Summary

• Good budgeting that promotes democratic governance and effective administration requires a transparent and inclusive process that is responsive and accountable to elected public officials. In this sense, Iraq is no different from any other state.
• Under Saddam Hussein, Iraq’s budget remained a state secret, and the government divided budget formulation responsibilities between its Ministry of Finance and Ministry of Planning. The U.S.-led coalition that invaded Iraq discovered a budgetary process that reflected Ottoman, British, and Baathist origins.
• Coalition officials worked successfully with Iraqis to pay civil servants and pensioners in the months following the invasion and later drafted Iraq’s 2003 and 2004 budgets. Criticized as rudimentary and incomplete, these were the first publicly accessible budgets available since the 1990 Gulf War.
• The coalition’s most important, lasting contribution came in the form of Coalition Provisional Authority (CPA) Order 95, which outlined a new budgetary process. The order called for parliamentary approval of the budget and enhanced the powers of the Finance Ministry, returning it to the coordinating role it had played during the British Mandate; set a timetable for formulating and approving the budget; promoted budgetary transparency; and initiated a rudimentary system of fiscal federalism.
• In 2007, the seventeenth of eighteen U.S. benchmarks that evaluated Iraqi progress called for the Iraqis to boost their budget allocations and spending of investment funds.
• To promote Iraqi budgeting, the coalition initiated various capacity-building programs that proved to be of mixed success. The seventeenth benchmark’s focus on Iraqi investment spending became the metric for evaluating many of these programs.
• Iraqis took ownership of the CPA budgeting process and have used it to formulate their budgets since 2005.
• Iraqi budgeting suffers from delays in budget formulation and approval, deficiencies in transparency and accountability, effective budget execution, and endemic corruption.

About the Report

This report, sponsored by the Center for Conflict Management at the U.S. Institute of Peace (USIP), examines coalition efforts to strengthen the Iraqi government, provide essential services and infrastructure, and counter the insurgency by building Iraq’s budgetary system. The budgetary process provides Iraq with a significant source of political and institutional stability in the midst of ongoing political tension and violence. These recommendations are consistent with USIP’s findings that effective systems of public finance contribute significantly to the success of postconflict stabilization efforts.

About the Author

James D. Savage is a political science professor at the University of Virginia and an expert in government budget policies and budget theory. He was a 2011–12 Jennings Randolph Fellow. Savage is best known for three books on American and comparative budgeting and fiscal policy: Balanced Budgets and American Politics, Funding Science in America, and Making the EMU.