The “Analytic Report on the Level and Pace of Execution of the Iraqi Budget in FY2023” examines the challenges and performance of Iraq’s budget execution, highlighting significant gaps in investment expenditure, budgetary credibility, and the implications for fiscal sustainability and national development priorities. The report provides a detailed analysis of execution trends and offers recommendations for improving public financial management (PFM) processes in Iraq.
Key Findings:
- Expansionary Budget with Low Execution:
- Iraq’s 2023 budget is the largest in its history, with expenditures estimated at 198.9 trillion IQD ($153 billion).
- By October 2023, only 54.9% of the total budget was executed, with 64.9% execution in current expenditures and just 24.7% in investment expenditures.
- Major Challenges in Budget Execution:
- Investment Spending: Only 24.7% of the investment budget was executed, highlighting persistent delays in procurement, project readiness, and payment processes.
- Revenue Gaps: Non-oil revenue performance was poor, achieving only 49% of the budgeted target, while oil revenues exceeded expectations due to higher production and international prices.
- Ministries with Zero Execution: Thirty-four ministries and government entities reported no budget execution, accounting for 28.5 trillion IQD in unutilized allocations.
- Credibility and Prioritization:
- Delays in passing the budget (June 2023) reduced time for procurement and implementation, undermining credibility.
- Key development projects, including infrastructure and poverty reduction programs, were severely underfunded.
- Sustainability Risks:
- A projected budget deficit of 64.4 trillion IQD (18.7% of GDP) raised concerns about fiscal sustainability. Despite high oil revenues, reliance on these for deficit financing creates vulnerability to price fluctuations.
Recommendations:
- Strengthen Budget Preparation and Credibility:
- Enforce realistic revenue projections and strengthen links between planning and execution phases.
- Ensure timely budget approval to allow efficient project implementation.
- Enhance Investment Execution:
- Address procurement delays, utilize multi-year contracts, and improve project readiness criteria.
- Strengthen monitoring mechanisms for investment projects.
- Institutional Reforms:
- Conduct a diagnostic study on investment budget execution to identify systemic bottlenecks and prioritize institutional capacity building.
Note on Preparation
This report was authored by Arun Arya, Senior Public Finance Management Advisor, for German Development Cooperation (GIZ). It was developed under the Strengthening Public Finance and Financial Markets (FFM) in Iraq Program, co-funded by the European Union and the German Federal Ministry for Economic Cooperation and Development (BMZ).