Cablegate: Budget Execution Challenges in Muthanna Province

DE RUEHGB #3438/01 3021111
R 281111Z OCT 08



E.O. 12958: N/A

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

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

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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