenario #1: $32.88 billion;
Revenue Scenario #2: $32.88 billion;
Revenue Scenario #3: $32.88 billion.
Date: July 2008;
Revenue Scenario #1: $38.55 billion;
Revenue Scenario #2: $39.68 billion;
Revenue Scenario #3: $40.07 billion;
Date: August 2008;
Revenue Scenario #1: $44.22 billion;
Revenue Scenario #2: $46.49 billion;
Revenue Scenario #3: $47.36 billion;
Date: September 2008;
Revenue Scenario #1: $49.17 billion;
Revenue Scenario #2: $53.07 billion;
Revenue Scenario #3: $54.46 billion;
Date: October 2008;
Revenue Scenario #1: $55.37 billion;
Revenue Scenario #2: $59.87 billion;
Revenue Scenario #3: $61.85 billion;
Date: November 2008;
Revenue Scenario #1: $60.86 billion;
Revenue Scenario #2: $66.46 billion;
Revenue Scenario #3: $69.06 billion;
Date: December 2008;
Revenue Scenario #1: $66.53 billion;
Revenue Scenario #2: $73.26 billion;
Revenue Scenario #3: $76.4 billion;
Projected 2008 Cumulative Iraqi Oil Export Revenue, using 2.01 mbpd
volume:
Date: June 2008;
Revenue Scenario #4: $32.88 billion;
Revenue Scenario #5: $32.88 billion;
Revenue Scenario #6: $32.88 billion.
Date: July 2008;
Revenue Scenario #4: $38.92 billion;
Revenue Scenario #5: $40.13 billion;
Revenue Scenario #6: $40.54 billion;
Date: August 2008;
Revenue Scenario #4: $44.96 billion;
Revenue Scenario #5: $47.38 billion;
Revenue Scenario #6: $48.31 billion;
Date: September 2008;
Revenue Scenario #4: $50.81 billion;
Revenue Scenario #5: $54.39 billion;
Revenue Scenario #6: $55.87 billion;
Date: October 2008;
Revenue Scenario #4: $56.85 billion;
Revenue Scenario #5: $61.64 billion;
Revenue Scenario #6: $63.75 billion;
Date: November 2008;
Revenue Scenario #4: $62.69 billion;
Revenue Scenario #5: $68.65 billion;
Revenue Scenario #6: $71.42 billion;
Date: December 2008;
Revenue Scenario #4: $68.73 billion;
Revenue Scenario #5: $75.9 billion;
Revenue Scenario #6: $79.24 billion;
Source: GAO analysis using CBI and EIA data.
[End of figure]
[End of section]
Appendix IV: GAO's Analysis of Iraq's Budget:
This appendix provides information on Iraq's budget to clarify our
classification of expenditures as reported by the Ministry of Finance.
Iraq's budget is divided into current operating expenditures and
investment. In 2007, the Iraqi government adopted a new chart of
accounts as recommended by the International Monetary Fund. To compare
the budget expenditures over time, we combined various expenditure
categories into four groups. Column 1 in table 8 shows the nine
categories of expenditures reported in 2005 and 2006 and their
combination into four groups presented in the table; column 2 shows the
eight categories used in the 2007 and the 2008 chart of accounts.
Operating expenditures consist of (A) employee compensation, (B) goods
and services, and (C) other operating expenditures.
Table 8: Iraq Budget Classification of Expenditures Reported by the
Ministry of Finance:
2005 and 2006:
I. Operating expenditures;
A. Employee compensation;
1. Salaries;
2. Stipends and pensions;
B. Goods and services;
3. Goods;
4. Services;
5. Maintenance;
C. Other operating expenditures;
6. Transfers;
7. Foreign obligations;
II. Investment;
8. Operating capital;
9. Capital projects and reconstruction.
2007 and 2008:
I. Operating expenditures;
A. Employee compensation;
1. Employee compensation and pensions;
B. Goods and services;
2. Goods and services;
C. Other operating expenditures;
3. Interest;
4. Subsidies;
5. Grants[A];
6. Social benefits;
7. Other expenditures;
II. Investment;
8. Non-financial assets;
(Reconstruction grants, primarily for regions and provinces).
Source: GAO analysis of Ministry of Finance official monthly reports
provided by the U.S. Treasury.
[A] Excludes grants earmarked primarily for reconstruction activities
in the regions and provinces.
[End of table]
[End of section]
Appendix V: Government of Iraq Expenditures for Select Ministries:
This appendix provides additional information on the expenditures of
five central ministries--defense, interior, oil, water, and
electricity--responsible for providing critical services to the Iraq
people. Table 9 provides information on the operating and investment
expenditures for the security ministries--Ministry of Interior,
responsible for internal police and security forces, and Ministry of
Defense, responsible for the Iraqi military forces.
Table 9: Expenditures and Annual Growth Rates of Iraqi Security
Ministries (Defense and Interior), 2005 through April 2008 (Dollars in
millions):
Ministries of Defense and Interior: Total expenditures;
2005: $2,109;
2006: $2,992;
2007: $4,617;
Total 2005-07: $9,718;
Jan.-April 2008: $1,910;
Percentage share of total 2005-07: 100%;
Annual average growth rate, dollars 2005-07: 48%;
Annual average growth rate 2005-07 (Iraqi dinars): 36%.
Ministries of Defense and Interior: Total expenditures; I. Operating
expenditures;
2005: $1,971;
2006: $2,697;
2007: $4,441;
Total 2005-07: $9,108;
Jan.-April 2008: $1,898;
Percentage share of total 2005-07: 94%;
Annual average growth rate, dollars 2005-07: 50%;
Annual average growth rate 2005-07 (Iraqi dinars): 38%.
Ministries of Defense and Interior: Total expenditures; A. Employee
compensation;
2005: $1,541;
2006: $2,162;
2007: $3,564;
Total 2005-07: $7,268;
Jan.-April 2008: $1,504;
Percentage share of total 2005-07: 75%;
Annual average growth rate, dollars 2005-07: 52%;
Annual average growth rate 2005-07 (Iraqi dinars): 39%.
Ministries of Defense and Interior: Total expenditures; B. Goods and
services[A];
2005: $422;
2006: $535;
2007: $866;
Total 2005-07: $1,823;
an.-April 2008: $392;
Percentage share of total 2005-07: 19%;
Annual average growth rate, dollars 2005-07: 43%;
Annual average growth rate 2005-07 (Iraqi dinars): 31%.
Ministries of Defense and Interior: Total expenditures; Goods;
2005: $281;
2006: $366;
2007: [Empty];
Total 2005-07: [Empty];
Jan.-April 2008: [Empty];
Percentage share of total 2005-07: 13%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministries of Defense and Interior: Total expenditures; Services;
2005: $97;
2006: $148;
2007: [Empty];
Total 2005-07: [Empty];
Jan.-April 2008: [Empty];
Percentage share of total 2005-07: 5%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministries of Defense and Interior: Total expenditures; Maintenance;
2005: $44;
2006: $21;
2007: [Empty];
Total 2005-07: [Empty];
Jan.-April 2008: [Empty];
Percentage share of total 2005-07: 1%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministries of Defense and Interior: Total expenditures; C. Other
operating expenditures[B];
2005: $7;
2006: $0;
2007: $11;
Total 2005-07: $18;
Jan.-April 2008: $2;
Percentage share of total 2005-07: 0.2%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministries of Defense and Interior: Total expenditures; II. Investment;
2005: $138;
2006: $296;
2007: $176;
Total 2005-07: $609;
Jan.-April 2008: $12;
Percentage share of total 2005-07: 6%;
Annual average growth rate, dollars 2005-07:13%;
Annual average growth rate 2005-07 (Iraqi dinars): 3%.
Ministries of Defense and Interior: Total expenditures; Total
expenditures excluding employee compensation[C];
2005: $567;
2006: $831;
2007: $1,052;
Total 2005-07: $2,450;
Jan.-April 2008: $406;
Percentage share of total 2005-07: 25%;
Annual average growth rate, dollars 2005-07: 36%;
Annual average growth rate 2005-07 (Iraqi dinars): 25%.
Ministry of Defense: Total expenditures;
2005: $1,126;
2006: $1,443;
2007: $1,934;
Total 2005-07: $4,503;
Jan.-April 2008: $878;
Percentage share of total 2005-07: 100%;
Annual average growth rate, dollars 2005-07:31%;
Annual average growth rate 2005-07 (Iraqi dinars): 20%.
Ministry of Defense: Total expenditures; I. Operating expenditures;
2005: $1,013;
2006: $1,227;
2007: $1,924;
Total 2005-07: $4,164;
Jan.-April 2008: $878;
Percentage share of total 2005-07: 92%;
Annual average growth rate, dollars 2005-07: 38%;
Annual average growth rate 2005-07 (Iraqi dinars): 26%.
Ministry of Defense: Total expenditures; A. Employee compensation;
2005: $664;
2006: $794;
2007: $1,227;
Total 2005-07: $2,685;
Jan.-April 2008: $524;
Percentage share of total 2005-07: 60%;
Annual average growth rate, dollars 2005-07: 36%;
Annual average growth rate 2005-07 (Iraqi dinars): 25%.
Ministry of Defense: Total expenditures; B. Goods and services[A];
2005: $349;
2006: $433;
2007: $697;
Total 2005-07: $1,479;
Jan.-April 2008: $353;
Percentage share of total 2005-07: 33%;
Annual average growth rate, dollars 2005-07: 41%;
Annual average growth rate 2005-07 (Iraqi dinars): 29%.
Ministry of Defense: Total expenditures; Goods;
2005: $229;
2006: $288;
2007: [Empty];
Total 2005-07: [Empty];
Jan.-April 2008: [Empty];
Percentage share of total 2005-07: 20%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministry of Defense: Total expenditures; Services;
2005: $91;
2006: $142;
2007: [Empty];
Total 2005-07: [Empty];
Jan.-April 2008: [Empty];
Percentage share of total 2005-07: 9%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministry of Defense: Total expenditures; Maintenance;
2005: $29;
2006: $3;
2007: [Empty];
Total 2005-07: [Empty];
Jan.-April 2008: [Empty];
Percentage share of total 2005-07: 1%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministry of Defense: Total expenditures; C. Other operating
expenditures[B];
2005: 0;
2006: 0;
2007: 0;
Total 2005-07: 0;
Jan.-April 2008: 0;
Percentage share of total 2005-07: 0;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministry of Defense: Total expenditures; II. Investment;
2005: $112;
2006: $217;
2007: $10;
Total 2005-07: $339;
Jan.-April 2008: $0.2;
Percentage share of total 2005-07: 8%;
Annual average growth rate, dollars 2005-07: -70%;
Annual average growth rate 2005-07 (Iraqi dinars): -72%.
Ministry of Interior: Total expenditures;
2005: $983;
2006: $1,549;
2007: $2,683;
Total 2005-07: $5,215;
Jan.-April 2008: $1,032;
Percentage share of total 2005-07: 100%;
Annual average growth rate, dollars 2005-07: 65%;
Annual average growth rate 2005-07 (Iraqi dinars): 51%.
Ministry of Interior: Total expenditures; I. Operating expenditures;
2005: $958;
2006: $1,470;
2007: $2,517;
Total 2005-07: $4,945;
Jan.-April 2008: $1,020;
Percentage share of total 2005-07: 95%;
Annual average growth rate, dollars 2005-07: 62%;
Annual average growth rate 2005-07 (Iraqi dinars): 49%.
Ministry of Interior: Total expenditures; A. Employee compensation;
2005: $877;
2006: $1,368;
2007: $2,338;
Total 2005-07: $4,583;
Jan.-April 2008: $980;
Percentage share of total 2005-07: 88%;
Annual average growth rate, dollars 2005-07: 63%;
Annual average growth rate 2005-07 (Iraqi dinars): 50%.
Ministry of Interior: Total expenditures; B. Goods and services[A];
2005: $73;
2006: $102;
2007: $169;
Total 2005-07: $345;
Jan.-April 2008: $38;
Percentage share of total 2005-07: 7%;
Annual average growth rate, dollars 2005-07: 52%;
Annual average growth rate 2005-07 (Iraqi dinars): 39%.
Ministry of Interior: Total expenditures; Goods;
2005: $52;
2006: $77;
2007: [Empty];
Total 2005-07: [Empty];
Jan.-April 2008: [Empty];
Percentage share of total 2005-07: 5%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministry of Interior: Total expenditures; Services;
2005: $6;
2006: $6;
2007: [Empty];
Total 2005-07: [Empty];
Jan.-April 2008: [Empty];
Percentage share of total 2005-07: 0.5%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty];
Ministry of Interior: Total expenditures; Maintenance;
2005: $16;
2006: $19;
2007: [Empty];
Total 2005-07: [Empty];
Jan.-April 2008: [Empty];
Percentage share of total 2005-07: 1%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministry of Interior: Total expenditures; C. Other operating
expenditures[B];
2005: $7;
2006: 0;
2007: $10;
Total 2005-07: $18;
Jan.-April 2008: $2;
Percentage share of total 2005-07: 0.3%;
Annual average growth rate, dollars 2005-07: [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministry of Interior: Total expenditures; II. Investment;
2005: $26;
2006: $79;
2007: $166;
Total 2005-07: $270;
Jan.-April 2008: $12;
Percentage share of total 2005-07: 5%;
Annual average growth rate, dollars 2005-07: 155%;
Annual average growth rate 2005-07 (Iraqi dinars): 133%.
Source: GAO analysis of Iraq Ministry of Finance budget expenditure
data.
Note: Annual average growth rates are computed for expenditures
denominated in both dollars and Iraqi dinars. We believe that growth
rates in dinars are more informative because actual expenditures are
made in dinars. Using dollar-denominated expenditures inflates the
growth rates due to the 19 percent appreciation of the dinar against
the dollar during this period.
[A] A breakdown of goods, services, and maintenance for individual
ministries is available only for 2005 and 2006. Beginning in 2007 the
government of Iraq adopted a new budget classification to comply with
an IMF requirement. These categories are now combined into one
category--goods and services.
[B] Other operating expenses include interest payments, grants and
transfers, subsidies to public and private enterprises, social
benefits, and other miscellaneous expenditures such as Kuwait war
reparations and student scholarships.
[C] In 2007, the Government of Iraq adopted a new chart of accounts. It
is unclear whether some purchases that were recorded as capital goods
were now being recorded under goods and services or investment
expenditures, and vice-versa. We have chosen to combine and report
these categories as total expenditures excluding employee compensation.
[End of table]
Our analysis of Iraq's Ministry of Finance expenditure data from 2005
through 2007 for the security ministries--defense and interior--found
the following:
* From 2005 through 2007, the Iraqi security ministries primarily spent
their funds on operating expenses. According to data from Iraq's
Ministry of Finance, Iraq's security ministries spent 94 percent ($9.1
billion) of their total expenditures on operating expenses and 6
percent ($609 million) on investment expenses.
* From 2005 through 2007, total expenditures by Iraq's security
ministries grew at an annual rate of 36 percent, in Iraqi dinars,
compared to the 13 percent annual growth rate of expenditures by the
Iraqi government. This growth in expenditures is largely due to a 39
percent increase in expenditures on salaries and wages, reflecting the
increase in military and police personnel.
* Expenditures on items other than employee compensation, such as
weapons, ammunition, trucks and special vehicles, uniforms, food,
structures, and other equipment account for 25 percent of total
expenditures. These expenditures have grown, in Iraqi dinars, at an
annual rate of 25 percent less than the growth rate of compensation.
With the adoption of the new chart of accounts in 2007, it is unclear
whether some purchases that were recorded as capital goods were now
being recorded under goods and services or investment expenditures. We
have chosen to combine and report these categories for the security
ministries as total expenditures excluding employee compensation.
Table 10 provides information on the operating and investment
expenditures for ministries providing key essential services--
Ministries of Oil, Water Resources, and Electricity.
Table 10: Expenditures and Annual Growth Rates of Iraqi Ministries of
Oil, Water, and Electricity, 2005 through 2008 (Dollars in millions):
Ministry of Oil: Total expenditures;
2005: $160;
2006: $191;
2007: $36;
Total 2005-07: $387;
Jan.-April 2008: $52;
Percentage share of total 2005-07: 100%;
Annual average growth rate, 2005-07 (dollars): -52%; Annual average
growth rate 2005-07 (Iraqi dinars): -56%.
Ministry of Oil: Total expenditures; I. Operating expenditures;
2005: $49;
2006: $48;
2007: $35;
Total 2005-07: $133;
Jan.-April 2008: $13;
Percentage share of total 2005-07: 34%;
Annual average growth rate, 2005-07 (dollars): -15%; Annual average
growth rate 2005-07 (Iraqi dinars): -22%.
Ministry of Oil: Total expenditures; A. Employee compensation;
2005: $5;
2006: $4;
2007: $5;
Total 2005-07: $14;
Jan.-April 2008: $3;
Percentage share of total 2005-07: 4%;
Annual average growth rate, 2005-07 (dollars): M2%; Annual average
growth rate 2005-07 (Iraqi dinars): -6%.
Ministry of Oil: Total expenditures; B. Goods and services;
2005: $45;
2006: $44;
2007: $30;
Total 2005-07: $119;
Jan.-April 2008: $10;
Percentage share of total 2005-07: 31%;
Annual average growth rate, 2005-07 (dollars): -18%; Annual average
growth rate 2005-07 (Iraqi dinars): -25%.
Ministry of Oil: Total expenditures; C. Other operating expenditures;
2005: 0;
2006: 0;
2007: $0.2;
Total 2005-07: $0.2;
Jan.-April 2008: $0.1;
Percentage share of total 2005-07: 0;
Annual average growth rate, 2005-07 (dollars): [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministry of Oil: Total expenditures; II. Investment;
2005: $111;
2006: $143;
2007: v1;
Total 2005-07: $254;
Jan.-April 2008: $39;
Percentage share of total 2005-07: 66%;
Annual average growth rate, 2005-07 (dollars): -92%;
Annual average growth rate 2005-07 (Iraqi dinars): 92%.
Ministry of Water Resources: Total expenditures;
2005: $163;
2006: $145;
2007: $236;
Total 2005-07: $538;
Jan.-April 2008: $69;
Percentage share of total 2005-07: 100%;
Annual average growth rate, 2005-07 (dollars): 22%; Annual average
growth rate 2005-07 (Iraqi dinars): 11%.
Ministry of Water Resources: Total expenditures; I. Operating
expenditures;
2005: $42;
2006: $54;
2007: $128;
Total 2005-07: $224;
Jan.-April 2008: $35;
Percentage share of total 2005-07: 41%;
Annual average growth rate, 2005-07 (dollars): 74%;
Annual average growth rate 2005-07 (Iraqi dinars): 59%.
Ministry of Water Resources: Total expenditures; A. Employee
compensation;
2005: $34;
2006: $42;
2007: $60;
Total 2005-07: $135;
Jan.-April 2008: $21;
Percentage share of total 2005-07: 5%;
Annual average growth rate, 2005-07 (dollars): 33%;
Annual average growth rate 2005-07 (Iraqi dinars): 22%.
Ministry of Water Resources: Total expenditures; B. Goods and services;
2005: $9;
2006: $12;
2007: $67;
Total 2005-07: $87;
Jan.-April 2008: $13;
Percentage share of total 2005-07: 16%;
Annual average growth rate, 2005-07 (dollars): 180%; Annual average
growth rate 2005-07 (Iraqi dinars): 157%.
Ministry of Water Resources: Total expenditures; C. Other operating
expenditures;
2005: 0;
2006: 0;
2007: $1;
Total 2005-07: $1;
Jan.-April 2008: $1;
Percentage share of total 2005-07: 0.2%;
Annual average growth rate, 2005-07 (dollars): [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministry of Water Resources: Total expenditures; II. Investment;
2005: $120;
2006: $91;
2007: $109;
Total 2005-07: $320;
Jan.-April 2008: v34;
Percentage share of total 2005-07: 59%;
Annual average growth rate, 2005-07 (dollars): -5%;
Annual average growth rate 2005-07 (Iraqi dinars): -13%.
Ministry of Electricity: Total expenditures;
2005: $147;
2006: $281;
2007: $78;
Total 2005-07: $504;
Jan.-April 2008: $15;
Percentage share of total 2005-07: 100%;
Annual average growth rate, 2005-07 (dollars): -27%;
Annual average growth rate 2005-07 (Iraqi dinars): -33%.
Ministry of Electricity: Total expenditures; I. Operating expenditures;
2005: $5;
2006: $13;
2007: $77;
Total 2005-07: $94;
Jan.-April 2008: $15;
Percentage share of total 2005-07: 19%;
Annual average growth rate, 2005-07 (dollars): 312%;
Annual average growth rate 2005-07 (Iraqi dinars): 277%.
Ministry of Electricity: Total expenditures; A. Employee; compensation;
2005: $4;
2006: $11;
2007: $50;
Total 2005-07: $65;
Jan.-April 2008: $11;
Percentage share of total 2005-07: 13%;
Annual average growth rate, 2005-07 (dollars): 246%; Annual average
growth rate 2005-07 (Iraqi dinars): 217%.
Ministry of Electricity: Total expenditures; B. Goods and services;
2005: $0.3;
2006: $2;
2007: v26;
Total 2005-07: $29;
Jan.-April 2008: $4;
Percentage share of total 2005-07: 6%;
Annual average growth rate, 2005-07 (dollars): 800%;
Annual average growth rate 2005-07 (Iraqi dinars): 724%.
Ministry of Electricity: Total expenditures; C. Other operating
expenditures;
2005: 0;
2006: 0;
2007: 0;
Total 2005-07: 0;
Jan.-April 2008: 0;
Percentage share of total 2005-07: 0;
Annual average growth rate, 2005-07 (dollars): [Empty];
Annual average growth rate 2005-07 (Iraqi dinars): [Empty].
Ministry of Electricity: Total expenditures; II. Investment;
2005: $142;
2006: $268;
2007: $1;
Total 2005-07: $411;
Jan.-April 2008: $0.2;
Percentage share of total 2005-07: 81%;
Annual average growth rate, 2005-07 (dollars): -93%; Annual average
growth rate 2005-07 (Iraqi dinars): -93%.
Source: GAO analysis of Iraq Ministry of Finance budget expenditure
data.
Note: Annual average growth rates are computed for both dollar and
Iraqi dinar expenditures. We believe that the growth rates in dinars
are more informative because actual expenditures are made in dinars.
Using dollar-denominated expenditures inflates the growth rates due to
the 19 percent appreciation of the dinar against the dollar during this
period.
[A] Other operating expenses include interest payments, grants and
transfers, subsidies to public and private enterprises, social
benefits, and other miscellaneous expenditures such as Kuwait war
reparations and student scholarships.
[End of table]
Our analysis of Iraq's Ministry of Finance expenditure data from 2005
through 2007 for the three ministries, oil, electricity, and water--
responsible for providing critical services to the Iraqi people--found
the following:
* Investment expenditures comprise two-thirds of the total expenditures
for these three critical ministries--oil, water, and electricity--as
compared with only 10 percent for the government as a whole.
* Spending of their investment budgets has declined significantly from
2005 through 2007. According to Ministry of Finance data, investment
spending by the Ministry of Oil and Ministry of Electricity declined at
an annual rate of 92 percent and 93 percent, respectively, during this
period. Investment spending by the Ministry of Water declined at an
annual rate of 13 percent.
Further, from 2005 through 2007 the Government of Iraq allocated almost
$12 billion dollars toward investment activities of these ministries.
However, as table 11 shows, the ministries of oil and electricity spent
only a small percentage of the investment funds made available to them.
The Ministry of Water Resources spent about 50 percent of its
investment budget, while the Ministry of Oil spent 3 percent and
Ministry of Electricity spent 14 percent.
Table 11: Iraq Investment Budget and Expenditures for Ministries of
Oil, Water, and Electricity, 2005 through 2007 (U.S. dollars in
billions):
Oil:
2005: Budget: $3,001;
2005: Expend.: $111;
2006: Budget: $3,106;
2006: Expend.: $143;
2007: Budget: $2,383;
2007: Expend.: $0.8;
Total 2005-2007: Budget: $8,491;
Total 2005-2007: Expend.: $254;
Total 2005-2007: Expend. ratio: 3%.
Water resources:
2005: Budget: $184;
2005: Expend.: $120;
2006: Budget: $200;
2006: Expend.: $91;
2007: Budget: $262;
2007: Expend.: $109;
Total 2005-2007: Budget: $646;
Total 2005-2007: Expend.: 320;
Total 2005-2007: Expend. ratio: 50%.
Electricity:
2005: Budget: $297;
2005: Expend.: $142;
2006: Budget: $1,167;
2006: Expend.: $268;
2007: Budget: $1,389;
2007: Expend.: $0.8;
Total 2005-2007: Budget: $2,853;
Total 2005-2007: Expend.: 411;
Total 2005-2007: Expend. ratio: 14%.
Total:
2005: Budget: $3,482;
2005: Expend.: $373;
2006: Budget: $4,473;
2006: Expend.: $502;
2007: Budget: $4,034;
2007: Expend.: $110;
Total 2005-2007: Budget: $11,990;
Total 2005-2007: Expend.: $985;
Total 2005-2007: Expend. ratio: 8%.
Source: GAO analysis of Iraq Ministry of Finance budget expenditure
data.
[End of table]
[End of section]
Appendix VI: Comments from the Department of the Treasury:
Department Of The Treasury:
Washington, D.C. 20220:
July 28, 2008:
Mr. Joseph A. Christoff:
Director, International Affairs and Trade:
Government Accountability Office:
Dear Mr. Christoff:
Thank you for the opportunity to review and comment on the July 2008
draft of the GAO's report, Stabilizing and Rebuilding Iraq - Iraqi
Revenues, Expenditures, and Surplus. We appreciate GAO's ongoing
attention to fiscal issues that are crucial for reconstruction and
growth in Iraq. Treasury has been closely engaged with the Iraqi
Ministry of Finance on improving Iraq's fiscal processes to help ensure
that Iraq's growing revenues are being spent for the betterment of the
Iraqi people.
The report accurately highlights that Iraq's revenues have grown
substantially in recent years, putting the Government of Iraq in a much
stronger position to ultimately shoulder the full burden of its
development, reconstruction, and security programs. Iraq has made
progress in recent years in increasing its spending on these items,
including on capital investment, accelerating Iraq's transition to self-
sufficiency. Nonetheless, the pace of spending has been held back by
various factors, including deficiencies in capacity and security. Going
forward, in addition to improving budget execution, the Iraqis will
also need to improve their tracking of funds to help ensure that Iraq's
money is used for its intended purposes. The U.S. Government continues
to work with the Government of Iraq in addressing these issues, and we
believe that progress is being made.
Iraq's available funds for reconstruction spending:
The report presents a credible picture of Iraq's cumulative budget
surpluses and expected 2008 budget surplus, despite weaknesses in the
underlying data. In doing so, the report correctly distinguishes
between the $29.4 billion of Iraqi Government financial deposits and
the $31.4 billion in gross foreign exchange reserves held by the
Central Bank of Iraq at the end of 2007. It is important to recognize
that reserves of the Central Bank are not available for fiscal
purposes, but instead are for the purposes of supporting monetary
policy and backing the domestic currency.
Iraqi revenues and expenditures are both going up:
The report snows that Iraq's budget surplus is likely to grow
significantly over the course of 2008, but it is equally important to
recognize that spending in Iraq is also increasing.
* According to Iraqi Finance Ministry data, Iraq has already spent
$10.8 billion in 2008 through April, compared to $5.9 billion spent
during the same period last year.
* Iraq is also increasingly focused on capital spending. Total
investment budget execution for Iraq was roughly $3.4 billion in 2007,
compared with $1.6 billion in 2006 (counting only final disbursements,
not commitments). Including funds that were fully committed, Iraq's
investment spending in 2007 was at least $6 billion.
* As a further sign of Iraq's commitment to use its growing revenues,
the Iraqi Finance Ministry submitted a $22 billion budget supplemental
to the Council of Representatives in July, with about $8 billion
dedicated to capital spending.
Iraq still faces challenges in spending its growing revenues:
Although Iraq's spending is increasing, the Government of Iraq still
needs to improve the speed and effectiveness of its budget execution,
and the transparency of its budgeting and accounting practices. Iraq
has more than adequate funds to make and maintain capital investments
that deliver services and create conditions that foster economic
growth. Moreover, as the size of Iraq's revenues and budgets grow, it
is increasingly important for the Government of Iraq to spend its
budgets on well-prepared projects and properly track the flow of funds.
Such steps will help ensure that increased spending translates into
improved service delivery and enhanced ability of the Government of
Iraq to meet the needs of its citizens.
* U.S. Treasury's technical advisors and Embassy Baghdad's Public
Finance Management Assistance Group are focusing on improving the pace
of Iraqi budget execution as well as the ability to evaluate whether
Iraqi capital spending achieves its intended impact. The U.S.
Government and the Government of Iraq restarted the Iraq Financial
Management Information System (IFMIS) on July 5 in targeted ministries,
with the expectation that IFMIS will be operational in all 250 spending
units by early 2009. The IFMIS system will improve budget reporting and
transparency and facilitate increased Government of Iraq
accountability.
Signed by:
Andy Baukol:
Deputy Assistant Secretary, Middle East & Africa:
U.S. Department of the Treasury:
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Joseph A. Christoff (202) 512-8979 or christoffj@gao.gov:
Staff Acknowledgments:
Key contributors to this report include Godwin Agbara, Assistant
Director; Pedro Almoguera; Monica Brym; Lynn Cothern; Gergana Danailova-
Trainor; Bruce Kutnick; and Justin Monroe. Technical assistance was
provided by Ashley Alley, Jeffrey Baldwin-Bott, Benjamin Bolitzer,
Daniel Chen, Aniruddha Dasgupta, Walker Fullerton, Elizabeth Repko,
Jena Sinkfield, and Eve Weisberg.
[End of section]
Footnotes:
[1] See GAO, Rebuilding Iraq: Integrated Strategic Plan Needed to Help
Restore Iraq's Oil and Electricity Sectors, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-677] (Washington, D.C.: May
15, 2007); GAO, Iraq Reconstruction: Better Data Needed to Assess
Iraq's Budget Execution, GAO-08-153 (Washington, D.C.: Jan. 15, 2008);
and GAO, Securing, Stabilizing, and Rebuilding Iraq: Progress Report:
Some Gains Made, Updated Strategy Needed, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-837] (Washington, D.C.: June
23, 2008).
[2] Goods include items such as uniforms, food, books, and office
supplies.
[3] This amount includes $2 billion appropriated in June 2008 for
reconstruction and stabilization activities in Iraq in the Supplemental
Appropriations Act, 2008, Pub.L. 110-252 (June 30, 2008). This amount
does not include $1.1 billion appropriated in the same Act for similar
activities in Iraq after October 1, 2008.
[4] We used BP Statistical Review of World Energy June 2006 estimates
of reserves, as reported by EIA. This measure excludes heavy oil but
includes natural gas liquids. BP notes that the figure for Canadian oil
reserves includes an official estimate of Canadian oil sands "under
active development."
[5] Proved reserves are estimated quantities that analysis of geologic
and engineering data demonstrates with reasonable certainty are
recoverable under existing economic and operating conditions.
[6] We are reporting Iraqi revenues as estimates because we use IMF
reported estimates of $5.7 billion for net domestic revenues from oil-
related public enterprises, taxes, and other revenues, which is about 6
percent of Iraq's estimated total revenues for 2005 through 2007.
[7] The IAMB is an audit oversight body for the Development Fund for
Iraq. The IAMB's terms of reference define its oversight
responsibilities, which include evaluating the public accountant's
reports, monitoring internal controls and financial reporting, and
directing special audits.
[8] The IMF reported estimates for Iraq of $6.9 billion in tax and
other revenues in 2008.
[9] We use "investment expenditures" here to refer to expenses for
capital goods and capital projects. Capital projects represent almost
90 percent of the Iraqi investment budget.
[10] The Iraq dinar-U.S. dollar exchange rate was 1,500 per dollar in
2005 and 2006, 1,260 per dollar in 2007, and 1,200 per dollar in 2008.
[11] Reported investment by the KRG was $1,932 million in 2007 and $612
million in 2006. Investment spending by all central ministries was $896
million in 2007 and $1,003 million in 2006. The remaining investment of
$607 million in 2007 was undertaken primarily by the Iraqi provinces.
[12] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-837].
[13] This assumption provides a higher level of 2008 expenditures than
several reasonable alternative assumptions, such as using the 2007
overall expenditure ratio, using separate ratios for operating and
investment expenditures, and using spending during the first quarter to
make an annual estimate.
[14] The debt estimate assumes receipt of the final tranche of Paris
Club debt relief at the end of the year. There still remains
uncertainty regarding the debt amount as many outstanding claims have
not been fully reconciled.
[15] Under U.N. Security Council Resolution 1483, 5 percent of Iraq's
annual oil export revenue is earmarked to finance these reparations
from the 1990 Gulf War.
[16] DFI deposits consist of $2.5 billion U.S. dollar cash balances and
$7.4 billion in U.S. Treasury bills that the Iraqi government has
purchased. As a U.S. creditor, Iraq has received $435.6 million in
interest on those bills since 2003. Iraq central government deposits in
the Central Bank consist of U.S. dollar-and dinar-denominated accounts.
[17] Resources in the DFI account are not counted as part of Iraq's
foreign exchange reserves. Iraq's gross foreign exchange reserves are
defined in the IMF country report number 08/17 from January 2008, p.
58.
[18] This includes Iraq-specific appropriations for the Iraq
Reconstruction and Relief Fund, Iraq Security Forces fund, Economic
Support Fund, Commander's Emergency Response Program, Iraq Freedom
Fund, Democracy Fund, other agency program funds used for Iraq
activities, and operating expenses for the Coalition Provisional
Authority. This amount includes $2 billion appropriated in June 2008
for reconstruction and stabilization activities in Iraq in the
Supplemental Appropriations Act, 2008. This amount does not include
$1.1 billion appropriated in the same act after October 1, 2008, for
similar activities in Iraq. Pub. L. 110-252 (June 30, 2008).
[19] For U.S. funds, we use the term "spent" for funds that have been
disbursed.
[20] Allocations are a portion of appropriated funds provided to U.S.
agencies.
[21] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-677],
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-153], and
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-837].
[22] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-153].
[23] See GAO, Rebuilding Iraq: Integrated Strategic Plan Needed to Help
Restore Iraq's Oil and Electricity Sectors, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-677] (Washington, D.C.: May
15, 2007); GAO, Iraq Reconstruction: Better Data Needed to Assess
Iraq's Budget Execution, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-153] (Washington, D.C.: Jan. 15, 2008); and GAO,
Securing, Stabilizing, and Rebuilding Iraq: Progress Report: Some Gains
Made, Updated Strategy Needed, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-837] (Washington, D.C.: June 23, 2008).
[24] EIA uses its own analysis and a variety of sources, including Dow
Jones, the Middle East Economic Survey, the Petroleum Intelligence
Weekly, the International Energy Agency (IEA), the Monthly Oil Market
Report from OPEC, the Oil & Gas Journal, Platts, and Reuters.
[25] From January through June 2008, the average monthly growth rate of
Iraqi crude oil export prices grew by 6.5 percent. However, recent
projections of world prices for crude oil suggest a lower growth rate
in the near future.
[26] To derive this discount projection, we computed the average
monthly percentage difference between WTI and Iraqi prices reported by
CBI for January 2007 to June 2008. We used this longer period to allow
sufficient observations for the behavior of these prices.
[End of section]
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