BABIL PROVINCIAL GOVERNMENT SHORT OF FUNDS

UNCLAS HILLAH 000034 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN PGOV IZ SUBJECT: BABIL PROVINCIAL GOVERNMENT SHORT OF FUNDS ¶1. (SBU) Summary: The sharp decline in Iraq's oil revenue, together with an over-obligation of budget resources by the former provincial government, means that Babil Province faces a funding shortfall. Newly elected members of the provincial council are still unfamiliar with budget processes and have sought USG assistance. Despite an expansion of its authority under the Provincial Powers Act, the council will struggle to meet constituents' expectations of improved services. End summary. Resources Halved and Budget Over-Obligated -------------- ¶2. (SBU) Babil's new provincial government faces a funding shortfall that will make it difficult to meet electoral expectations for more essential services. Lower oil revenues virtually halved the budget controlled by the province in 2009, from about USD 235 million to USD 135 million, with the prospect of a further reduction on the horizon. ¶3. (SBU) In January 2009 the outgoing provincial government obligated virtually all 2009 funding. The obligations may have been made in the expectation of a supplemental budget, although there were in fact no grounds for such optimism on the part of the then-provincial government. The new government may be able to void some contracts and argue that a recent law could make some contracts non-binding. "We are Blind" -------------- ¶4. (SBU) Incoming new provincial council members (only eight members are returning incumbents) described themselves as "blind" on the budget. They asked the PRT and USAID's Local Governance Program to educate them on the budget process and financial realities. The PRT has already started discussions with incoming provincial council members on the need to move quickly on budget planning. ¶5. (SBU) Still, the outgoing provincial government may have done the new government, which was not seated until April 13, a favor. In the absence of already-obligated funds the new government would likely not have had time to go through a budget process to expend FY 2009 funds this year. The pre-obligation may therefore prevent the loss of funds for provincial projects since funds will not roll over from one year to the next under new regulations. ¶6. (SBU) Comment: The quandary for the new government, once it gains an understanding of the fiscal constraints it faces, will be how to improve the delivery of essential services. The pressure to find new provincial sources of revenue, the door for which opened under the new Provincial Powers Act, will be high, even as the national Da'wa leadership seeks to increase the power and role of the central government vis-`-vis the provinces. HILLASKM