VZCZCXRO8058
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0350/01 0420632
ZNR UUUUU ZZH
R 110632Z FEB 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 1641
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 02 BAGHDAD 000350 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV IZ
SUBJECT: IRAQI BUDGET NOT YET PASSED, CONTINUING RESOLUTION 
KEEPS THE GOVERNMENT WORKING 
 
REF: A. BAGHDAD 280 
     ¶B. BAGHDAD 244 
     ¶C. BAGHDAD 195 
     ¶D. BAGHDAD 206 
 
¶1. (SBU) Summary:  The GOI has yet to pass a budget for FY 
2009, which began on January 1.  GOI operations continue 
under an automatic continuing resolution, according to Iraqi 
law, that maintains spending at a monthly rate based on the 
previous fiscal year's budget.  Delays have been caused by 
both successive revisions of the budget in the Council of 
Ministers (CoM) and the race for the speaker of the Council 
of Representatives (CoR).  The GOI is faced with tough 
political decisions on spending, and the proposal submitted 
to the CoR on February 4, has increased expenditures to total 
USD 62.9 billion, up from the USD 59.5 billion in December. 
Iraq's accumulated fiscal assets should be sufficient to fund 
the anticipated 2009 budget deficit.  End summary. 
 
Budget Back to CoM: Another Look 
-------------------------------- 
 
¶2. (SBU) Following CoR Finance Committee hearings in January 
(refs A-C), the 2009 draft budget was sent back to the 
Council of Ministers (COM) for adjustment on January 18.  The 
Finance Committee was concerned that that the budget rested 
on overly optimistic revenue assumptions and that provinces 
should be given larger allocations.  While under the 
Constitution the CoR has the authority to reduce or 
reallocate expenditures, CoR members tend to rely on the 
Ministry of Finance rather than making such technical changes 
themselves.  The CoR does not have the right under the 
Constitution to increase expenditures, but can recommend such 
increases to the CoM. 
 
Easy Target: Stuck in the CoM, Budget Expenditures Rise 
--------------------------------------------- ---------- 
 
¶3. (SBU) In response to the CoR Finance Committee's request, 
the Ministry of Finance produced a new draft budget that 
increased expenditures from USD 59.5 billion to USD 61.7 
billion.  The anticipated deficit rose correspondingly to USD 
19 billion as revenue assumptions did not change (average 
price of oil of USD 50 for the year and export sales 
averaging 2 million barrels a day). 
 
¶4. (SBU) When the MoF's latest draft went back to the CoM for 
approval (ref B), it proved to be an easy target for further 
haggling.  Emboffs have seen Ministers, specifically the 
Electricity Minister and the Defense Minister, visit the 
Finance Minister and press reports told of visits by 
provincial governors all looking for increases.  According to 
MOF contacts, the budget continued to be tweaked on February 
¶2.  Or, as the Finance Minister observed, "a million here, a 
million there..."   The new, COM-approved budget proposal 
sent to the COR raised expenditures to USD 62.9 billion, with 
an anticipated deficit of USD 20.1 billion.  Compared to the 
budget the CoM sent to the CoR in December, operating 
expenses increased USD 2.8 billing and investment 
expenditures rose by USD 0.5 billion.  The budget was sent 
back to the CoR on February 4. 
 
Continuing Resolution: Budget Funds Flow 
---------------------------------------- 
 
¶5. (U) Under Iraq's Financial Management Law, if a budget is 
not approved by the CoR by December 31st, the Minister of 
Finance is obliged to approve funds for spending units on a 
monthly basis up to one twelfth of the appropriations of the 
previous fiscal year until a budget is approved.  These funds 
can be used only for "liquidation of existing commitments, 
salaries, pensions, social security payments and debt 
service," according to the Law.  (Note: This is effectively a 
GOI "continuing resolution."  End note.) 
 
¶6. (SBU) Emboffs met in mid-January with the MOF Director 
Q6. (SBU) Emboffs met in mid-January with the MOF Director 
General of Accounts to discuss budget implementation in 
general and, more specifically, implementation of this year's 
budget.  He confirmed that the MoF would proceed with the 
approval of funds as indicated by the law.  He clarified, 
however, that the allocations would equal one twelfth of 
either the 2008 budget (with supplemental) or the 2009 
budget, whichever is less.  The 2008 budget, with the added 
Supplemental, had expenditures totaling USD 72.2 billion. 
Thus, some budget lines in the proposed 2009 budget would be 
less than those in 2008 and be used for the monthly 
allocations.  He also noted that investments (capital 
expenditures) that were started in 2008 would continue to be 
funded.  Spending units could draw up to one twelfth of their 
total investment budget on a monthly basis. 
 
 
BAGHDAD 00000350  002 OF 002 
 
 
¶7. (SBU) When asked whether any units had requested 
allocations for this year, he explained that most units have 
cash balances in government owned bank accounts at their 
disposal.  These were funds to be used in 2008 but were not 
spent by year's end, he said. (Note: According to CBI data, 
as of the end of November total GOI deposits in state banks 
totaled around USD 15 billion.  End note) 
 
Headless CoR to Proceed: Quick Action or Not? 
--------------------------------------------- 
 
¶8. (SBU) The budget is one of the main issues currently 
before the CoR, but, without a Speaker (ref D), many 
Representatives have argued that the CoR could not consider 
legislation.  At the CoR's February 5 session, however, the 
Acting Speaker reported that the Federal Supreme Court had 
held that it would be legal for the CoR to carry out a 
session without a Speaker as long as the Deputies remained in 
their positions.  The court also held that CoR bylaws permit 
CoR sessions to be chaired by one of the Deputies. 
Nevertheless, it appears that the CoR is more focused on 
deciding its leadership than passing a budget. 
Significantly, the Chair of the Finance Committee, Ayyad 
Sammarai, a leading candidate for the Speaker job, has 
delayed discussions of the budget in the CoR by linking the 
election of a new Speaker to consideration of the Budget 
bill.  The CoR recessed for a week's break on February 9, and 
will reconvene on February 18. 
 
Comment 
------- 
 
¶9. (SBU) Delays in passage of the FY 2009 budget have not 
created a crisis in Iraq, as under its continuing resolution, 
government spending and operations continue. The GOI has 
substantial cash balances to fund expenditures under the 
continuing resolution process.   Budget preparation began on 
schedule, but declining oil prices have resulted in several 
downward revisions of the draft budget, and increased 
political wrangling for pieces of the smaller pie.  Further 
delays could have longer-term consequences as plans and 
commitments for new capital spending to meet Iraq's essential 
services needs cannot start until the budget is passed. 
Though planned expenditures in 2009 will not be the USD 79 
billion first envisaged in the September 2008 initial budget 
draft, they will be greater than the estimated USD 50 billion 
that the GOI actually spent in 2008.  In practical terms, 
therefore, the FY 2009's budget will result in increased 
spending. 
 
CROCKER