Contributing to the Reform of the Iraqi Federal Budget Law
Introduction and Context
Iraq Federal Budget:
The General Federal Budget in Iraq, also known as the National Budget, is a combination of both operations and maintenance (O&M) expenses and capital investment project funding.
The O&M budget is the largest category of the General Federal Budget. It is the largest because it covers all the expenses necessary to run the operations of the federal government.
In 2006, the General Federal Budget Law transferred reconstruction funds to the province to implement projects to meet public service needs that are simple in design and which should be implemented within one year. Each annual General Federal Budget Law has since upheld the same authorization for provincial reconstruction funding. This is called the Regional Development Budget (RDB).
Constitutional and legal context:
Article 112 of the Iraqi constitution identifies the shared responsibilities between federal, regional, and provincial authorities. Shared responsibilities include the distribution of State revenues in a fair manner, proportionate to the population in each part of the country.
The Financial Management Law and Public Debt Law of 2004 established a comprehensive framework for the conduct of fiscal and budgetary policy in line with international best practices. It crafted a structured process for the formulation of the federal budget and reporting requirements aimed at increasing the accountability and transparency of the budgeting process.
Provincial Government Structure and Power over Budget:
A province, also commonly known as a governorate, is an administrative unit, with three levels:
a) Provincial – Governorate;
b) Districts - Qada’a; and c) Sub-districts - Nahiya
The law establishes legislative councils corresponding to each of those three administrative units.
The Provincial Council (PC) prepares the provincial operational budget, approves the draft general budget plan, and capital investment project list referred to it by the Governor. Both the District and Sub-district councils are responsible for preparing and approving the district and sub-district draft operational budget and investment project listings before sending to the Governor. Also, they are also responsible for presenting scientific studies and research for development of the districts.
The Investment Budget funding is confined to the Central Government ministry capital investment projects. It does not include the funding for provincial investment projects in RDP. Some Central Government ministries extend out to all the provinces. In such cases, funding for projects is allocated by the provincial offices of each ministry.
The RDP is the only economic variant that is reflected in the governorate-level spending in spite of the fact that much of this spending will depend on implementation capacity in the governorates, which is often substandard. Annual allocations for the RDP are based on population and prioritized according to public service needs. These allocations are independent of the Central Government ministerial allocations to the provinces. Being independent does not imply that the projects of provincial Central Government ministries and RDP should not be coordinated. In fact, it is imperative that the RDP managers and the Central Government ministerial managers exchange information regarding their investment project plans.
Provincial Development Strategy - Both the provincial investment project listings and the provincial Central Government ministerial project listings are required to reflect the Provincial Development Strategy (PDS) for the province. The PDS is a bottom-up planning process that represents the input of needs from the perspective of citizens’ groups, traditional tribal leaders, religious leaders, business owners and professionals, members of district and provincial councils, governors, and provincial Central Government ministry personnel. The PDS is updated annually to reflect the changing needs of the public and is a major component of the Investment Budget with regard to the ARDP funds.
Provincial Development Plans - The Provincial Development Plan (PDP) is a list of projects developed from the PDS covering a rolling five-year planning period. Each year following the review of the PDS, the PDP listing is modified. The Proposed Project Listings (PPL) that is compiled during the provincial budget formulation period is developed from the PDS and PDP.
Nineveh province is the province where most minority communities are located within its districts and sub-districts. The majority of the population of Nineveh districts and sub-districts are Christians, Eyzidis, and Shabak, in addition to the Arab, Kurds, and Turkmen.
Between 2006 and 2009, RDB was divided as 80% according to percentage of population, with 13% for public benefit projects and 7% for projects in most deprived areas. The final project list used is set to be developed after series of conferences and meetings with all administrative levels.
On March 28, 2010, Nineveh’s newly elected provincial council passed a decision to divide the regional development budget with 60% going for public benefit projects and projects of recurrent natures as planned by the provincial government and the remaining 40% distributed according to population as planned by the districts and sub-districts' councils.
With the support and sponsorship of US Institute of Peace, AIM started a series of activities to reform the Federal Budget Law.
On January 15, 2012 a joined meeting for the Parliamentary Minority Caucus (PMC) and the Alliance of Iraqi Minorities (AIM) was held at Nobel hotel in Erbil.
Mr. Louis Markos, a Christian member of the AIM and chair of committee on investment and reconstruction at Hamadanyia District Council, together with Mr. Sulaiman Hassan, Eyzidi, chair of Alqoush sub-district council in Ninevah, presented to eight members of the PMC their report on the distribution of the regional development budget within Ninevah province. They presented the impact of the financial policy of the provincial council on accumulation of debts over the budget and consequently affecting the performance of the districts' and sub-districts' councils and their plans due to reduction in allocations for services to various districts and sub-districts within the province where minorities represent the majority of its population.
Discussions led members of the PMC to believe that the policy adopted by the provincial council was discriminatory against minority communities especially that most of the public benefits projects are implemented within Mosul, the center city.
Attendees identified two issues that need immediate attention:
First: Mechanisms for distributing the development budget within the province and ensuring its legitimacy.
Second: The legal loopholes that provide legal personality to the province and not to the districts and sub-districts. In other words, eliminating the right of districts and sub-districts to have direct control over their budget or even have a bank account.
As an outcome to this activity, Members of the minority caucus held a series of discussions with leaders of political blocs, the Standing Committee on Finance at COR, the Minister of Planning and Construction, and officials from the Ministry of Finance. The outcome of this fruitful lobbying effort includes Article 2- First-d-3 in 2012 Budget Law which reads:
"Allocations under (Construction and Development of regions and governorates including Kurdistan region) shall be distributed to districts and sub-districts according to the percentage of population after excluding costs of strategic projects that benefit more than one district or sub-district provided that their costs do not exceed 20% of budget allocated to the governorate".
The above-mentioned article was meant to provide a legal protection that ensures equality among all Iraqis by obligating all provincial councils to distribute 80% of Construction and Development Budget according to percentage of population. However, Nineveh provincial government did not fully commit to it.
Since the budget law is an annual law, the problem arose again when the province started its plans for 2013 fiscal year. In July 2012, AIM members learned that Nineveh Planning Department had to cut 39.5% to cover obligated allocations for strategic projects (known as Public Benefit Projects), allocated 12% for new strategic projects and only 48.4% of FY13 RDB allocation is left to be distributed according to percentage of population which would be translated into services provided to citizens of Nineveh.
This was discussed in a workshop held in August 25, 2012 in Erbil where officials from Sinjar, Hamdanyia and Telkaif Districts as well as Birtilla, Karamles, Bashiqa, and Al Shamal Sub-districts brought together with officials from Nineveh Government and Provincial Council.
Attendees agreed on the following recommendations:
-The Annual Federal Budget Law must include an Article that obligates provincial councils to allocate only 20% of RDB to strategic projects. The goal is to restrict assumptions of obligations resulting in debts for a decrease in the per capita share of the money allocated for services.
-To transfer the Investment Budget funding confined to the Central Government ministry capital investment projects to the provinces. The goal is to ensure the implementation of these projects in the province in cooperation between the Provincial Government and the provincial offices of each ministry. This will ensure that allocations would not be relocated to other provinces during the fiscal year due to delay in implementation or any other reason.
The AIM conveyed these recommendations to minority representatives in the Council of Representatives in a meeting held on November 4, 2012 and agreed on delegating MP Khalis Eisho to convey these recommendations to the Standing Committee on Finance at the Council of Representatives.
For the second year, AIM in cooperation with members of the parliamentary Minority Caucus succeeded in including a text in the budget law that regulates the distribution of the Regional Development portion of the budget as 20% for strategic projects and 80% for services to be distributed based on percentage of population. The figure illustrates that the impact of AIM efforts is an increase in allocations to services by more than 20%.
Moreover and as part of enhancing decentralization, Article 13-First-1 of FY13 Budget Law authorized the Federal Ministers to designate the implementation of strategic projects of less than 10 Billion Iraqi Dinars planned for a specific province to the provincial government and to reallocate its funds to that province. Article 13-First-2 authorized the Minister of Education to designate the task of construction of schools to the provinces on basis of its population.