Security Budget

The 2014 decline in global oil prices was disastrous for the Iraqi economy and could have an effect on the military's budget. Oil prices dropped to about 40 percent of their level from early 2014. Iraq's economy and budget relies 85 percent on oil and this has been disastrous.

The MOD initially suffered from a lack of strategic policy development and implementation, and an inefficient procurement and budgeting process. A culture of distrust coupled with incompetence in certain key areas made committing and obligating funds very difficult. MOD spent 76% of its calendar year (CY) 2006 budget for salaries by November 2006, but only 24% of its budget for goods and services, 1% of its budget for capital goods and projects, and 32% of its overall budget of $3.4 billion.

The 2010 budget includes $11 billion for security-related capital and operating expenditures ($4.9 billion for the Ministry of Defense (MoD) and $6.14 billion for the Ministry of Interior (MoI)). The MoD budget allocation for 2010 was $4.9 billion, although this amount reflected an almost 20% increase over 2009, it fell short of the initial budget request of $7.4 billion. The $4.9 billion budget included approximately $3.3 billion in salary related funding, $0.7 billion for operating expenses (goods, services, maintenance, etc), $0.5 billion for procurement, and $0.4 billion for infrastructure projects.

In mid-2010, the MoD submitted a request for a $500 million supplemental budget request to the MoF to fund a military personnel pay raise. Insufficient funding for procurement and sustainment continued to pose a challenge. The MoD must re-evaluate security force requirements and identify gaps that emerged as U.S. Forces drewdown, taking into account available funding. The MoD required a multiyear requirements and budget planning system that factored in the necessary operations and maintenance costs to man and sustain new equipment and long-term support requirements. The MoD agreed to a Defense Resource Management Study to be conducted by the Institute for Defense Analysis to address concerns regarding a requirements-driven, long-term planning, programming, and budgeting capability.

As of April 2010, the best data available indicated that all Government budget expenditures through November 2009 totaled $37.2 billion, or 63% of the total 2009 authorization budget of $58.6 billion. Since the 2009 budget was not approved until March 2009, and not made official until April 2009, spending was severely limited in the early part of the year. Spending was also slowed in the face of declining oil prices in the early part of the year. As a point of reference for 2009, Iraq executed nearly 70% of its combined base and supplemental budget for 2008 ($50.5 billion out of $72.2 billion), and 67% in 2007 ($27.0 billion out of $41.1 billion). Data from the MoF suggested that Iraq may have a small budget deficit of between $2 billion and $5 billion in 2009. The actual deficit, if any, will not be known until the 2009 accounts are fully closed. The 2009 Iraqi Budget Law did not include a provision for rollover of 2008 capital funding, and the decline in oil prices drove reduced capital expenditures and a larger deficit than the previous two budget years.

The GoI’s total capital budget for 2009 was $12.7 billion dollars across all ministry and non- ministry spending units. Ministry of Planning data for capital expenditures indicates that through November 2009 the GoI executed almost $10 billion dollars, or 77% of the capital budget. This figure could be inflated as they include almost $4 billion in letters of credit that may, in fact, be used for current and not capital spending. MoF data shows that capital expenditures through November 2009 were just over $6 billion.

The CoR passed the 2010 Budget Law on January 26, 2010, and it went into effect on March 2, 2010. The 2010 budget approval process was completed almost 60 days earlier than the 2009 budget process, indicating increasing GoI capacity in budget formulation. The 2010 baseline budget authorization of $72.4 billion represents a $13.8 billion increase over the 2009 budget of $58.6 billion. However, the official budget figure did not include several billion dollars of additional expenditures added by provisions not reconciled with the nominal total, including additional revenues for provincial governments, extra Ministry of Agriculture (MoA) spending, and Public Distribution System (PDS) costs from 2009.

The 2010 budget law authorizes approximately $20.3 billion for capital investment, an approximately 50% increase from 2009, and allocates $52.1 billion for operating expenditures. The 2010 Budget Law initiated devolution of some federal authorities to the provinces and increased the total provincial operating budget by 300% to 1.3 billion. Neither the CoR nor the CoM has published policies to guide or standardize provincial execution of the projects and funds. With projected 2010 revenue of $52.8 billion based on projected oil prices of $62.50 per barrel and exports of 2.15 million barrels per day, the fully executed budget will result in a projected deficit of $19.6 billion, although senior MoF officials said this may grow.

Military expenditures before 1980 fluctuated between 15 and 21 percent of the gross national product (GNP). In 1975, for example, Iraq allocated to its defense budget an estimated US$3 billion, representing 17.4 percent of GNP, whereas in 1979, military expenditures were estimated at US$6.4 billion, or 14.9 percent of GNP. After 1980, however, defense expenditures skyrocketed, exceeding 50 percent of GNP by 1982. The 1986 military budget was estimated at US$11.58 billion.

The war's staggering financial and economic costs have proved to be more severe than anticipated, and, because of them, most large-scale infrastructure development projects have been halted. In 1980 Iraqi revenues from oil exports amounted to US$20 billion, which, when added to Iraq's estimated US$35 billion in foreign exchange reserves, permitted the country to sustain rapid increases in military expenditures. By 1984, however, oil revenues were so low that Iraq sought loans from the Gulf Cooperation Council (GCC) states and from its foreign creditors. In 1986 annual oil revenues were estimated at US$5 to US$8 billion, whereas the war cost between US$600 million and US$1 billion per month. Military and financial experts estimated that by the end of 1987, Iraq had exhausted its US$35 billion reserves, and had incurred an additional US$40 to US$85 billion debt.

Most of the money (US$30 to US$60 billion) came from GCC members, particularly Saudi Arabia and Kuwait, which, some experts believed, may not demand repayment. The Baathist regime adopted a strategy of "guns and butter," trying to absorb the economic shock of the war without imposing undue hardships on the population. Through a subsidy program, the government continued to provide ample food and basic necessities to the population. The policy succeeded, but it also mortgaged the state's future. In early 1988, as the war dragged on and as military expenditures rose, it was difficult to ascertain whether this strategy could be sustained.