	Background

Iraq possesses the third largest oil reserve in the world, estimated at a total  of 115 billion barrels. As of June 2008, Iraq’s crude oil export  averaged 2.01 million barrels per day (mbpd), according to Iraqi oil export  receipt data (see fig. 2). Iraq’s Revenues from 2005 through 2007

From 2005 through 2007, the Iraqi government generated an estimated $96  billion in cumulative revenues. Iraq’s Estimated Revenues for 2008

For 2008, we estimate that Iraq could generate between $73.5 billion to  $86.2 billion in total revenues. As a result, we project that Iraq could generate between $66.5  billion and $79.2 billion in oil revenues in 2008, more than twice the  average annual amount Iraq generated from 2005 through 2007. For the last  6 months of 2008, we varied the volume exported from 1.89 to 2.01 mbpd  and price received from $96.88 to $125.29 per barrel. Government of Iraq’s 2005 through 2007 Expenditures

From 2005 through 2007, the Iraqi government spent an estimated $67  billion on a variety of operating and investment activities, as reported by  the Ministry of Finance. Investment expenses include capital goods  and capital projects such as structures, machinery, and vehicles. The Iraqi government spent about $947 million, or 1 percent of its total  expenditures for the maintenance of Iraqi- and U.S.-funded investments. These expenses include maintenance of roads, bridges, vehicles, buildings,  water and electricity installations, and weapons. For example, in 2007, the  Iraqi government spent 80 percent of its $28.9 billion operating budget and  28 percent of its $12.2 billion investment budget. Estimated Government of Iraq’s Expenditures for 2008

In 2008, we estimate that the Iraqi government could spend between $35.3  billion and $35.9 billion of its $49.9 billion 2008 budget. Iraq’s Financial Deposits through 2007 and Budget Surplus

As of December 31, 2007, the Iraqi government had financial deposits of  $29.4 billion held in the Development Fund for Iraq (DFI) at the New York  Federal Reserve Bank, central government deposits at the Central Bank of  Iraq (CBI), and central government deposits in Iraq’s commercial banks,  which includes state-owned banks such as Rafidain and Rasheed (see  table 3). If approved and then spent, the proposed budget  supplemental would reduce the projected surplus. United States Funding on Stabilization and Reconstruction Activities in Iraq and Iraqi Funding for Similar Activities

Since fiscal year 2003, Congress has appropriated about $48 billion to U.S.  agencies to finance stabilization and reconstruction efforts in Iraq,  including developing Iraq’s security forces, enhancing Iraq’s capacity to  govern, and rebuilding Iraq’s oil, electricity, and water sectors, among  others. Allocations in the security sector account for $22.5 billion of the U.S.  amount. Factors Affecting Iraq’s Efforts to Accelerate Spending

U.S. government, coalition, and international agencies have identified a  number of factors affecting the Iraqi government’s ability to spend more of  its revenues on capital investments intended to rebuild its infrastructure. These factors include Iraq’s shortage of trained staff, weak procurement  and budgeting systems, and violence and sectarian strife. As  we have previously reported, the United States has funded efforts since  2005 to build the capacity of key civilian ministries and security ministries  to improve the Iraqi government’s ability to effectively execute its budget  for capital projects. Treasury agreed with  the findings of this report. Treasury noted that Iraq has  adequate funds to make and maintain capital investments that deliver  services and create conditions that foster economic growth. Appendix I: Scope and Methodology

In this report, we discuss (1) Iraq’s estimated revenues from 2005 through  2008, (2) Iraq’s estimated expenditures from 2005 through 2008, (3) Iraq’s  financial deposits through 2007 and budget surpluses, (4) U.S. cumulative  expenditures on stabilization and reconstruction activities in Iraq since  2003, and (5) factors affecting Iraq’s efforts to accelerate spending. To complete this work, we analyzed relevant data, reviewed U.S. agency  and International Monetary Fund (IMF) documents, and interviewed  officials from the Departments of State, Defense, and the Treasury;  Department of Energy’s Energy Information Administration (EIA); and the  IMF. Crude oil  export revenues are based on export oil receipts data from the Central  Bank of Iraq (CBI) provided by the Department of the Treasury.
Why GAO Did This Study

Iraq has an estimated 115 billion barrels of crude oil reserves, the third largest in the world. Oil export revenues are critical to Iraq's reconstruction, accounting for over 90 percent of the Iraqi government's revenues. In June 2008, GAO reported low 2007 spending rates by the Iraqi government for some critical sectors in the face of declining U.S. investments in these sectors. This report examines (1) Iraq's estimated revenues from 2005 through 2008, (2) Iraq's estimated expenditures from 2005 through 2008, (3) Iraq's financial deposits through 2007 and budget surpluses, (4) U.S. cumulative expenditures on stabilization and reconstruction activities in Iraq since 2003, and (5) factors affecting Iraq's efforts to accelerate spending. GAO analyzed relevant data and reviewed documents, including Central Bank of Iraq oil receipts data, International Monetary Fund's (IMF) reports, translated copies of Iraqi budget and expenditures, and U.S. agency funding data and reports. GAO also interviewed officials from the Departments of Defense (DOD), Energy, State, Treasury, and the IMF. This report contains no recommendations. Treasury agreed with the report's findings and stated that Iraq has adequate funds to make and maintain capital investments that deliver services and foster economic growth. State provided technical comments. DOD had no comments.

What GAO Found

From 2005 through 2007, the Iraqi government generated an estimated $96 billion in cumulative revenues, of which crude oil export sales accounted for about $90.2 billion, or 94 percent. For 2008, GAO estimates that Iraq could generate between $73.5 billion and $86.2 billion in total revenues, with oil exports accounting for between $66.5 billion to $79.2 billion. Projected 2008 oil revenues could be more than twice the average annual amount Iraq generated from 2005 through 2007. These projections are based on actual sales through June 2008 and projections for July to December that assume an average export price from $96.88 to $125.29 per barrel and oil export volumes of 1.89 to 2.01 million barrels per day. From 2005 through 2007, the Iraqi government spent an estimated $67 billion on operating and investment activities. Ninety percent was spent on operating expenses, such as salaries and goods and services, and the remaining 10 percent on investments, such as structures and vehicles. The Iraqi government spent only 1 percent of total expenditures to maintain Iraq- and U.S.-funded investments such as buildings, water and electricity installations, and weapons. While total expenditures grew from 2005 through 2007, Iraq was unable to spend all its budgeted funds. In 2007, Iraq spent 80 percent of its $29 billion operating budget and 28 percent of its $12 billion investment budget. For 2008, GAO estimates that Iraq could spend between $35.3 billion and $35.9 billion of its $49.9 billion budget. As of December 31, 2007, the Iraqi government had accumulated financial deposits of $29.4 billion, held in the Development Fund for Iraq and central government deposits at the Central Bank of Iraq and Iraq's commercial banks. This balance is the result, in part, of an estimated cumulative budget surplus of about $29 billion from 2005 to 2007. For 2008, GAO estimates a budget surplus of between $38.2 billion to $50.3 billion. If spent, a proposed Iraqi budget supplemental of $22 billion could reduce this projected surplus. Since fiscal year 2003, the United States appropriated about $48 billion for stabilization and reconstruction efforts in Iraq; it had obligated about $42 billion of that amount as of June 2008. U.S. agencies spent about $23.2 billion on the critical security, oil, electricity, and water sectors. From 2005 through April 2008, Iraq spent about $3.9 billion on these sectors. U.S. government, coalition, and international officials have identified a number of factors that have affected the Iraqi government's ability to spend more of its revenues on capital investments. These factors included the shortage of trained staff; weak procurement and budgeting systems; and violence and sectarian strife. The United States has funded activities to help build the capacity of key civilian and security ministries to improve Iraq's ability to execute its capital project budget.