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Cablegate: Budget Execution: What the Iraqis Say, or Fail To

VZCZCXYZ0000
RR RUEHWEB

DE RUEHGB #3834/01 3430838
ZNR UUUUU ZZH
R 080838Z DEC 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 0741
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS BAGHDAD 003834

NEA/I/ECON
SIPDIS
SENSITIVE

TREASURY FOR OTA LTRIMBLE AND MRUFFER

E.O. 12958: N/A
TAGS: EFIN ECON PGOV SOCI PREL IZ

SUBJECT: BUDGET EXECUTION: WHAT THE IRAQIS SAY, OR FAIL TO

REF: BAGHDAD 3616

Sensitive but unclassified - protect accordingly.

1. (SBU) Summary. Despite improved results in provincial budget
execution in 2008, the Government of Iraq (GOI) and provincial
government offices continue to be hampered by insufficient staffing
levels, unclear policies and poor communication. Representatives
from the two groups briefed PRT and U.S. military personnel at a
two-day workshop that focused on Iraqi views of provincial budget
execution. Their presentations validated many USG concerns about
why the Iraqi system needs to be reformed. All speakers agreed that
Iraq suffers from a shortage of experienced project engineers to
properly manage its large number of pending contracts. Animosity
between national and provincial officials, and even between certain
ministries, was evident. Several key GOI speakers failed to show up
for the workshop and another declined to speak despite being
present, reflecting a lack of cooperation and unwillingness to be
subject to questions. Conversely, provincial government
representatives showed strong motivation to resolve problems. End
summary.

2. (SBU) On November 23-24, the Embassy's Office of Provincial
Affairs (OPA) and Treasury Attache's Office hosted approximately 70
PRT and military representatives at a budget execution workshop
featuring predominately Iraqi speakers. The agenda called for GOI
officials to describe how the Iraqi budget system is supposed to
work on the first day, and have provincial representatives critique
the system on the second day. In past events, these two sides have
argued and blamed each other for failures in budget execution, so in
theory keeping them separate would promote a more open discussion.


GOI (NON) SPEAKERS
------------------

3. (SBU) The Ministries of Planning (MOP) and Finance (MOF) are the
two most important GOI entities involved in budget execution. The
MOP must approve provincial projects before they are sent to the MOF
for funding. Unfortunately, the two ministries do not always agree
and have been known to avoid dealing with each other, despite the
obvious necessity for a close working relationship. Three MOP
representatives confirmed their speaking roles the day before the
workshop, but none showed. All claimed they were called away to
other meetings. One MOF speaker attended the morning session, but
after being asked a somewhat difficult question, announced he would
not be speaking, claiming the previous speaker had covered the same
material he had planned to discuss. He departed without taking
further questions from the audience. Thus, the two most important
GOI offices, four speakers in all, contributed nothing to the work
shop and displayed a complete lack of leadership and transparency.

4. (SBU) A representative from the Deputy Prime Minister's Office
reported that during the first nine months of 2008, provincial
capital budget execution was 50 percent higher than during the same
period in 2007, noticeable improvement throughout Iraq. He added
that budget execution rates remain low because provinces have
received more money than they can absorb given their staffing
resources. He was the first to say, and all subsequent speakers
agreed, that Iraq suffers from a shortage of experienced project
engineers to manage construction projects. Without additional
managers, the provinces' ability to execute their budgets is
limited. Although he said the GOI would welcome PRT efforts to
offer project management training, he blamed the provinces for not
doing better. His office had asked all Iraqi ministries and
Qdoing better. His office had asked all Iraqi ministries and
provincial governments to list the problems they faced related to
budget execution; all ministries had complied with this request but
only two of 18 provinces had. (Note: OPA will work with PRTs to
inquire why provincial governments did not comply).

PROVINCIAL REPRESENTATIVES EAGER TO HELP
----------------------------------------

5. (U) Contingency planning provided the workshop with an abundance
of speakers and provincial officials from Babil agreed to address
the workshop a day early. They also returned the next day, despite
a bomb attack near their hotel, to hear representatives from other
provinces. As a group, the various provincial speakers agreed on
the central problem they face with budget execution: provinces do
not have enough experienced project engineers or managers to guide
projects through to completion. Many projects involve significant
construction work requiring close monitoring. Tiny Babil province
alone has 1,400 existing projects and its neighbor, Anbar, has 800
more. Unless Iraq can attract foreign workers or expatriate Iraqis
with project management experience, the provinces will have to wait
to work through their backlogs. In addition, GOI-supplied
provincial operating budgets to pay salaries are generally
insufficient to hire enough people.

6. (SBU) The Iraqi budget process is very slow due to paperwork not
being promptly completed and forwarded to the next step, and there
are too many steps to follow -- sometimes 20 signatures are needed
for a single approval. Easements and other land use issues cannot
be started until a signed contract exists. These issues can take
months to resolve in any country, but often can be done concurrently
with the tendering process prior to the awarding of a contract to
expedite progress. Corruption is pervasive, and even though each
ministry has a General Inspector, these jobs are often awarded on
the basis of personal connections rather than merit.

7. (SBU) Examples of ambiguous or conflicting information abound.
The 2008 budget year (calendar year) will be closed in a matter of
weeks, but it is still unclear what level of completion is necessary
to allow funds to be considered obligated. Some people say a signed
contract is necessary, others claim the funds must have actually
been spent and still others feel lists of intended projects will
suffice. In past years, unused budget funds were rolled over into
the next budget year, but it is still unclear if this will happen in
2008. It is widely reported that the GOI will reduce the MOP's
approval process in order to expedite budget execution and the new
rules are already in effect. However, no one was able to confirm
this, not even the speaker from the Deputy Prime Minister's Office.
Finally, budgets have sometimes been approved late in the year
leaving provincial governments little time to execute them. The
2008 supplemental budget, approved in August, was not formally
passed until October. In addition, it doubled some provinces'
annual funding levels and in some cases gave them significant
amounts of money when they requested none. This made it virtually
impossible to execute their budgets in 2008.

8. (SBU) Comment: GOI and provincial governments need to improve
coordination and start pulling in the same direction. Although the
provinces missed the opportunity to communicate their problems to
the Deputy Prime Minister's Office when previously asked to do so,
provincial representatives showed they were motivated to make
changes to improve budget execution while the MOP and MOF failed to
deliver. By giving provinces huge supplemental capital budgets late
in the year, the GOI only exacerbated the workload problems of their
small and inexperienced project management staffs. The GOI should
invest more money to combat corruption and make sure its
reconstruction efforts are done properly. Iraqi project management
training programs are necessary and are being funded, but will take
time to produce results. In the meantime, USG continues to provide
temporary assistance and expertise and to facilitate Iraqi capacity
building efforts. End comment.
CROCKER

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