BABIL'S BUDGET EXECUTION RATE HIGH BUT NEEDS IMPROVED

UNCLAS SECTION 01 OF 02 HILLAH 000080

SIPDIS

E.O. 12958: N/A
TAGS: ECON PGOV IZ
SUBJECT: BABIL'S BUDGET EXECUTION RATE HIGH BUT NEEDS IMPROVED
ALLOCATION FROM CENTRAL GOVERNMENT

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1. (U) Summary: Budget execution rates for Babil Province
are among the highest in Iraq, but is not likely to
significantly improve absent central government reform of the
budget process that allows earlier and more predictable release
of funding during the fiscal year. Pressure to increase the
rate of spending is not likely to produce results as commitments
are already running ahead of the availability of funds.
Provincial budget formulation could be strengthened and project
selection systematized. The PRT is exploring a closer
partnership to build capacity in this area. End Summary.




2. (U) Since the implementation of the Accelerated
Reconstruction and Development Program (ARDP) fund in 2006,
capital investment budget execution rates for Babil Province
have consistently been among the highest in Iraq and continue to
improve, especially in relation to the investment allocations
actually released by the Ministry of Planning and Development
Cooperation (MOPDC) and the Ministry of Finance (MOF) and
received by the Province.




3. (U) Provincial officials have been diligent in their
efforts to commit and expend ARDP funds, as well as to request
replenishments in a timely manner. For 2006, Babil Province
expended 87% of the allocations received, improving to 103% for
2007 (carry-over funds allowed the Province to expend more than
it received in 2007). As of 31 July 2008, this measure stands
at 96%. The province has consistently and repeatedly submitted
project cards and release applications, but without apparent
effect on the timing of replenishments - often they get no
response at all from Baghdad.




4. (U) In relation to commitments (the ratio of the value
of executed contracts to total budgeted allocations),Babil
Province's record for 2006 and 2007 is 100%. The mid-year 2008
rate is already at 80%.




5. (U) Babil's success in relation to budget execution is
largely attributable to: effective procurement and project
management by its Provincial Reconstruction and Development
Committee (PRDC); the positive relationship the PRDC has with
MOF officials at the provincial level; and the financial and
construction capacity of area contractors. The PRDC and the
Project Management Unit (PMU) in the Governor's Office have
efficiently pursued the solicitation and execution of contracts,
while the PRDC's cooperative relationship with MOF officials has
eliminated many potential obstacles in a complex budgetary
process. Area contractors have also been willing and
financially able to initiate project construction without
advances or mobilization payments and to continue project
construction even when progress payments have been slow or
delayed.




6. (U) The most significant remaining barrier to improving
budget execution rates is the time it takes MOF and MOPDC to
release the capital investment funds to the Province. As of
mid-year 2008, Babil Province had received only 20% of its total
2008 allocation.




7. (U) Since the inception of the ARDP fund, provincial
allocations have consistently been released by the MOPDC and MOF
in a slow and unpredictable manner. For example, during 2007,
Babil Province received 10% of its total allocation in March,
20% in June, 10% in August, and the final 60% on December 31
(the last day of the fiscal year). Thus far in 2008, an initial
20% was received in April, with a second tranche of 40%
released in August. As of the date of this cable, Provincial
officials have no indication as to when they will receive the
remaining 40% of their 2008 allocation or whether it will be
received in one or more additional releases before the end of
the year.




8. (U) Under pressure on budget execution (not least by
the PRT),Babil Province has entered into contracts and
committed funds prior to those funds actually being released by
the MOPDC and MOF. Ironically, the USG does not normally allow
its own agencies to commit funds before they are appropriated
and allotted.


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9. (U) ARDP Funds Received and Committed, 2008

a. March: Received = 0%
Committed = 47%

b. April: Received = 20%
Committed = 61%

c. May Received = 20%
Committed = 68%

d. June: Received = 20%
Committed = 78%

e. July: Received = 20%
Committed = 80%

f. August: Received = 60%
Committed = 89%




10. (U)This slow and jerky pace also applies to the 2008
supplemental budget. In March-April 2008, the MOF informed
Babil Province it would receive between 250 and 300 BID in
supplemental allocations by mid-year,and the Province proceeded
with its budgetary planning on this basis. As of September 15,
no funds had been released and no new date had been given for
when they might be.




11. (U) Under these circumstances, Babil Province has run into a
wall in its efforts to improve its budget execution.
Implementation of a system of predictable quarterly releases,
taking into consideration the liquidity needs of the GOI, as
well as the budgetary performance of each province, is the
single most important action that could be taken to improve
provincial delivery of the goods and services paid for by ARDP.
Decentralization of the procurement process by the GOI is
another action that could significantly improve government
expenditure of ARDP.




12. (U) In addition to these two critical pieces, the PRT and
Provincial Council have identified several other areas in the
budget cycle that could use some work. Budget formulation is
weak, project selection is haphazard, and the burden of ARDP is
dramatically increased by the proliferation of smaller projects,
Existing capacity-building efforts to improve the ability of
provincial budgetary staff to perform the required technical and
economic project feasibility studies should result in
improvement of the procurement process, and reduce the time and
effort involved. The PRT plans to explore the feasibility of
assigning one of its staff with budget expertise into provincial
budget office to help improve performance in this area. Better
feasibility studies would result in more detailed tenders and
specifications, reducing the need for project scope
modifications and related conflicts with contractors. If
combined with a more rational allocation of funds from the GOI,
these actions would improve the quality of budget execution.




13. (U) The continued focus on budget execution rates, combined
with steadily increasing funding levels, is stretching
provincial resources to the limit, and will eventually have an
adverse impact on the whole process, including budget execution.
The multiplying projects and tenders exceed the implementation
capacity of provincial procurement and project management staff,
as well as the absorptive capacity of the construction industry.
In short, a situation is being created where provincial
officials are attempting to contract and execute too many
projects at any one time; resulting in more projects of
substandard quality and financial and monitoring vulnerability.
The slow and unpredictable releases increase the pressure,
since the bulk of the funds arrive during the last half, if not
at the end, of the year. Budget execution is affected by
various factors, some indirectly related to the budget process,
and these will also need to be addressed if there is to be
improvement in the capacity of the Babil authorities to
effectively deliver essential services and infrastructure.
CHIAVENTONE