VZCZCXRO6528
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3438/01 3021111
ZNR UUUUU ZZH
R 281111Z OCT 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 0118
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 02 BAGHDAD 003438 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV IZ
SUBJECT: BUDGET EXECUTION CHALLENGES IN MUTHANNA PROVINCE 
 
¶1. (U) This is a PRT Muthanna Reporting Cable. 
 
¶2. (SBU) Summary:  Current budget execution difficulties in 
Muthanna are caused by insufficient training, a shortage of 
certified accountants working for the government, a lack of 
clear guidance from Baghdad, and funding delays from the 
Ministry of Finance in Baghdad.  The PRT is working to 
address issues that can be solved by training.  Delays in 
allocation releases from Baghdad to the province remains the 
single most critical roadblock to budget execution.  End 
summary. 
 
¶3. (SBU) PRT Muthanna's assessment of the state of budget 
execution in the province has identified four major 
challenges: insufficient training, not enough certified 
accountants working for the government, a lack of clear 
guidance from Baghdad, and funding delays from the Ministry 
of Finance in Baghdad. 
 
¶4. (SBU) Insufficient Training: When the British-era 
accounting system (circa 1940) was abolished by the Coalition 
Provisional Authority, the system was replaced by a new 
computerized financial management system.  This new system 
continues to cause the province's professional civil servants 
problems as it is far more complicated than the previous 
journal/ledger method.  This is an issue that the PRT is 
currently attempting to address through the Local Governance 
Program (LGP).  LGP training is currently focused on 
financial management, accounting, and capital project 
tracking. 
 
¶5. (SBU) Not Enough Certified Accountants:  The period of 
civil unrest and violence after the fall of the former regime 
led to a "brain drain" of skilled workers as professionals 
with portable skills left Muthanna.  As a result, there is a 
shortfall of certified or otherwise qualified accountants to 
oversee budget execution.  This problem, not unique in Iraq, 
is compounded in Muthanna, since less than 8.5 percent of the 
local population has a technical diploma, bachelor's degree, 
or higher education, according to the Provincial Council. 
 
¶6. (SBU) Lack of Clear Guidance from Baghdad:  Local 
officials complain that guidance on budget issues and 
spending directives from the Ministry of Finance is not 
always clear.  This leaves provincial managers to interpret 
guidance on their own, leading to haphazard and inconsistent 
spending decisions. 
 
¶7. (SBU) Delay of Funds:  One of the Muthanna's greatest 
problems is the slow rate of allocation from the GoI/Ministry 
of Finance to the province.  By October the Ministry of 
Finance had only released 40 percent of the budget to the 
province for expenditures.  Although this is twice the 20 
percent allocation reported in the late July Treasury report, 
it is difficult to finish projects and pay contractors when 
the allocation is so slow in coming from Baghdad. (Note: 
Muthanna, like many other provinces, currently has its entire 
2008 budget obligated by way of signed contracts for capital 
projects.  End note.) 
 
¶8. (SBU) PRT Comment:  Among these, delays in releasing funds 
allocated to the province is the most critical roadblock to 
budget execution.  A necessary precondition for effective 
budget execution is actually having the funds on hand. 
However, even if the entire allocation was released from 
Baghdad immediately, it is highly unlikely that Muthanna 
could spend it by the end of the year.  This is due, in part, 
to a lack of budget planning and execution expertise, but 
exacerbated due to the previously slow release of funds. 
Releasing this current logjam would spur greater budget 
execution at a provincial level.  While this alone would not 
solve all of Muthanna's budget execution problems, it would 
be a step in the right direction.  In addition, increasing 
the transparency and predictability of the release of funds 
from Baghdad would aid in the local budget planning process. 
End PRT comment. 
 
¶9. (SBU) Embassy comment: Delays is the central government's 
release of funds to the province is a complaint common to 
almost all local officials engaged in budget execution.  Both 
the Ministry of Finance and Ministry of Planning and 
Development Cooperation are blamed by provincial authorities 
for refusing to send them budgeted funds in a timely manner. 
While there is some truth to these complaints, lack of 
institutional understanding of Iraqi budgetary procedures at 
the provincial level leads to a failure to adequately report 
project progress and budget execution to the central 
government.  The Public Finance Management Action Group 
(PFMAG) is working to facilitate communication between the 
central government and provinces to resolve this systemic 
problem.  End Embassy comment. 
 
 
BAGHDAD 00003438  002.2 OF 002 
 
 
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