Iraq Banks Billions in Surpluses, GAO Says

Sens. Carl M. Levin, left, and John W. Warner requested the GAO report on Iraq's income and spending. Levin described the findings as "inexcusable."
Sens. Carl M. Levin, left, and John W. Warner requested the GAO report on Iraq's income and spending. Levin described the findings as "inexcusable." (By Gerald Martineau -- The Washington Post)
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By Karen DeYoung
Washington Post Staff Writer
Wednesday, August 6, 2008

Iraq's oil income will more than double this year, even as Baghdad continues to spend only a small percentage of its own money on reconstruction and services while it banks billions in surplus funds, according to projections by U.S. government auditors.

Between 2005 and 2007, only 10 percent of Iraq's expenditures went toward reconstruction, with just 1 percent spent on maintaining U.S. and Iraqi-funded investments in roads, water, electricity and weapons, according to a report released yesterday by the Government Accountability Office. Even when Baghdad has allocated larger sums, the report said, it has spent only a small portion of the budgeted money.

Those trends, which the report said have continued during the first half of this year, are likely to fuel further congressional discontent over ongoing U.S. payments to rebuild Iraq. "It is inexcusable for U.S. taxpayers to continue to foot the bill for projects the Iraqis are fully capable of funding themselves," Senate Armed Services Committee Chairman Carl M. Levin (D-Mich.) said in a statement yesterday.

"We should not be paying for Iraqi projects, while Iraqi oil revenues continue to pile up in the bank, including outrageous profits from $4 a gallon gas prices in the U.S.," said Levin, who requested the GAO investigation along with Sen. John W. Warner (R-Va.).

The United States has appropriated about $48 billion for Iraqi reconstruction since 2003 and has committed all but about $6 billion. "The era of U.S.-funded major infrastructure projects is over," Ryan C. Crocker, the U.S. ambassador in Baghdad, told Levin's committee this spring.

But Congress has objected to other ongoing spending, including an "emergency" military fund used for reconstruction and relief projects, as well as payment of salaries for more than 90,000 non-military security volunteers, called the Sons of Iraq, whose funding Baghdad has been slow to assume.

In a letter to Defense Secretary Robert M. Gates last week, Levin and Warner questioned the approval of $33 million from the Commander's Emergency Response Program to finance a new hotel, office and retail complex at Baghdad International Airport.

The Treasury Department said the GAO assessment "accurately highlights that Iraq's revenues have grown substantially in recent years." In a written response to the report, Deputy Assistant Treasury Secretary Andrew Baukol said the report also "presents a credible picture of Iraq's cumulative budget surpluses."

The report noted that the United States has funded extensive efforts since 2005 to build Iraq's capacity to budget and spend its money. It said that U.S. officials have cited several reasons for Baghdad's problems, including a shortage of trained staff, weak procurement and budgeting systems, and violence.

Treasury agreed that the Iraqi government "still needs to improve the speed and effectiveness of its budget execution, and the transparency of its budgeting and accounting practices," but said that its spending rate this year would increase.

The GAO said that in 2007, Iraq spent 80 percent of its $29 billion operating budget -- largely salaries, pensions, supplies, social benefits and interest -- but only 28 percent of its $12 billion investment budget. "For 2008," it said, "we estimate that the Iraqi government could spend between $35.3 billion and $35.9 billion of its [overall] $49.9 billion budget."

Oil provided 94 percent of Iraq's $96 billion in revenue between 2005 -- when Baghdad started managing its own postwar budget -- and the end of 2007. Based on average 2008 exports of about 2 million barrels a day through June and projections through December, and depending on the price, oil will generate between $67 billion and $79 billion in revenue this year, the GAO said. Other revenue sources, including taxes, will provide about $7 billion.

Iraq has the third-largest proven oil reserves in the world, and experts estimate it is capable of producing as much as 5 million barrels a day.

The GAO estimated that Iraq would have a budget surplus of $38 billion to $50 billion this year, depending on whether its parliament approves a $22 billion supplemental spending package proposed by the government of Prime Minister Nouri al-Maliki.

Iraq's existing surplus also generated controversy during recent congressional hearings on war and reconstruction funding. The Baghdad government has about $30 billion deposited in the Development Fund for Iraq at the Federal Reserve Bank of New York. Under a United Nations mandate that expires at the end of the year, the fund is protected from international legal claims against Iraq dating from the Saddam Hussein era.

Iraqi Central Bank reserves total about $31.4 billion, the GAO said, about two-thirds of which it is required to maintain under an agreement with the International Monetary Fund. Some of that total, the GAO said, may overlap with the development fund money in New York, resulting in "double-counting."

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