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

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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"

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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