Iraq Ran Up Budget Surpluses as U.S. Ran Up Debt, Says GAO

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Iraq Ran Up Budget Surpluses as U.S. Ran Up Debt, Says GAO Iraq has run annual budget surpluses every year since the United States returned sovereignty to the Iraqi people in 2004 following the U.S. military’s overthrow of the dictatorship of Saddam Hussein in 2003, according to an audit by the U.S. Government Accountability Office.Monday, September 20, 2010

By Terence P. Jeffrey

Iraqi Prime Minister Nouri al- Maliki speaks to the press in Baghdad on Friday, March 26, 2010. (AP File Photo/Hadi Mizban)

Iraq has run annual budget surpluses every year since the United States returned sovereignty to the Iraqi people in 2004 following the U.S. military’s overthrow of the dictatorship of Saddam Hussein in 2003, according to an audit by the U.S. Government Accountability Office.

In the six-year period from 2004 through 2009, according GAO, the Iraqi government amassed a cumulative surplus of $52.1 billion--with between 83.0 percent and 92.1 percent of its annual government revenues coming from the proceeds of oil exports. (Iraq has 115 billion barrels in proved oil reserves, according to the U.S. Energy Information Administration, placing it third in the world, behind Saudi Arabia and Iran, for proved reserves.)

“GAO’s analysis of Iraqi data indicated that Iraq’s revenues exceeded expenditures through the end of 2009, resulting in an estimated cumulative budget surplus of $52.1 billion,” said GAO.

During that same six-year period, meanwhile, the U.S. government ran deficits every year, and, according to the U.S. Treasury Department, from Jan. 1, 2004 to Dec. 31. 2009, the overall U.S. national debt grew from $6.99 trillion to $12.31 trillion.

Part of the new debt amassed by the U.S. government since 2004 can be attributed to the $624 billion GAO says the U.S. government has spent since the 2003 invasion of Iraq fighting the war that overthrew Saddam Hussein and helping the Iraqi people set up a democratic government.

On July 29, despite Iraq’s cumulative $52.1 billion surplus, the U.S. Congress approved $1 billion in “emergency” aid to the Iraqi government to help train and equip Iraqi military and police forces, and President Obama is asking for another $2 billion in aid to the Iraqi government in his fiscal 2011 budget.

“Congress recently provided the administration with $1 billion in new funding to support Iraq’s military and police through its passage of a fiscal year 2010 supplemental appropriation,” the GAO noted in its audit report. “The administration is currently requesting an additional $2 billion in fiscal year 2011 funding for similar uses.”

The Iraqi Finance Ministry told the GAO that $40.3 billion of its cumulative $52.1 billion in surpluses has already been allocated for “advances.” The GAO discovered, however, that this $40.3 billion in so-called “advances” was not clearly accounted for and that Iraq’s own Board of Supreme Audit (that nation’s version of the GAO) was concerned that some of these funds could be misappropriated.

“In April 2010, a senior Ministry of Finance official indicated that these advances should be deducted from the $52 billion cumulative budget surplus because they are committed for future expenditures or have been paid out,” said GAO.

“According to this official and Board of Supreme Audit reports on Iraq’s financial statements, these advances include funding for letters of credit, advance payments on domestic contracts, and other advances,” said the GAO.

“However," said GAO, "Iraq’s Board of Supreme Audit has noted concerns about Iraq’s accounting for these advances. In 2009, the board concluded that weaknesses in accounting for advances could result in the misappropriation of government funds, the means by which ministries exceed their annual budgets, and the inaccurate reporting of expenditures. The composition of some of these advances also is unclear. For example, 40 percent of total outstanding advances through 2008 are classified by the Ministry of Finance as ‘other temporary advances,’ which are not otherwise defined.”

The GAO also noted that the Iraqi government held as much as $32.2 billion in cash on deposit at various banks and financial institutions and that, even after deducting $16.9 billion of that money because the Iraqi government said it belonged to various state-owned enterprises and trust funds, there still remained $15.3 billion in cash deposits the Iraqis could use for future government spending.

“In November 2009, the Ministry of Finance reclassified $16.9 billion in state-owned banks as belonging to state-owned enterprises and trusts, leaving $15.3 billion of $32.2 billion available to the Iraqi government for other spending,” said GAO.

GAO recommended that Congress take stock of Iraq’s surpluses when considering the administration’s requests for further aid to the Iraqi government.

“GAO believes that Congress should consider Iraq’s available financial resources when it reviews the administration’s fiscal year 2011 budget request and other potential future budget requests for additional funds to train and equip Iraqi security forces,” said the audit report. “Iraq generated an estimated cumulative budget surplus of $52.1 billion through December 2009. Adjusting for outstanding advances, at least $11.8 billion of this surplus was available for future spending. Iraqi data indicate that this surplus has enabled Iraq to accumulate at least $15.3 billion in available financial deposit balances, another means by which to assess Iraq’s fiscal position. Additional clarity is needed on Iraq’s outstanding advances and financial deposits to determine whether Iraq may have additional resources that are available for future spending.”

The Iraqi government is currently preparing a report for the International Monetary Fund, due Sept. 30, that is supposed to clarify its allocation of the $40.3 billion in “advances” from its $52.1 billion cumulative surplus. “Under the terms of a February 2010 International Monetary Fund (IMF) arrangement,” said GAO, “Iraq agreed to prepare a report on its outstanding advances, which will identify those advances that are recoverable and could be used for future spending, and set a time schedule for their recovery.”

In official responses to GAO’s audit report, the U.S. State Department cautioned that Iraq was right to maintain a “sensible” financial reserve, the U.S. Treasury Department said “Iraq needs a fiscal cushion,” and the U.S. Defense Department said it was a “prudent fiscal requirement” for Iraq to maintain a cash reserve.

“We agree with GAO’s stated goal for this report, i.e. to ‘ensure that Iraq shares in its security costs,’” said the State Department. However, State also said: “Given the Iraq’s dependence on oil revenues and the volatility of oil prices, maintaining a fiscal reserve would be sensible.”

“We agree in principle with the GAO that, while Iraq’s fiscal accounts are not well ordered, Iraq potentially will have financial resources to engage in greater cost-sharing in the future,” said the Treasury Department. “Indeed, Iraq has significantly boosted its spending on security and reconstruction in the past few years. However, we believe that the resources available to the Iraqi government are likely at the low end of GAO’s range and that Iraq needs a financial cushion to deal with considerable variability in its fiscal revenues.”

“The current draft report also estimates between $15 billion and $32 billion on deposit,” said the Defense Department. “We believe available deposits are closer to $15 billion, which is consistent with the estimate of cumulative surpluses. The report also fails to mention the prudent fiscal requirement for Iraq to maintain a cash reserve to finance its expected 2010 budget deficit.”

According to the Congressional Budget Office, the U.S. budget deficit will exceed $1.3 trillion for fiscal 2010, which ends on Sept. 30. This will be the second greatest deficit as a percentage of GDP since World War II. The single greatest was last year’s $1.4 trillion deficit, incurred while Iraq was running an annual surplus for the sixth straight year.

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