Stabilizing and Rebuilding Iraq: Iraqi Revenues, Expenditures,	 
and Surplus (16-SEP-08, GAO-08-1144T).				 
                                                                 
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.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-1144T					        
    ACCNO:   A84223						        
  TITLE:     Stabilizing and Rebuilding Iraq: Iraqi Revenues,	      
Expenditures, and Surplus					 
     DATE:   09/16/2008 
  SUBJECT:   Budget functions					 
	     Budget obligations 				 
	     Budget outlays					 
	     Budget surplus					 
	     Cost analysis					 
	     Crude oil						 
	     Data collection					 
	     Economic analysis					 
	     Economic development				 
	     Economic growth					 
	     Economic policies					 
	     Exporting						 
	     Financial management				 
	     Foreign economic assistance			 
	     Foreign governments				 
	     Future budget projections				 
	     International organizations			 
	     Investment planning				 
	     Investments abroad 				 
	     Iraq War and reconstruction			 
	     Monetary policies					 
	     Cost awareness					 
	     Cost estimates					 
	     Iraq						 

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GAO-08-1144T

   

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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 reservesï¿½the 
third largest in the world. Oil export revenues are critical to Iraqï¿½s 
economy, accounting for over half of the countryï¿½s gross domestic 
product and over 90 percent of revenues. 

This testimony discusses (1) Iraqï¿½s estimated revenues from 2005 
through 2008, (2) Iraqï¿½s estimated expenditures from 2005 through 2008, 
(3) Iraqï¿½s 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 
Fundï¿½s (IMF) stand-by arrangement for Iraq. GAO worked with officials 
from the Department of Treasury and interviewed officials from the 
Departments of State, Defense, Energyï¿½s Energy Information 
Administration (EIA), and the IMF. GAO also reviewed translated copies 
of Iraqi documents, including budget and capital spending reports. 

Treasury agreed with GAOï¿½s 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. Iraqï¿½s 2008 budget surplus could be reduced by expenditures 
from its $22.3 billion supplemental budget, which Iraqï¿½s Council of 
Representative passed in August 2008. However, based on Iraqï¿½s 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 sectorsï¿½security, 
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. 

Iraqï¿½s large oil reserves coupled with higher oil prices offer the 
government of Iraq the potential to increase its contributions to the 
countryï¿½s 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 
[email protected]. 

[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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