Stabilizing and Rebuilding Iraq
Iraqi Revenues, Expenditures, and Surplus Gao ID: GAO-08-1144T September 16, 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 economy, accounting for over half of the country's gross domestic product and over 90 percent of revenues. This testimony discusses (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, and (4) U.S. cumulative expenditures on stabilization and reconstruction activities in Iraq since 2003. GAO analyzed relevant data and reviewed documents such as Central Bank of Iraq (CBI) export oil receipts data and the International Monetary Fund's (IMF) stand-by arrangement for Iraq. GAO worked with officials from the Department of Treasury and interviewed officials from the Departments of State, Defense, Energy's Energy Information Administration (EIA), and the IMF. GAO also reviewed translated copies of Iraqi documents, including budget and capital spending reports. Treasury agreed with GAO's findings and stated that Iraq has adequate funds to make and maintain capital investments that deliver service and foster economic growth.
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, Iraq could generate an estimated $73.5 billion to $86.2 billion in revenues, with oil exports accounting for $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. 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 electricity installations and weapons. From 2005 through 2007, Iraq had an estimated cumulative budget surplus of about $29 billion. For 2008, we estimate that Iraq will have an additional surplus of between $38.2 billion to $50.3 billion, which could result in a cumulative budget surplus of $67 billion to $79 billion. Iraq's 2008 budget surplus could be reduced by expenditures from its $22.3 billion supplemental budget, which Iraq's Council of Representative passed in August 2008. However, based on Iraq's past expenditure performance, the government may not be able to spend all that it has budgeted for 2008. 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. U.S. agencies spent about $23.2 billion on four critical sectors--security, oil, electricity, and water. As of June 2008, the United States had spent 70 percent of the amount it allocated for these four sectors from fiscal year 2003 through June 2008. Iraq spent 14 percent, or $4.3 billion, of the $30 billion it allocated for similar activities in these sectors from 2005 through June 2008. Iraq's large oil reserves coupled with higher oil prices offer the government of Iraq the potential to increase its contributions to the country's reconstruction efforts and thereby enhance essential services to the Iraqi people.
GAO-08-1144T, Stabilizing and Rebuilding Iraq: Iraqi Revenues, Expenditures, and Surplus
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Testimony:
Before the Committee on the Budget, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 9:30 a.m. EDT:
Tuesday, September 16, 2008:
Stabilizing and Rebuilding Iraq:
Iraqi Revenues, Expenditures, and Surplus:
Statement of Joseph A. Christoff, Director:
International Affairs and Trade:
GAO-08-1144T:
GAO Highlights:
Highlights of GAO-08-1144T, a testimony before the Committee on the
Budget, House of Representatives.
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
economy, accounting for over half of the country‘s gross domestic
product and over 90 percent of revenues.
This testimony discusses (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, and
(4) U.S. cumulative expenditures on stabilization and reconstruction
activities in Iraq since 2003.
GAO analyzed relevant data and reviewed documents such as Central Bank
of Iraq (CBI) export oil receipts data and the International Monetary
Fund‘s (IMF) stand-by arrangement for Iraq. GAO worked with officials
from the Department of Treasury and interviewed officials from the
Departments of State, Defense, Energy‘s Energy Information
Administration (EIA), and the IMF. GAO also reviewed translated copies
of Iraqi documents, including budget and capital spending reports.
Treasury agreed with GAO‘s findings and stated that Iraq has adequate
funds to make and maintain capital investments that deliver service and
foster economic growth.
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, Iraq could
generate an estimated $73.5 billion to $86.2 billion in revenues, with
oil exports accounting for $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.
Table: Iraqi Revenues, Expenditures, and Surpluses, 2005-2007, with
Projections for 2008 (Billions of U.S. Dollars):
Total Revenues;
2005: $24.1;
2006: $32.0;
2007: $39.9;
Total, 2005-2007: $96.0;
2008 Projections, Low: $73.5;
2008 Projections, High: $86.2.
MoF Expenditures;
2005: $17.6;
2006: $22.8;
2007: $26.6;
Total, 2005-2007: $67.0;
2008 Projections, Low: $35.3;
2008 Projections, High: $35.9.
Surplus;
2005: $6.5;
2006: $9.2;
2007: $13.3;
Total, 2005-2007: $29.0;
2008 Projections, Low: $38.2;
2008 Projections, High: $50.3.
Source: GAO analysis of data from the Central Bank of Iraq,
International Monetary Fund, and Iraqi Ministry of Finance (MoF)
Budget.
[End of table]
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
electricity installations and weapons.
From 2005 through 2007, Iraq had an estimated cumulative budget surplus
of about $29 billion. For 2008, we estimate that Iraq will have an
additional surplus of between $38.2 billion to $50.3 billion, which
could result in a cumulative budget surplus of $67 billion to $79
billion. Iraq‘s 2008 budget surplus could be reduced by expenditures
from its $22.3 billion supplemental budget, which Iraq‘s Council of
Representative passed in August 2008. However, based on Iraq‘s past
expenditure performance, the government may not be able to spend all
that it has budgeted for 2008.
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. U.S.
agencies spent about $23.2 billion on four critical sectors”security,
oil, electricity, and water. As of June 2008, the United States had
spent 70 percent of the amount it allocated for these four sectors from
fiscal year 2003 through June 2008. Iraq spent 14 percent, or $4.3
billion, of the $30 billion it allocated for similar activities in
these sectors from 2005 through June 2008.
Iraq‘s large oil reserves coupled with higher oil prices offer the
government of Iraq the potential to increase its contributions to the
country‘s reconstruction efforts and thereby enhance essential services
to the Iraqi people.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-1144T]. For more
information, contact Joseph A. Christoff at 202-512-8979 or
christoffj@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss the report GAO issued last
month on the revenues, expenditures, and surpluses Iraq has generated
since 2005.[Footnote 1] This report discussed (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.
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 revenues. Iraq's large oil reserves
coupled with higher 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.
To address the report's objectives, we analyzed relevant data and
reviewed documents such as Central Bank of Iraq (CBI) export oil
receipts data and the International Monetary Fund's (IMF) stand-by
arrangement for Iraq. We worked extensively with officials from the
Department of Treasury and interviewed officials from the Departments
of State, Defense, Energy's Energy Information Administration (EIA),
and the IMF. We also reviewed translated copies of Iraqi documents,
including budget and capital spending reports.
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. Our report builds upon GAO's
extensive body of work on Iraq, also conducted according to generally
accepted government auditing standards. These reports include our May
2007 report on Iraq's energy sector, our January 2008 report assessing
Iraq's efforts to spend its budget, and our June 2008 report assessing
progress in meeting key goals of The New Way Forward.[Footnote 2]
Summary:
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, 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. Iraq
revenues, expenditures, and budget surpluses are displayed in table 1.
Table: Iraqi Revenues, Expenditures, and Surpluses, 2005-2007, with
Projections for 2008 (Billions of U.S. Dollars):
Total Revenues;
2005: $24.1;
2006: $32.0;
2007: $39.9;
Total, 2005-2007: $96.0;
2008 Projections, Low: $73.5;
2008 Projections, High: $86.2.
MoF Expenditures;
2005: $17.6;
2006: $22.8;
2007: $26.6;
Total, 2005-2007: $67.0;
2008 Projections, Low: $35.3;
2008 Projections, High: $35.9.
Surplus;
2005: $6.5;
2006: $9.2;
2007: $13.3;
Total, 2005-2007: $29.0;
2008 Projections, Low: $38.2;
2008 Projections, High: $50.3.
Source: GAO analysis of data from the Central Bank of Iraq,
International Monetary Fund, and Iraqi Ministry of Finance (MoF)
Budget.
Note: GAO projections for 2008 are based on actual prices and volume of
crude oil exports over the first 6 months of 2008 and varied price and
export volume for the last 6 months of 2008.
[End of table]
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 of its budgeted funds. For example, in 2007, Iraq spent 80
percent of its $29 billion operating budget and 28 percent of its $12
billion investment budget.
From 2005 through 2007, Iraq had an estimated cumulative budget surplus
of about $29 billion. For 2008, we estimate that Iraq will have an
additional surplus of between $38.2 billion to $50.3 billion, which
could result in a cumulative budget surplus of $67 billion to $79
billion for 2005 through 2008. Iraq's 2008 budget surplus could be
reduced as a result of expenditures from the $22.3 billion supplemental
budget Iraq's Council of Representative passed in August 2008. However,
based on Iraq's past expenditure performance, the government may not be
able to spend all that it has budgeted for 2008.
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 $4.3 billion, of the $30 billion it allocated for similar activities
in these sectors from 2005 through June 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. 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.
The Department of the Treasury agreed with the findings of our report
and stated that the report accurately highlights the substantial growth
of Iraq's revenues in recent years. Treasury also stated that the
increase in Iraqi revenues places the government of Iraq in a stronger
position to shoulder the full burden of its development,
reconstruction, and security programs.
Background:
Iraq possesses the third largest crude oil reserve in the world,
estimated at a total of 115 billion barrels. Only Saudi Arabia and Iran
have larger proved[Footnote 4] world oil reserves. 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. This situation was further
affected by looting after Operation Iraqi Freedom and continued attacks
on crude oil and refined product pipelines.
Iraq's crude oil production and exports have recovered since 2003. As
of June 2008, Iraq's crude oil exports averaged 2.01 million barrels
per day (mbpd), according to Iraqi oil export receipt data. Iraq
generally receives a discounted export price for its crude oil, in part
due to its relatively lower quality compared with key crude oils such
as the U.S. West Texas Intermediate (WTI) and Brent--benchmarks for
world oil prices. According to CBI data, for January through June 2008,
Iraqi crude oil was priced at an average of $96.88 per barrel. During
the same period, WTI and Brent's prices averaged $110.95 and $109.17
per barrel, respectively.
Iraq's Estimated Revenues from 2005 through 2008:
From 2005 through 2007, the Iraqi government generated an estimated $96
billion in cumulative revenues.[Footnote 5] This estimate is based on
actual crude oil export sales of about $90.2 billion as reported by the
CBI and Iraqi taxes, interest, and other revenues of about $5.7
billion, as estimated by the IMF. 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.
For 2008, we estimate that Iraq could generate between $73.5 billion to
$86.2 billion in total revenues. Table 2 displays the projected total
revenues, based on six scenarios projecting oil export revenues by
varying price and volume of exports.
Table 2: Projections for 2008 Iraqi Total Revenues: (Billions of U.S.
dollars):
Revenues: Export oil revenues;
Scenario 1: $66.5;
Scenario 2: $68.7;
Scenario 3: $73.3;
Scenario 4: $75.9;
Scenario 5: $76.4;
Scenario 6: $79.2.
Revenues: Tax and other revenues;
Scenario 1: $6.9;
Scenario 2: $6.9;
Scenario 3: $6.9;
Scenario 4: $6.9;
Scenario 5: $6.9;
Scenario 6: $6.9.
Revenues: Total;
Scenario 1: $73.5;
Scenario 2: $75.7;
Scenario 3: $80.2;
Scenario 4: $82.8;
Scenario 5: $83.3;
Scenario 6: $86.2.
Source: GAO analysis of CBI and IMF data.
Note: Totals may not add 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 6] 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 and volume of
crude oil exports over the first 6 months of 2008, as reported by the
CBI. For the last 6 months of 2008, we varied the volume exported from
1.89 to 2.01 mbpd and the price received from $96.88 to $125.29 per
barrel.
Iraq's Estimated Expenditures from 2005 through 2008:
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 3, Iraq
spent 90 percent of the $67 billion on operating expenses, including
salaries and pensions, and 10 percent on investment expenses, such as
structures, machinery, and vehicles.[Footnote 7]
Table 3: Government of Iraq Expenditures and Annual Growth Rates, 2005
through 2008 (Millions of U.S. dollars):
Type of expenditures: Total expenditures;
2005: $17,583;
2006: $22,788;
2007: $26,599;
Total 2005-07: $66,970;
Jan.-June 2008: $19,127;
Percentage share of total 2005-07: 100;
Annual average growth rate 2005-07 dollars: 23;
Annual average growth rate 2005-07 Iraqi dinars: 13.
Type of expenditures: Total expenditures; I. Operating expenditures;
2005: $16,151;
2006: $21,173;
2007: $23,164;
Total 2005-07: $60,489;
Jan.-June 2008: $16,528;
Percentage share of total 2005-07: 90;
Annual average growth rate 2005-07 dollars: 20;
Annual average growth rate 2005-07 Iraqi dinars: 10.
Type of expenditures: Total expenditures; I. Operating expenditures; A.
Employee compensation;
2005: $6,062;
2006: $7,087;
2007: $9,936;
Total 2005-07: $23,085;
Jan.-June 2008: $7,534;
Percentage share of total 2005-07: 34;
Annual average growth rate 2005-07 dollars: 28;
Annual average growth rate 2005-07 Iraqi dinars: 17.
Type of expenditures: Total expenditures; I. Operating expenditures; B.
Goods and services;
2005: $1,195;
2006: $1,445;
2007: $3,327;
Total 2005-07: $5,967;
Jan.-June 2008: $1,912;
Percentage share of total 2005-07: 9;
Annual average growth rate 2005-07 dollars: 67;
Annual average growth rate 2005-07 Iraqi dinars: 53.
Type of expenditures: Total expenditures; I. Operating expenditures; B.
Goods and services; 1. Goods;
2005: $565;
2006: $663;
2007: $1,794;
Total 2005-07: $3,021;
Jan.-June 2008: $1,048;
Percentage share of total 2005-07: 5;
Annual average growth rate 2005-07 dollars: 78;
Annual average growth rate 2005-07 Iraqi dinars: 63.
Type of expenditures: Total expenditures; I. Operating expenditures; B.
Goods and services; 2. Services;
2005: $392;
2006: $433;
2007: $1,174;
Total 2005-07: $1,998;
Jan.-June 2008: $594;
Percentage share of total 2005-07: 3;
Annual average growth rate 2005-07 dollars: 73;
Annual average growth rate 2005-07 Iraqi dinars: 59.
Type of expenditures: Total expenditures; I. Operating expenditures; B.
Goods and services; 3. Maintenance;
2005: $238;
2006: $349;
2007: $360;
Total 2005-07: $947;
Jan.-June 2008: $269;
Percentage share of total 2005-07: 1;
Annual average growth rate 2005-07 dollars: 23;
Annual average growth rate 2005-07 Iraqi dinars: 13.
Type of expenditures: Total expenditures; I. Operating expenditures; C.
Other operating expenditures[A];
2005: $8,894;
2006: $12,642;
2007: $9,901;
Total 2005-07: $31,437;
Jan.-June 2008: $7,082;
Percentage share of total 2005-07: 47;
Annual average growth rate 2005-07 dollars: 6;
Annual average growth rate 2005-07 Iraqi dinars: -3.
Type of expenditures: Total expenditures; II. Investment[B];
2005: 1,432;
2006: 1,615;
2007: 3,434;
Total 2005-07: 6,482;
Jan.-June 2008: 2,599;
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.
[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 expenditure data found:
* 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. However, annual average growth rates computed
in Iraqi dinars were 13 percent per year. Growth rates in dinars may be
more informative since Iraq spends its budget in dinars. Using dollar-
denominated expenditures inflates growth rates because the dinar
appreciated 19 percent against the dollar in 2007.[Footnote 8]
* 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 included 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 such as oil, water, electricity, and
security to the Iraqi people. 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.
For 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.
This assumption results in a more than 21-percent increase in dinar
expenditures in 2008, compared with the annual average of 13 percent
over the past 3 years.
Iraq's Financial Deposits through 2007 and Budget Surpluses:
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, [Footnote 9] central government deposits at
the CBI, and central government deposits in Iraq's commercial banks,
which includes state-owned banks such as Rafidain and Rasheed (see
table 4).
Table 4: 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.
Location: Total;
Amount (as of Dec. 31, 2007): $29.4.
Source: GAO analysis of Ernst & Young International Advisory and
Monitoring Board audit and IMF's International Financial Statistics.
[End of table]
The balance of these deposits is, in part, the result of an estimated
budget surplus of about $29 billion from 2005 to 2007. For 2008, we
estimate that Iraq's budget surplus could range from $38.2 billion to
$50.3 billion, based on the six scenarios we used to project export oil
revenues and assuming Iraq's expenditure ratio will be the same as the
average expenditure ratios from 2005 to 2007. (see table 5). This
estimate is based on Iraq's regular budget of $49.9 billion for 2008.
As of the end of May 2008, Iraq spent $14.5 billion, or 29.1 percent,
of the regular 2008 budget of $49.9 billion.
Table 5: Estimated Total Revenues, Expenditures, and Surplus, 2005
through 2008 (Billions of U.S. dollars):
Estimated total revenues;
2005-2007: $96.0;
2008 scenario 1: $73.5;
2008 scenario 2: $75.7;
2008 scenario 3: $80.2;
2008 scenario 4: $82.8;
2008 scenario 5: $83.3;
2008 scenario 6: $86.2.
Estimated total expenditures;
2005-2007: $67.0;
2008 scenario 1: $35.3;
2008 scenario 2: $35.4;
2008 scenario 3: $35.6;
2008 scenario 4: $35.8;
2008 scenario 5: $35.8;
2008 scenario 6: $35.9.
Estimated budget surplus;
2005-2007: $29.0;
2008 scenario 1: $38.2;
2008 scenario 2: $40.3;
2008 scenario 3: $44.6;
2008 scenario 4: $47.1;
2008 scenario 5: $47.6;
2008 scenario 6: $50.3.
Source: GAO analysis of EIA, IMF, Ministry of Finance, and Central Bank
of Iraq data.
[End of table]
Iraq may accumulate a budget surplus of $67 billion to $79 billion by
the end of 2008. This surplus could be reduced as a result of its
expenditures of the $22.3 billion supplemental budget that Iraq's
Council of Representatives passed in August 2008. The government
allocated $14.3 billion of the total supplemental budget for operating
expenditures and $8 billion for investment. Iraq's amended budget
projects that the government will spend the entire supplemental and
regular budget and end 2008 with a $5.1 billion deficit. Iraq made
similar assertions in 2005 through 2007, projecting budget deficits of
$3.5 billion in 2005, $4.1 billion in 2006, and $8.1 billion in 2007.
(see fig. 1). However, as we previously displayed, Iraq ended each of
these years with budget surpluses of $6.5 billion in 2005, $9.2 billion
in 2006, and $13.3 billion in 2007 because it was unable to spend its
entire budget. Accordingly, the government may not be able to spend its
entire 2008 budget.
Figure 1: Comparison of Iraq's Proposed and Actual Budget Balances for
2005 through 2007 and Projected 2008 Balance:
[See PDF for image]
This figure is a multiple line graph depicting the following data:
Year: 2005;
Actual budget surplus (Iraqi revenue less Iraqi expenditures): $6.5
billion;
Proposed budget deficit (Iraqi law): -$3.5 billion.
Year: 2006;
Actual budget surplus (Iraqi revenue less Iraqi expenditures): $9.2
billion;
Proposed budget deficit (Iraqi law): -$4.1 billion.
Year: 2007;
Actual budget surplus (Iraqi revenue less Iraqi expenditures): $13.3
billion;
Proposed budget deficit (Iraqi law): -$8.1 billion.
Year: 2008;
GAO projected 2008 Iraqi budget surplus (high): $50.3 billion;
GAO projected 2008 Iraqi budget surplus (low): $38.2 billion;
Proposed budget deficit (Iraqi law): -$5.1 billion.
Source: GAO analysis of data from Central Bank of Iraq, International
Monetary Fund, Iraqi Ministry of Finance budget, and Iraq budget law.
[End of figure]
U.S. Cumulative Expenditures on Stabilization and Reconstruction
Activities in Iraq Since 2003:
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 10] As of June 2008, about $42 billion
(88 percent) had been obligated and about $32 billion (68 percent) had
been spent.[Footnote 11]
Over two-thirds of the $32 billion spent, or $23.2 billion, have
supported reconstruction and stabilization activities in four critical
sectors--security, oil, water, and electricity. Table 6 compares the
allocations and spending of comparable activities by the United States
and Iraq in these sectors. [Footnote 12] The Iraqi government developed
its first annual budget in 2005.
Table 6: Comparison of Iraq and U.S. Allocations and Spending for
Selected Sectors (Billions of U.S. dollars):
Sector: Security[C];
Government of Iraq: 2005-2008[A]: Allocated: $12.8;
Government of Iraq: 2005-June 2008: Spent[B]: $3.1;
U.S. Government: Fiscal year 2003-June 2008: Allocated: $22.5;
U.S. Government: Fiscal year 2003-June 2008: Spent[B]: $13.7.
Sector: Oil[D];
Government of Iraq: 2005-2008[A]: Allocated: $10.8;
Government of Iraq: 2005-June 2008: Spent[B]: $0.4;
U.S. Government: Fiscal year 2003-June 2008: Allocated: $2.7;
U.S. Government: Fiscal year 2003-June 2008: Spent[B]: $2.5.
Sector: Water resources[D];
Government of Iraq: 2005-2008[A]: Allocated: $1.3;
Government of Iraq: 2005-June 2008: Spent[B]: $0.4;
U.S. Government: Fiscal year 2003-June 2008: Allocated: $2.9;
U.S. Government: Fiscal year 2003-June 2008: Spent[B]: $2.2.
Sector: Electricity[D];
Government of Iraq: 2005-2008[A]: Allocated: $5.2;
Government of Iraq: 2005-June 2008: Spent[B]: $0.4;
U.S. Government: Fiscal year 2003-June 2008: Allocated: $5.3;
U.S. Government: Fiscal year 2003-June 2008: Spent[B]: $4.8.
Sector: Total;
Government of Iraq: 2005-2008[A]: Allocated: $30.0;
Government of Iraq: 2005-June 2008: Spent[B]: $4.3;
U.S. Government: Fiscal year 2003-June 2008: Allocated: $33.4;
U.S. Government: Fiscal year 2003-June 2008: Spent[B]: $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] These amounts include $2.1 billion that has been allocated for
investments in these four sectors as part of Iraq's $22.3 billion
supplemental budget that Iraq's Council of Representatives passed in
August 2008.
[B] This refers to funds disbursed by U.S. agencies and funds expended
by the respective Iraqi ministries.
[C] For security ministries, the Iraq figures for allocated and spent
exclude employee compensation.
[D] For oil, water, and electricity ministries, the Iraq figures refer
to investment.
[End of table]
As of June 2008, the United States had spent 70 percent of the amount
it allocated for these four sectors from fiscal year 2003 through June
2008. In contrast, as of June 2008, Iraq had spent 14 percent of the
$30 billion it allocated from 2005 through 2008.
Factors Affecting Iraq's Efforts to Accelerate Spending:
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 the capital investments needed to
rebuild its infrastructure. First, Iraq has 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, Iraq has weak procurement, budgetary, and
accounting systems. These systems must balance efficient execution of
capital projects while protecting against reported corruption. Third,
violence has contributed to a decrease in the number of workers
available, increased the amount of time needed to plan and complete
capital projects, and has hindered U.S. advisors' ability to provide
the ministries with assistance and monitor capital project performance.
As we previously reported,[Footnote 13] since 2005, the United States
has funded 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. However, 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.
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.
Mr. Chairman, this concludes my statement. I would be pleased to answer
any questions that you or other members may have at this time.
GAO Contact and Acknowledgments:
For questions regarding this testimony, please call Joseph A. Christoff
at (202) 512-8979. Key contributors to this testimony include Godwin
Agbara, Assistant Director; Bruce Kutnick, Assistant Director; Pedro
Almoguera; Monica Brym; Lynn Cothern; Gergana Danailova-Trainor; Justin
Monroe; and Beth Hoffman-Leon.
[End of section]
Footnotes:
[1] GAO, Stabilizing and Rebuilding Iraq: Iraqi Revenues, Expenditures,
and Surplus, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-1031]
(Washington, D.C.: Aug. 5, 2008).
[2] 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); 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 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).
[3] This amount includes $2 billion appropriated in June 2008 for
reconstruction and stabilization activities in Iraq in the Supplemental
Appropriations Act, 2008, P.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] Proved reserves are estimated quantities that analysis of geologic
and engineering data demonstrates with reasonable certainty are
recoverable under existing economic and operating conditions.
[5] 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.
[6] The IMF reported estimates of $6.9 billion in tax and other
revenues for Iraq in 2008.
[7] 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.
[8] 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.
[9] DFI deposits consist of cash balances of $2.5 billion in U.S.
dollars 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 CBI consist of U.S. dollar-and dinar-denominated
accounts.
[10] 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, P.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.
[11] For U.S. funds, we use the term "spent" for funds that have been
disbursed.
[12] Allocations are a portion of appropriated funds provided to U.S.
agencies.
[13] See GAO, Stabilizing and Rebuilding Iraq: U.S. Ministry Capacity
Development Efforts Need An Overall Integrated Strategy To Guide
Efforts and Manage Risk [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-117] (Washington, D.C.: Oct. 1, 2007).
[End of section]
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