BASRAH: OLD CONTRACTUAL OBLIGATIONS ADD TO NEW PROVINCIAL

UNCLAS BASRAH 000029 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV EFIN IZ SUBJECT: BASRAH: OLD CONTRACTUAL OBLIGATIONS ADD TO NEW PROVINCIAL GOVERNMENT'S FINANCIAL WOES ¶1. (SBU) Summary: The $201 million in GOI Accelerated Reconstruction Development Program (ARDP) funds allocated to Basra for 2009 will fall far short of the province's obligations for 2008. The new governor's decision to honor without further review the contractual obligations made by the previous Provincial Council has created an additional debt of $290 million. The government's decision, viewed as an effort to build faith in local government institutions, may adversely affect reconstruction and development plans. End summary. -------------- Basra Budget Shortfall -------------- ¶2. (SBU) In 2008, the Basra Provincial Government had nearly $680 million in obligations for various reconstruction and development projects. This sum included unspent portions of 2007 ARDP funds, the emergency budget from Operation Charge-of-the-Knights, and supplemental appropriations from oil revenues provided late 2008. The provincial government executed this entire budget, a demonstration of its capacity for drawing up contracts and making tender announcements under existing guidelines. Not all obligated funds were disbursed, however; outstanding obligations from 2008 amount to about $290 million. ¶3. (SBU) Unspent obligated funds will create a budget shortfall in Basra due to the lack of a provision in the budget law to roll unspent portions of the 2008 budget into 2009. (Although there is an exception for contracts with unliquidated letters of credit requiring no additional cash outlay, it will have little impact on Basra.) Provinces such as Basra that failed to fully implement priority projects and disburse funds in the previous year were particularly affected by the lack of roll-over. Basra's problems will be exacerbated further by the cut in ARDP funds. The $201 million ARDP allocation represents 62 percent of last year's total - a $123 million reduction. ¶4. (SBU) Shiltagh's inherited debt is largely due to last-minute wrangling by the outgoing provincial government, which re-submitted the validated list of projects for funding against the 2009 ARDP allocation before the new government was seated. After taking office and considering the former Provincial Council's recommendations, Governor Shiltagh announced his intention to honor the previous administration's obligations. Consequently, the new administration's priorities regarding new projects will have to wait until additional resources are available. -------------- Comment -------------- ¶5. (SBU) The current budget shortfall is not unique to Basra. The inability to apply unspent 2008 funds to this year's budget has had profound consequences across the country. Although reconstruction momentum has stalled, local governments can economize by improving resource management and at the same time allow ample opportunity to start working on the new Provincial Development Strategy and aligning their PDS in the overall GOI's national development goals. ¶6. (SBU) Comment, continued: Governor Shiltagh's decision to continue all contracts surprised some local observers who believe many of the ARDP projects were poorly thought out, politically motivated, or both. The governor's lack of criticism for his predecessor and his refusal to take political advantage of the situation by developing new projects appear to follow the same strategy taken by new Maliki-affiliated governors in Dhi Qar and Maysan. This move, combined with designation of lesser Basra provincial executive positions for parties excluded from the governing coalition but prominent in the previous PC (i.e. ISCI, Sadrists) may reflect inter-Shi'a reconciliation efforts that are part of a larger political strategy directed by Prime Minister Maliki, who has close ties with the governor and Provincial Council. End comment. BOCCHETTI