IQ Oct17 PFMPR Public With PEFA Check

IRAQ
Public Expenditure
and Financial
Accountability (PEFA)
Performance Assessment
Report, 2016 Framework
FINAL REPORT: OCTOBER 2017
1
Contents
ACRONYMS AND ABBREVIATIONS ............................................................................. III

EXECUTIVE SUMMARY ...............................................................................................V
1 INTRODUCTION ................................................................................................... 1
1.1 RATIONALE AND PURPOSE ............................................................................................ 1
1.2 ASSESSMENT MANAGEMENT AND QUALITY ASSURANCE..................................................... 1
1.3 ASSESSMENT METHODOLOGY....................................................................................... 2
2 COUNTRY BACKGROUND INFORMATION .............................................................. 4
2.1 COUNTRY ECONOMIC SITUATION .................................................................................. 4
2.2 FISCAL AND BUDGETARY TRENDS .................................................................................. 5
2.3 LEGAL AND REGULATORY ARRANGEMENTS FOR PFM ...................................................... 7
2.4 INSTITUTIONAL ARRANGEMENTS FOR PFM .................................................................... 9
2.5 OTHER IMPORTANT FEATURES OF PFM AND ITS OPERATING ENVIRONMENT ..................... 10
3 ASSESSMENT OF PFM PERFORMANCE ................................................................ 11
PILLAR I. BUDGET RELIABILITY .............................................................................................. 11
PILLAR II. TRANSPARENCY OF PUBLIC FINANCES ...................................................................... 16
PILLAR III. MANAGEMENT OF ASSETS AND LIABILITIES ............................................................. 26
PILLAR V. PREDICTABILITY AND CONTROL IN BUDGET EXECUTION .............................................. 46
PILLAR VI. ACCOUNTING AND REPORTING ............................................................................. 65
PILLAR VII. EXTERNAL SCRUTINY AND AUDIT .......................................................................... 72
4 CONCLUSIONS OF THE ANALYSIS OF PFM SYSTEMS............................................. 80
4.1 INTEGRATED ASSESSMENT OF PFM PERFORMANCE ....................................................... 80
4.2 EFFECTIVENESS OF THE INTERNAL CONTROL FRAMEWORK.............................................. 83
4.3 PFM STRENGTHS AND WEAKNESSES .......................................................................... 85
4.4 PERFORMANCE CHANGES SINCE A PREVIOUS ASSESSMENT .............................................. 87
5 GOVERNMENT REFORM PROCESS ...................................................................... 91
5.1 APPROACH TO PFM REFORMS ................................................................................... 91
5.2 RECENT AND ON-GOING REFORM ACTIONS ................................................................. 91
5.3 INSTITUTIONAL CONSIDERATIONS ............................................................................... 93
6 ANNEXES ........................................................................................................... 94
ANNEX 1: PERFORMANCE INDICATOR SUMMARY ..................................................... 95
ANNEX 2. SUMMARY OF OBSERVATIONS ON THE INTERNAL CONTROL FRAMEWORK
............................................................................................................................. 112
ANNEX 3: SOURCES OF INFORMATION ................................................................... 114
3A: LIST OF STAKEHOLDERS INTERVIEWED.............................................................. 115
3B: LIST OF DOCUMENTS CONSULTED .................................................................... 117
3C: DATA USED FOR SCORING PI-1 & PI-2 & PI-3 ..................................................... 118
i
Iraq
Public Expenditure and Financial Accountability (PEFA)
Performance Assessment Report, 2016 Framework

Final Report: October 2017
The quality assurance process followed in the production of this

report satisfies all the requirements of the PEFA Secretariat and
hence receives the ‘PEFA CHECK’.
PEFA Secretariat
November 1, 2017
ii
Acronyms and Abbreviations
AG Accountant General
AFS Annual Financial Statements
AGA Autonomous Government Agency
BCC Budget Call Circular
BER Budget Execution Report
BFP Budget Framework Paper
CBI Central Bank of Iraqi
CFS Consolidated Financial Statements
CG Central Government
COFOG Classification of the Functions of Government
CoR Council of Representatives
CoI Committee of Integrity
DBS Direct Budget Support
DG Director-General
DoGGC Department of General Governmental Contracts
DMFAS Debt Management and Financial Analysis System
DMS Development Management System
DPL Development Policy Loan
DPF Development Policy Fund
DSA Debt Sustainability Analysis
EITI Extractive Industries Transparency Initiative
EU European Union
FBSA Federal Board of Supreme Audit
FBS Federal Budget Strategy
FML Financial Management Law
FY Fiscal Year
GBE Government Business Enterprise
GCC General Commission of Customs
GCT General Commission of Taxes
GDP Gross Domestic Product
GFS Government Finance Statistics
GFSM Government Financial Statistics Manual
GoI Government of Iraq
HR Human Resources
IDMIS Iraq Development Management System
IFMIS Integrated Financial Management Information Systems
IG Inspector-general
IGF Inspector-general Fraud
IMF International Monetary Fund
IPSAS International Public Sector Accounting Standards
JICA Japan International Cooperation Agency
KPI Key Performance Indicator
KRG Kurdistan Regional Government
MDAs Ministries, Departments, Agencies
M&E Monitoring and Evaluation
MoF Ministry of Finance
MTEF Medium Term Expenditure Framework
N/A Not applicable
NGO Non-Government Organization
ODA Official Development Assistance
METAC IMF Middle East Regional Technical Assistance Centre
MTF Medium-Term Framework
NCA Netherlands Court of Audit
NDP National Development Plan
PAYE Pay as you earn
PDD Public Debt Department
PE Public Enterprise
iii
PEFA Public Expenditure and Financial Accountability
PETS Public Expenditure Tracking Survey
PIM Public Investment Management
PMAC Prime Minister’s Advisory Commission
PPP Public Private Partnership
ROSC Report on the Observance of Standards and Codes
SOEs State-Owned Enterprise
SAI Supreme Audit Institution
SBD Standard Bidding Documents
SFU Scrutiny and Follow up Unit (of FBSA)
STA Single Treasury Account
TA Technical Assistance
TIN Taxpayer Identity Number
UNDP United Nations Development Program
USD United States Dollars
VFM Value for money
WB World Bank
Fiscal year: 1 January

Currency: 1,247.6 Iraqi dinars (IQD) = USD 1, on 1 August 2016
iv
Executive Summary
This repeat assessment of Public Financial Management (PFM) in Iraq is based on the
PFM Performance Measurement Framework (PMF) developed by the Public Expenditure
and Financial Accountability (PEFA) partners as a tool to provide reliable information on
the performance of PFM systems, processes, and institutions over time. The report does
not assess government policies or capacity.
The assessment was conducted by World Bank staff, in consultation with Government of
Iraq staff. Funding was provided by the United Kingdom Department for International
Development in the context of the Iraq Public Financial Management, Transparency, and
Regulatory Reform Technical Assistance Program.
Purpose and management of the assessment
The overall objective of this PEFA assessment is to prepare a comprehensive “PFM

Performance Report” according to the upgraded PEFA Performance Measurement
Framework Methodology of 2016. This aims to provide an analysis of the overall
performance of the PFM systems of the Government of Iraq (GoI), examine progress since
the previous assessment in 2008 (where possible, as several of the indicators have
changed), and provide a baseline against which future progress can be measured.
Assessment coverage and timing
This assessment covered the Government of Iraq, and the fieldwork took place in
July/August 2016 followed by a PEFA results validation mission in November 2016. Most
of the indicators were assessed using data from 2015 and the two previous completed FYs.
Impact of PFM Systems on the three main budgetary outcomes
Aggregate fiscal discipline

As might be expected in the very difficult circumstances in which the country finds itself,
fiscal discipline is not good, and most elements in the overall PFM system that contribute
to achieving this objective are not functioning well. In addition, a lack of consensus in
parliament meant that the budget proposed by the Executive was not approved for the
FY2014, while in the last completed year (2015) there was significant under-spending,
particularly on investments (only 33%) while the execution rate for recurrent expenditure
was 70% – both are the result of low cash inflows from tax and non-tax revenues. More
than 90% of revenue is generated via petroleum products, raised from a very small number
of tax payers or via royalties paid into the National Oil Marketing Company (SOMO), and
hence the recent volatility of world oil markets has caused huge disruptions to GoI spending
plans, and very significant adjustments have had to be made. This can be seen in the
variances in income against the original budget (PI-3) and also in expenditure (PI-2), which
is further distorted by payment arrears, although the stock of these is declining (PI-22).
In addition, several risks to attaining fiscal discipline are apparent, such as unreported
operations (PI-6) and a lack of monitoring fiscal risks from other Public Sector entities
including contingent liabilities and ‘Public Private Partnerships’ (PI-10). However, the
recording of government debt and the inclusion of donor funded project bank accounts into
v
the consolidation of government cash/bank balances is sound (PI-13); and multi-year focus
is incorporated in fiscal planning (PI-16.3 and 14).
Overall, the various elements of the system concerned with budget execution – including
internal controls – are no more than ‘functional’ and are unable to ensure that aggregate
fiscal discipline is effectively attained and sustained.
Strategic allocation of resources

The indicators concerned with ‘policy-based fiscal strategy and budgeting’, (PIs 14 to 18)
show a mixed picture. There are processes in place that intend to allocate budgetary
resources in accordance with GoI’s declared strategic objectives, in particular, the medium-
term focus on expenditure budgeting and the preparation process (PIs 16 and 17).
Most of the other indicators that contribute to the strategic allocation of resources function
well at a basic level, notably the budget documentation and its classification in accordance
with international norms (PIs 5 and 4 respectively). However, and as mentioned above, the
indicators related to revenue collection (PIs 19 and 20) are concentrated on a very small
number of tax payers (or on royalties paid into the SOMO) and the volatility of world oil
markets has caused huge disruptions to the planning of services, and required very
significant short-term adjustments to be made.
There are two completely new indicators relevant to this budgetary outcome, the first of
which ‘Public Investment Management’ (PI-11) was not rated in the context of the fiscal
crisis facing GoI – which has meant that the very scarce resources available for investment
are allocated to meet ongoing emergency needs rather than well-thought through plans.
The second innovation relates to the manner in which a government manages its assets,
and with the exception of financial assets, the practice in GoI reflects “generally accepted
good practice”, with ‘B’ ratings for two of the three dimensions (PI-12).
Efficient use of resources for service delivery

Financial management is not an end but rather a tool to assist a government to deliver
services to its citizens, and of course, services cannot be delivered in the absence of funds.
In this respect, GoI’s PFM system works reasonably well. This can be seen in the good
ratings for the processes that plan services (PIs 16 and 17 mentioned above), as well as
for the revenue indicator (PI-20 – despite the negative consequence of the fall in world oil
prices), and the fact that despite the very difficult circumstances, there is a reasonable
degree of predictability in the availability of funds that support expenditure during the year
(PI-21, ‘C+’).
However, although these indicators might suggest a satisfactory level of performance, the
rating for PI-8, ‘performance information’ – which can help demonstrate the effectiveness
of services delivered – (rated ‘D’) is disappointing, and it is also a matter of concern that
the mechanisms in place to reduce possible leakages in the system, such as internal
controls, controls over payroll and basic accounting controls (PIs 25, 23 and 27
respectively) are weak, and are only partly compensated by measures in place regarding
procurement (PI-24), and the fact that the Internal Audit function (PI-26) is still developing.
Lastly, it must be noted that the oversight arrangements (addressed in PIs 30-31) are less
than effective. While the FBSA is independent and has an extensive mandate that includes
using international audit standards, the deteriorating political and security conditions has
meant that audit have not been completed for all audited bodies, and backlogs are evident.
Moreover, the Council of Representatives was unable to scrutinize audited financial reports
as they had not been submitted on time, and while there are powers to hold hearings, none
have taken place recently.
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In summary, most aspects of the PFM system are functioning at a barely satisfactory level
– one that will make it difficult for GoI to attain its fiscal and budgetary objectives: there are
many areas where significant improvements will be required in the years ahead.
Performance changes since last assessment
This is the first assessment of GoI using the upgraded Framework: an earlier assessment
took place in 2008. The guidance issued by the PEFA Secretariat (October 2016) states
that only 14 dimensions are directly comparable with the 2011 version: however, one of
these is PI-2 (iii) which was part of one of the three indicators amended in 2011, i.e. after
the previous assessment in Iraq.
The table below shows changes in the ratings for directly comparable dimensions using
the numbers in this report, against the previous PI and dimension reference. Section 4.4
below provides details of these as well as the ‘non-comparable’ ratings.
Table 0.1: Changes in the ratings for directly comparable dimensions since 2008
No. Indicator Score Score ‘Old’ Performance
2016 2008 # change
PI-4 Budget classification
4.1 Budget classification C C PI-5 (i) No change.
PI-13 Debt management
13.1 Recording and reporting of debt C C PI-17(i) No change.
and guarantees
PI-17 Budget preparation process
17.1 Budget calendar B B PI-11 (i) No change.
17.2 Guidance on budget preparation A D PI-11 (ii) Improvement: BCC is
comprehensive, clear, &
timely, issued in late
Jan/early Feb and is
firm basis for
preparation of
estimates.
PI-18 Legislative scrutiny budgets
18.1 Scope of budget scrutiny B C PI-27 (i) Improvement: the
review is more
comprehensive than
previously.
18.4 Rules for budget adjustment by C D PI-27 (iv) No real change –
the executive previous rating was
considered harsh.
PI-21 Predictability of in-year
resource allocation
21.1 Consolidation of cash balances C C PI-17 (ii) No change.
21.2 Cash forecasting and C C PI-16 (i) No change.
monitoring
21.3 Information on commitment A C PI-16 (ii) Improvement:
ceilings worsening situation
necessitated closer
monitoring.
21.4 Significance of in-year budget C C PI-16 (iii) No change.
adjustments
PI-23 Payroll controls
23.3 Internal control of payroll D D PI-18 (iii) No change.
23.4 Payroll audit C C PI-18 (iv) No change.
PI-25 Internal controls on
nonsalary expenditure
25.2 Effectiveness of expenditure D D PI-20 (i) No change.
commitment controls
vii
Overview of on-going and planned PFM reforms and main weaknesses
identified
The main challenge for Iraq is the incremental and long-term rebuilding of state institutions
that were systematically weakened over the last 30 years. Despite the complex political
situation, the authorities are committed to implementing the Government Strategic Plan
“2014–2018”. The first strategic priority of the plan is to reach security and stability by
liberating cities and Governorates controlled by terrorist groups and restoring the rule of
law. The second priority is to deliver public services and upgrade standards of living. This
includes delivering electricity services; improving water, health, and education sector
performance; and reforming the social protection system.
The Government has already identified the main challenges regarding the preparation,
implementation, and monitoring of the budget. Although it has made some progress in
enhancing the PFM system, the inherited financial and development risks remain high.
Therefore, it is important to accelerate the process of modernization over the medium term.
The current fiscal crisis in Iraq also exerts pressure to move ahead with PFM reform to help
strengthen fiscal sustainability. In the immediate term, the Government is seeking external
financing to close the financing gap and has committed to a number of structural reforms
to address inefficiencies and adjust the budget to a situation of lower oil revenues. The
government PFM program is designed to meet the needs of these objectives within the
following basic elements of the country’s fiscal policy: i) Reducing the Deficit, ii) Focusing
on Investment Expenditures, iii) Adopting the principle of fiscal decentralization.
Although it will be a challenge to ensure that the urgent security and fiscal stresses will not
divert the Government from engaging in the necessary reforms toward better-governed
institutions and better services, the Government recognizes the long-term vital importance
of institution rebuilding. Accordingly, the government has been reaching out to experts and
international organizations on the following PFM reform areas:
• New Budget Law: In consultation with the IMF and the World Bank, a new general
financial management law has been drafted and waiting for the Parliament’s
endorsement. The law provides the foundation for sound financial management,
including but not limited to more transparency in the use of public funds, fiscal
discipline, and better quality of spending and the authorities’ control over budget
execution.
• Integrated Financial Management Information System (IFMIS): The IFMIS design

and implementation is the backbone of the new PFM System Modernization Project
supported by the World Bank. The continuation of PFM reform in Iraq can no longer be
envisaged without an IFMIS in place to automate core budget execution functions
(management of appropriations, commitments, payments, receipts, cash
management, accounting, and fiscal reporting). This will introduce the IFMIS through
a comprehensive turnkey procurement which includes all necessary IFMIS-related
work, including the planning, designing, configuring, testing, commissioning, training,
and implementing the IT solution and all related services and goods in the MoF, MoP,
two line ministries, and two governorates (Baghdad and Babil).
• Public Investment Management (PIM): A comprehensive program of technical

assistance and related support was recently started to modernize and strengthen the
PIM system at the federal level, including through: (i) the carrying out of a capacity
needs assessment for MoP; (ii) PIM capacity building for MoP staff and relevant
government stakeholders; (iii) updating and improving project appraisal methodologies
viii
and guidelines, including instructions, guidelines and templates; (iv) development of a
framework for ex-post project evaluation; (v) supporting the establishment of a
specialized PIM unit within MoP; (vi) development of an integrated bank of investment
projects, to support investment planning and decision making, to track and monitor
investments, and to serve as an investment project registry; (vii) updating and
strengthening the Borrower’s legal and regulatory framework for PIM; and (viii)
developing an interface within the IFMIS.
• Decentralization: Iraq has achieved a significant level of political decentralization

comprised of a partial federal and partial unitary state. The 2005 Constitution provides
for a federal structure with respect to regional government(s) and a unitary structure
with respect to the governorates. The Second Amendment to the Law on Governorates
(Law 19, 2013) provides for the devolution of “sub-directorates, departments, tasks
and competencies of parts of eight federal ministries”.1 Devolution was supposed to
have been carried out over a two-year period, to be completed by August 2015. A
strong push by the Prime Minister throughout 2015 has moved devolution forward with
at least some of the affected Ministries and the Governorates now in agreement on
which functions will be devolved, and which functions will remain with the federal
ministries.
• Transparency, Accountability, and Regulatory Framework: Under the “Public

Financial Management, Transparency, and Regulatory Reform (funded by DFID,
implemented in FY2016), the MOF has been working with the World Bank on the
following PFM areas:
i. Ministry of Finance (MOF) on-line Information and Transparency: The MoF

is developing an “Open Budget Portal” to streamline publication of information
and data on public expenditure accounts in Iraq. The portal will explore
innovative ways to consolidate and improve public access to fiscal information
in Iraq, including using data visualization tools to transform fiscal data and
information into intuitive and user friendly formats.
ii. MOF Capacity Needs Assessment: The World Bank is supporting MOF in
objectively assessing its needs and how well it is operating in the realm of PFM,
through identifying strengths, weaknesses, gaps and the constraints it faces.
Once it has identified these challenges, the MoF will be in a position to develop
an appropriate strategy for developing its capacity: one that builds on its
strengths and addresses (or copes with) constraints that inhibit its effectiveness.
iii. Supporting the Federal Board of Supreme Audit (FBSA): this support
included a review of a sample of audit reports completed by the FBSA (covering
financial, compliance and performance audit) and recommendations for
improvement, as well as exposure to international good practice in audit report
preparation through targeted knowledge sharing activities with peer SAIs.
1 These include the Ministries of Housing and Reconstruction, Municipalities and Public Works,
Health, Education, Labour and Social Welfare, Sports and Youth, and Agriculture and Finance.
With respect to the Ministry of Finance, devolution has meant only the creation of Finance
Departments in the Governorates, and not a devolution of the Ministry of Finance authorities
ix
Table 0.2: Overall summary of PFM Performance Scores
Scoring Dimension Ratings Overall
PFM Performance Indicator (PI)
Method i. ii. iii. iv. Rating
Pillar I: Budget reliability
PI-1 Aggregate expenditure outturn M1 D D
PI-2 Expenditure composition outturn M1 D D A D+
PI-3 Revenue outturn M2 D C D+
Pillar II. Transparency of public finances
PI-4 Budget classification M1 C C
PI-5 Budget documentation M1 C C
PI-6 Central government operations outside fiscal M2 D* D* D D
reports
PI-7 Transfers to subnational governments M2 C B C+
PI-8 Performance information for service delivery M2 D D D C D
PI-9 Public access to key fiscal information M1 D D
Pillar III. Management of assets and liabilities
PI-10 Fiscal risk reporting M2 D D D D
PI-11 Public investment management (not used) M2 NU
PI-12 Public asset management M2 D B B C+
PI-13 Debt management M2 C C D D+
Pillar IV. Policy-based fiscal strategy and budgeting
PI-14 Macroeconomic and fiscal forecasting M2 B B D C+
PI-15 Fiscal Strategy M2 C C C C
PI-16 Medium-term perspective in expenditure M2 B B B C B
budgeting
PI-17 Budget preparation process M2 B A B B+
PI-18 Legislative scrutiny of budgets M1 B C C C C+
Pillar V. Predictability and control in budget execution
PI-19 Revenue administration M2 C D D D* D
PI-20 Accounting for revenues M1 B A C C+
PI-21 Predictability of in-year resource allocation M2 C C A C C+
PI-22 Expenditure arrears M1 D D D
PI-23 Payroll controls M1 D D* D C D+
PI-24 Procurement M2 C B C C C+
PI-25 Internal controls on nonsalary expenditure M2 C D D* D+
PI-26 Internal audit M1 B C B C C+
Pillar VI. Accounting and Reporting
PI-27 Financial data integrity M2 D D D D D
PI-28 In-year budget reports M1 C D C D+
PI-29 Annual financial reports M1 C D C D+
Pillar VII. External Scrutiny and Audit
PI-30 External audit M1 C D C B D+
PI-31 Legislative scrutiny of audit reports M2 NA NA NA NA NA
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1 Introduction
1.1 Rationale and purpose
The Public Expenditure and Financial Accountability (PEFA) program provides a

framework for assessing and reporting on the strengths and weaknesses of public financial
management (PFM) using quantitative indicators to measure performance. PEFA is a tool
that helps governments achieve sustainable improvements in PFM practices by providing
a means to measure and monitor performance against a set of indicators across the range
of important public financial management institutions, systems, and processes.
The purpose of this Report is to provide information to all stakeholders about the actual
performance of the public financial management system of GoI against a common and
standardized assessment framework, and thereby facilitate the identification of areas of
reform priorities. In addition, the PEFA report describes future reform priorities of the
Government. It also provides information that international development partners can take
into account in their future cooperation with and support for the PFM reform plans of GoI.
The overall objective of this PEFA assessment was to draft a comprehensive “PFM
Performance Report” prepared according to the PEFA Performance Measurement
Framework Methodology of 2016 to provide an analysis of the overall performance of the
PFM systems of the GoI and to provide a baseline against which future progress can be
measured.
More specifically, the results of this assignment will provide the GoI and its Development
Partners with:
a) An assessment of the quality of PFM in the GoI in 2016, based on the PEFA
methodology, including an assessment of the relative strengths and weaknesses of
the three main budgetary outcomes: Aggregate fiscal discipline, Strategic resource
allocation and Efficient service delivery;
b) A basis for further analysis and dialogue on PFM reforms and action plans.
Additionally, inform the monitoring and evaluation work of government, development
partners and other stakeholders.
1.2 Assessment management and quality assurance
Box 1-1 Assessment management and quality assurance arrangements
PEFA Assessment Management Organization, undertaken by World Bank

• Oversight: Renaud Seligman (Practice Manager at completion), Hisham Waly
(Practice Manager at concept), and Mr. Manuel Vargas, Lead Financial
Management Specialist, Task Team Leader of PFM, Transparency & Regulatory
Reform Technical Assistance Program (all WB).
• Assessment Task Team Leader: Jad Raji Mazahreh, Senior Financial
Management Specialist (WB).
• Assessment Team: Mr. Phil Sinnett, PFM/PEFA expert; Mr. Charles Hegbor,
PFM/PEFA expert; Ms. Rima Koteiche, Senior Financial Management Specialist;
Mr. Moad Al Rubaidi, Senior Financial Management Specialist; Ms. Mona El-
Chami, Senior Financial Management Specialist; Ms. Nazaneen Ali, Senior
Procurement Specialist; Mr. Emmanuel Cuvillier, Senior Public Sector Specialist,
Mr. Salam Almaroof, Public Sector Analyst.
1
Review of Concept Note and/or Terms of Reference
• Date of reviewed draft concept note and/or terms of reference: January 25, 2016
• Invited reviewers, each of whom provided comments: Mr. Eric Brintet (Lead
Financial Management Specialist, WB); Mr. Masakazu Someya and Ms. Yuko
Nobuhara from Japan International Cooperation Agency (JICA); and PEFA
Secretariat (Ms. Helena Ramos).
• Date(s) of final concept note and/or terms of reference: February 14, 2016.
Review of the Assessment Report

• Date(s) of reviewed draft report(s): On December 17, 2016, the draft section 3
“assessment of PFM performance” was shared with Iraqi counterparts for their
review and validation of results.
• The following reviewers were invited and each provided comments: Mr. Eric Brinet,
World Bank; Mr. Masakazu Someya, JICA; Mr. Guillaume Barraut, European
Union. In addition, the PEFA Secretariat provided comments on 24 May 2017.
1.3 Assessment Methodology
Coverage of the assessment

The 2016 PEFA methodology is set out in the Public Finance Management Performance
Measurement Framework (available at www.pefa.org). It is based on 31 Indicators covering
all aspects of a country’s PFM system. It should be emphasized that PEFA is based on
evidence about actual current public sector financial management practice, taking into
account statistical information about different aspects of revenue and expenditure over the
most recent 2-3 years. Each Indicator is scored on a scale from A to D. The bases for these
ratings are the minimum requirements set out in the methodology. Many indicators include
two or more dimensions, which are “added up” using PEFA-specific methods M1 or M2.
For method M1, the weakest link is decisive; the overall rating is based on the lowest score.
For M2, the average of the sub-ratings is used to arrive at the score for the overall indicator.
This PEFA assessment focuses primarily on the GoI’s PFM system as per GFS 2014. It
seeks to cover the entire PFM system of Budgetary Central Government, including cross-
cutting and overall issues, the revenue side, and the budget cycle from planning through
execution to control, reporting and audit.
When performance is assessed

In general, the 2016 PEFA assessment covers the period 2013 – 2015. The fieldwork for
the assessment took place in August 2016, and because the financial year begins on 1
January, most of the indicators were assessed using data from 2015 and the two previous
completed FYs. However, the critical period assessed for each indicator varies according
to the PEFA guidelines and is thus indicated case by case in the assessment report (see
chapter 3). The period of analysis can refer to the last three completed years (2013-2015),
last completed fiscal year (2015), and last approved budget (2017) or time of the
assessment November 2016.
Sources of information
The assessment is based on a review of various documents, listed in ANNEX 3B, and on
interviews with numerous government officials and other stakeholders, listed in ANNEX
3A.
Other methodological issues for the preparation of the report

The assessment process required the:
2
• review of legal and regulatory documentation, budget documentation and financial and
audit reports (see ANNEX 3B for documents consulted);
• assessment of PFM practice procedures and systems
• quantitative analysis of official financial and budgetary data; and,
• the application of professional judgment.
An important consideration in the assessment is an appreciation of the quality,

comprehensiveness and accuracy of data that is used to determine the budget credibility
indicators. The reliability of the PEFA indicators can only be as good as the accuracy of
the financial data upon which they were assessed.
A one-day capacity building workshop had been organized in August for officials prior to
the data collection phase: however, a combination of security concerns and unforeseen
holidays declared because of extreme heat meant that it was not possible to hold the
workshop.
3
2 Country background Information
2.1 Country economic situation
2.1.1 Country context
Iraq has the fifth-largest crude oil reserves in the world and is the second-largest crude oil
producer in the Organization of Petroleum Exporting Countries. However, the halving of
the oil price since 2014 has meant that current GoI revenues do not cover the public sector
payroll, transfers, and payments to oil companies, let alone the necessary investment and
reconstruction measures so desperately required following the prolonged period of war and
its aftermath.
The institutional infrastructure, political dynamics, security and the economy have all been
adversely impacted by conflict and isolation since the 1990’s. The outcome has been a
decline in various human development indicators including poverty, health standards, life
expectancy, and literacy for the population, estimated to be 37m in 2015, with a GDP per
capita of $15,186 (PPP).
In a worsening fiscal situation, GoI is running a cash-rationed budget with security spending
taking priority, although financing from the CBI has covered some of the gap for payments
to workers and contractors, critical services, and payments to oil companies. The
consequence of high conflict-related expenditure and weak oil revenues has seen the
budget deficit rise from an average of 5.6% of GDP in 2013 and 2014 to 12.3% and 8.2%
of GDP in 2015 and 2016, respectively. This resulted from the sharp reduction in oil prices
from an annual average of US$96.5 per barrel in 2014 to US$45.9 in 2015, then to US$35.5
in 2016. Oil revenues decreased by US$35 billion in 2015 (a 41 percent reduction).
Increased oil production and exports in 2016 have slightly increased oil revenue, despite
continued low oil prices. The limited financing available forced the government to make
some adjustments to contain the deficit in both 2015 and 2016. On the revenue side, these
focused on ensuring increased volumes of oil exports. On the expenditure side, the
government prioritized payments of wages, pensions, debt service and oil-related
investments and sharply under-executed non-oil capital investment.
2.1.2 Key aspects of the government's economic and fiscal reforms
In the Prime Minister’s acceptance speech to Parliament, the new government (in place
since September 2014), set out a reform plan to build a more transparent state that delivers
better services to the public. Despite the complex political situation, GoI is committed to
implementing their program for 2014-2018, which has six main areas of focus:
• Maintaining the security and stability of Iraq.

• Enhancing the level of social services and welfare.
• Increasing the productive capacity and competitiveness of public and private
enterprises.
• Increasing the production or oil and gas, and improving the country’s financial
stability.
• Reforming the civil service sector.
• Systematizing federal and local relations.
4
However, there has been a lack of clarity in the objectives of the budget process, resulting
in lengthy discussions in the Council of Representatives about the size and amounts of
allocations – rather than about objectives and programs – which meant that no budget was
approved in 2014. This caused delays in the implementation of activities and services.
Hence, the current fiscal pressures provide further impetus to implement PFM reforms. In
the immediate term, GoI is seeking a combination of external financing and reforms to close
its financing gap, with a program designed to focus on the key elements of its fiscal policy:
• Reducing the deficit: Building on the deficit containment efforts undertaken in 2015
and 2016, and the gradual increase in oil prices, the overall fiscal deficit has projected
to decrease to 1.7 percent of GDP in 2019.; MDA expenditure ceilings are also
established;
• Focusing on investment expenditures: the importance of focusing on investment
and motivating the private sector to help create jobs is recognized, and: current
expenditure is rationalized (e.g. by limiting hiring and requiring MDAs to transfer
‘excess’ employees);
• Adopting the principle of fiscal decentralization: redistributing powers from
centralized ministries to give governorates greater responsibility for implementing
investment projects. It also recommends enhancing the capacities of governorate
councils with respect to developing and implementing investment programs.
2.1.3 Key economic indicators
Table 2.1: Selected Economic and Financial Indicators, 2013–16
2013 2014 2015 2016

Real GDP Growth (percent) 7.6 0.1 2.9 10.2
Non-oil real GDP (percent) 12.4 -5.1 -13.9 -5.0
Fiscal balance (percent of GDP) -5.8 -5.4 -12.3 -8.2
Non-oil primary fiscal balance (% of non-oil GDP) -67.6 -58.5 -45.0 -43.1
Inflation (end of period, y-o-y) 3.1 1.6 2.3 2.0
Current account balance (percent of GDP) 1.1 2.7 -6.1 -6.8
Gross international reserves (billion US$) 77.8 66.7 53.7 43.0
Oil production (millions bpd) 3.0 3.1 3.7 4.5
Oil exports (millions bpd) 2.4 2.6 3.4 3.8
Source: Iraqi authorities; World Bank; and IMF staff estimates.
2.2 Fiscal and budgetary trends
2.2.1 Fiscal performance
Table 2.2: Aggregate Fiscal Data (IQD B)

FY 2013 FY 2014 FY 2015 FY 2016
Revenues and grants 115.4 104.4 63.5 66.0
Crude oil export revenues 104.1 97.1 57.2 57.6
Domestic revenues 9.7 5.9 5.8 8.0
Grants 0.1 0.0 0.0 0.0
Expenditures 131.2 118.8 89.3 82.8
Current expenditures 83.7 69.6 57.6 66.2
Salary 32.5 31.8 33.1 36.1
Pension 8.6 8.4 9.0 10.3
Goods and services 16.3 9.1 4.7 6.3
Transfers 20.0 14.7 9.5 11.2
Social safety net (including PDS) 7.6 7.6 4.5 6.3
Transfers to SOEs 1.9 1.5 2.4 2.2
Other transfers 10.5 5.6 2.6 2.7
Interest payments 1.0 0.7 1.3 2.3
5
War reparations 5.2 4.9 0.0 0.0
Contingency 0.0 0.0 0.0 0.0
Investment expenditures 47.6 49.2 31.6 16.6
Balance (including grants) -15.8 -14.4 -25.8 -16.7
Source: IMF November 2016
Table 2.3: Aggregate Data as % of GDP

FY 2013 FY 2014 FY 2015 FY 2016
Government revenue and grants 42.2 39.1 30.2 32.2
Government oil revenue 38.6 36.9 27.4 28.3
Government non-oil revenue 3.5 2.2 2.8 3.9
Grants 0.0 0.0 0.0 0.0
Expenditure, of which: 48.0 44.5 42.5 40.4
Current expenditure 30.6 26.1 27.4 32.3
Capital expenditure 17.4 18.4 15.1 8.1
Primary fiscal balance
Overall fiscal balance (including grants) -5.8 -5.4 -12.3 -8.2
Non-oil primary fiscal balance (% of non-oil GDP) -67.6 -58.6 -45.0 43.1
Memorandum items:
Tax revenue/non-oil GDP (in %) 2.0 1.8 1.0 3.4
Development Fund Iraq/ (USD B) (Increase -) 11.8 5.6 -1.7 0.0
(reflect the transfer of the DFI from Federal
Reserve NY to the CBI in May 2014.
Total government debt (% of GDP) 31.2 32.6 54.9 61.3
Total government debt (US $b) 73.1 74.6 97.8 106.6
External government debt (% of GDP) 25.3 25.2 36.7 37.8
External government debt (in USD B) 59.3 57.6 66.1 65.7
Source: IMF November 2016
2.2.2 Allocation of resources
Table 2.4: Actual budgetary allocations by economic classification (as % of total exp)
FY 2014* FY 2015 FY 2016
Current expenditure na 65.50% 75.69%
- wages and salaries na 27.74% 36.97%
- goods and services na 2.83% 6.26%
- interest payments na 1.05% 2.23%
- others na 33.89% 30.23%
Capital expenditure na 34.50% 24.31%
Source: Ministry of Finance
* No budget was approved,
Table 2.5 Actual budgetary allocations by economic classification (in IQD)

FY 2014* FY 2015 FY 2016
Current expenditure na 78,253,392,443,000 80,149,411,081,480
- wages and salaries na 33,137,499,354,121 39,145,464,368,764
- goods and services na 3,379,514,073,254 6,632,310,590,360
- interest payments na 1,252,189,200,000 2,358,869,760,000
- others na 40,484,189,815,625 32,012,766,362,356
Capital expenditure na 41,209,037,106,000 25,746,311,538,000
TOTAL 119,462,429,549,000 105,895,722,619,480
Source: Ministry of Finance
* No budget was approved,
6
2.3 Legal and regulatory arrangements for PFM
The Constitution
The Constitution was adopted on 15 October 2005 following a referendum. The federal
government is composed of the executive, legislative, and judicial branches, as well as
numerous independent commissions.
The executive branch: is composed of the President and the Council of Ministers. The
President of the Republic is the head of state and is elected by the Council of
Representatives by a two-thirds majority, and is limited to two four-year terms. The
Presidency Council is an entity currently operating under the auspices of the "transitional
provisions" of the Constitution, and functions in the role of the President until one
successive term after the Constitution is ratified. The Council of Ministers is composed of
the Prime Minister and the cabinet. The President names the nominee of the largest bloc
in the CoR as Prime Minister, who forms a Cabinet, and has direct executive authority for
the general policy of the State and is commander-in-chief of the armed forces. The cabinet
is responsible for overseeing their respective ministries, proposing laws, preparing the
budget, negotiating and signing international agreements and treaties, and appointing
various officials.
The legislative branch: comprises two houses: 1) the Council of Representatives

(CoR), the main elected body of Iraq, has of 328 members – one representative per
100,000 Iraqi persons – and is elected for terms of 4 years. The council elects the President
and approves the appointment of the members of the Federal Court of Cassation, the Chief
Public Prosecutor, and the President of Judicial Oversight Commission (proposed by the
Higher Juridical Council); and approves the appointment of the Army Chief of Staff, his
assistants and those of the rank of division commanders and above, and the director of the
intelligence service, on proposal by the Cabinet. 2) the Federation Council, composed of
representatives from the regions and the governorates that are not organized in a region,
and regulated in law by the Council of Representatives.
The federal judiciary: is composed of the Higher Judicial Council, the Supreme Court, the
Court of Cassation, the Public Prosecution Department, the Judiciary Oversight
Commission, and other federal courts that are regulated by law. One such court is the
Central Criminal Court.
The Independent High Commission for Human Rights, the Independent Electoral High
Commission, and the Commission on Public Integrity are independent commissions
subject to monitoring by the Council of Representatives. The Central Bank of Iraq, the
Board of Supreme Audit, the Communications and Media Commission, and the
Endowment Commission are financially and administratively independent institutions. The
Foundation of Martyrs is attached to the Council of Ministers. The Federal Public Service
Council regulates the affairs of the federal public service, including appointment and
promotion.
The federal government has exclusive power over various specified matters, such as
Foreign policy and the national budget, and shares powers with regional authorities over
regional customs, electrical power, environmental policy, public planning, health, and
education. All powers not exclusively granted to the federal government are powers of the
regions and governorates that are not organized in a region, and priority is given to regional
law in case of conflict between other powers shared between the federal government and
regional governments.
Chapter Five of the Constitution, Authorities of the Regions, describes the form of the
7
federation by stating that the system is made up of the capital (Baghdad), regions,
decentralized Governorates, and local administrations (municipalities).
Finance Law
The Financial Management Law and Public Debt Law both of 2004 (Order Number 95 of
the Coalition Provisional Authority) are still in place, although a new draft Finance Law has
been approved by the Council of Ministers (but not yet by the Council of Representatives),
The existing law emphasizes the principles of transparency, comprehensiveness and unity
– in particular requiring that all government resources be directed to a common pool to be
allocated and used for public expenditure according to the priorities of the government.
Federal Board of Supreme Audit

The Iraq BSA has a long tradition of state auditing dating back to the establishment of Iraq
as a nation state. It has been created in 1928 by law and since then this legislation has
been progressively updated. Its mission is now enshrined in the Constitution, which define
it in its article 103 as a “financially and administratively independent institution”. Its mission
and duties are defined in the law N° 6 of 1990. Changes, introduced by the Coalition
Provisional Authority (CPA) in April 2004, have confirmed the FBSA as an “independent
public institution empowered to enhance the economy, efficiency, effectiveness and
credibility of the Iraqi government”. However, they have limited the FBSA’s direct access
to the Judiciary and provided for it to work with two newly created institutions, the
Commission of Integrity (CoI), responsible for anti-fraud initiatives, and the Inspectors
General (IGF) appointed in the ministries. A new law, promulgated in January 2012,
confirms the mission and the duties of the FBSA and reinforces its independence and its
competence.
Law on Public Procurement

The Public Procurement in Iraq was governed by the Coalition Provisional Authority (CPA)
Order No 87 of 2004 and the implementing regulations No. 1 for 2008 promulgated by
Council of Ministers and prepared by the Ministry of Planning since 2004. However, the
Council of Ministers issued a Resolution dated May 16, 2011 to abolish the existing
procurement framework, namely CPA Order No 87 of 2004. A draft Law was developed by
an inter-ministerial working force with the assistance of the World Bank and reviewed by
the Sharia Council as an appropriate legal framework for the country, but there were calls
to discard the draft Law and instead to prepare a new concise By-Law or Regulation.
Consequently, and in the absence of a new legal framework, the Ministry of Planning has
issued a set of regulations in 2014 to replace the 2008 regulations.
Table 2.6: Other PFM Legislation

Legislation in place
Main Tax and customs

• Fuel Excise Tax/User Charge/Profit sharing: Law Number 9 of 1939,
Revolutionary Command Council Resolution No. 82 of 1996 and the Order No. 66
of 1999 issued by the Economic Affairs Committee, CPA Orders No. 37 and 49 of
2004
• Customs Tax: Custom Law No (23) of 1984, Custom tariff law No (77) of 1955,
CPA Order Number 54 - Trade Liberalization Policy 2004, CPA Order Number 38 -
Reconstruction Levy, CPA Order Number 70 – Amendments to Reconstruction
Levy, CPA Order Number 12
• Direct Tax: Income Tax Law No. 113 of 1982 (Corporate income tax, Wage
Withholding tax, Contracts Withholding Tax, Individual Income Tax), Instructions
No. (1) of 2005 Concerning Income Tax Deduction by Direct Deduction Method,
The System of Depreciation and Elimination for Private, Mixed and Cooperative
Sectors Regulation No. 9 of 1994, CPA Orders No. 37 and 49 of 2004
8
• Sales tax: Hotel Tax (Resolution No. 36) Republic of Iraq Revolutionary Command
Council 5/4/1997, Resolution No. 36 of May 4th 1997 and Fiscal Instructions No. 7
of 1997, Car sale fee in accordance with Resolution Number 80 of 1998, CPA
Orders No. 37 and 49 of 2004
Control and Audit

• The Law for Financial Administration and Public Debt No. 94 of 2004
• The Law of Inspector General issued by virtue of Order No. 57 of 2004
• The Law of the Ministry of Finance No. 92 of 1981 and bylaws of the Ministry of
Finance No. 1 of 1990.
Decentralization
• Iraq constitution of 2005;
• Law 130 (1963): Law of Municipality’s Revenues
• Iraq Financial Management Law of 2004
• Law 21, 2008 as amended in 2010 and 2013. As enacted, Law 21, 2008 2 (“The Law
of Governorates Note Incorporated into the Region”
• 2013 Amendments to Law 21: - Law 19, (Second Amendment of the Law of
Governorates Not Incorporated in a Region (Law 21 of 2008).
2.4 Institutional arrangements for PFM
The main responsibility for PFM reform and regulation rests with the Ministry of Finance
(MoF) – responsible for treasury functions and for preparing the recurrent budget, and the
Ministry of Planning and Investment (MoP), which prepares the National Development Plan
and the capital budget. Responsibility for carrying out government activities is shared
between various line departments (MDAs), Governorates and municipalities.
Revenue is mainly the responsibility of the Ministry of Oil and the Tax Department
(corporate and personal income taxes, domestic product VAT, special consumption
(excise) and natural resource taxes, and land use taxes and charges) and the General
Customs Department (import and export duties, import VAT, and other taxes collected on
imports).
Table 2.7: Structure of the public sector: (number of entities & turnover, m)
Year: 2016 Public Sector
Government Social Public Corporation
Sub-Sector Security Sub-Sector
Funds
Budgetary Extra Non- Financial
Unit budgetary Financial Public
Units Public Corporations
Corporations
GoI * * * * *
Governorates * * * * *
Districts * * * * *
* MoF unable to provide this data
Table 2.8: Financial structure of government – budget estimates (B)

Year: 2016 Budgetary Extra Social Total
Units Budgetary Security Aggregated
2/
Units Fund
Revenue * * * *
Expenditure * * * *
2 (2008). Law of Governorates Not Incorporated into a Region: An Annotated Text. USAID and
RTI International. Research Triangle Park, NC. All references to the original Law 21 are to this
source.
9
Transfers to (-) and from (+) * * * *
other units of general gov’t
Liabilities * * * *
Financial Assets * * * *
Non-financial assets * * * *
* MoF unable to provide this data
2.5 Other important features of PFM and its operating environment
In the light of the ongoing security situation (in effect, a war with ISIS), there is considerable
political uncertainty, to the extent that providing any government service is extremely
difficult and constrains the capacity of the PFM system function at all.
10
3 Assessment of PFM Performance
Pillar I. Budget reliability
PI-1 Aggregate expenditure outturn
This indicator measures the extent of the total expenditure deviation between the approved
expenditure budget and the actual outturn over the last three completed fiscal years – 2013,
2014 and 2015.
1.1 Aggregate expenditure outturn

The summary result matrix in the table below reflects a seemingly high expenditure
variance in 2015 at 31.2% from a relatively lower of 13.9% in 2013; detailed analyses are
shown in Annex 3C, and summarized in Table 3.1 below. These deviations reflect
significant under-spending, mainly in the investment budget, which stood at 33% reflecting
an improvement from the execution rate of 25% in the 2008 PEFA report: the recurrent
expenditure execution rate was 70% in 2015.
There were also delays in budget releases due to low cash inflows from tax and non-tax
revenues, which affected execution of the investment budget. No budget was approved in
FY2014, as there was no consensus among the political parties in parliament; the budget
proposals submitted were rejected and the legislature requested government to revise the
estimates. However, the government disagreed with this request, and actual expenditure
(unaudited) incurred stood at IQD 113,473.5 billion.
The rating of this indicator is based on data for 2013 and 2015 only; the absence of the
2014 expenditure budget does not affect the ratings as the PEFA framework provides for
an ‘irregular’ fiscal year. Actual expenditure outturn was between 86.1% and 68.8% of the
approved expenditure budget between 2013 and 2015.
Table 3.1: Comparison of Budget estimates to Actual (primary expenditure, B)

2013* 2014 2015
Original Exp Original Exp Original Exp
Budget outturn Budget outturn Budget outturn
Total budget 138,674 119,373 - - 119,587 82,333
Agg exp
-13.9% (no budget) -31.2%
deviation (%)
Source: MoF
PI-1 Dimension Score Score Justification for Performance

(M1) 2008 2016 2016 score change/other
factors
Aggregate expenditure D D
outturn
1.1 Aggregate D D Expenditure outturn Scores are indirectly
expenditure outturn was between 86.1% comparable as 2016
in FY2013 & 68.8% in calibration includes
FY2015: i.e. 2 of 3 externally financed
years reviewed. (N.B. projects/programme
no budget in FY2014) (excluded in 2008).
Ongoing reforms: No major reforms
11
PI-2 Expenditure composition outturn
Where the composition of actual expenditure varies considerably from the original budget,
the budget is unlikely to be a useful statement of policy intent. PI-2 is a tighter measure of
budget discipline, as it measures how well expenditure can forecast at the vote level. The
indicator has three dimensions, and measures the deviation in the composition of
expenditure outturn compared to the originally approved budget, which is assumed to
reflect GoI’s intentions in the relative priority of resources allocated to each function.
2.1 Expenditure composition outturn by function

Variance in expenditure composition is measured by multiplying the original budget for
each function by the ratio of the aggregate expenditure outturn to the original aggregate
budget, defined as for PI-1. The actual expenditure for each function is then deducted from
the adjusted original provision. Finally, these absolute variances (whether positive or
negative) are aggregated and compared with the total expenditure outturn.
The rating for this dimension is based on “two of the last three FYs”, so ignoring the lack
of an approved budget in 2014, the variance in the other two years is greater than permitted
for a ‘C’ rating, i.e. -13.9% and -31.2%. Detailed analyses are shown in Annex 3C.
Dimension rating = D
2.2 Expenditure composition outturn by economic type

Budget classification, both proposed and approved estimates, is by functional government
operations, as well as economic classification. Detailed analyses are shown in Annex 3C,
and summarized in Table 3.2 below, expenditure composition variances by economic
classification were 43.7% and 43.1% respectively in FY2013 and FY2015; this is higher
than the requirement of less than 15% for a C rating. These huge composition variances
result from the need to reallocate budget votes due to the volatile security situation.
Table 3.2: Consolidated Fund expenditure composition variance (%)

2013 2014 2015
Total expenditure variation i.e. PI-1 -13.9 - -31.2
Composition variance by function i.e. PI-2(i) -11.5 - -37.2
Composition variance by economic type i.e. PI-2(ii) 43.7 - 43.1
Average contingency share i.e. PI-2(iii) 0.1
Source: The Ministry of Finance
2.3 Expenditure from contingency reserves

The dimension recognizes the need for a contingency toward unforeseen events but it
should not be so large to undermine the credibility of the budget. Section 7(2)(d) of the
Financial Management Law 2004 provides for a contingency reserve fund of no more than
5% of total government expenditure budget excluding estimates on debt interest. The
average contingency expenditure from the contingency vote for FY2013 and FY2015 was
0.1% of total federal government expenditure; data for FY2014 was not available.
Dimension rating = A
12
factors
Expenditure C D+
composition outturn
2.1 Expenditure C D The variance in the Not comparable;
composition outturn two years for which different data &
by function data is available is scoring criterion in
greater than PEFA 2008.
permitted for a ‘C’
rating, i.e. -13.9%
and -31.2%. (N.B.
no budget in
FY2014)
2.2 Expenditure N/A D Expenditure New dimension
composition outturn composition
by economic type variances by
economic
classification were
43.7% and 43.1%
respectively in
FY2013 and
FY2015; this is
higher than the
requirement of less
than 15% for a C
rating.
2.3 Expenditure from N/A A The average New dimension
contingency reserves contingency in the
two years for which
data is available was
0.1%.
PI-3 Revenue outturn
This indicator assesses the quality of revenue estimation by comparison of the actual
revenue and the approved revenue budget. The larger the deviation, the lower the rating.
3.1 Aggregate revenue outturn

Total government revenues comprise revenues from oil and mineral resources, taxes on
goods and services, foreign grants, social security contributions, property income, and
profits from government investments. Revenues from oil and minerals constitute between
98% and 77% of total government domestic and foreign revenues according to data
obtained from the MoF between 2013 and 2015; the percentage of oil and mineral revenues
to total government revenues was 97.6% in 2013, 91.9% in 2014 and 77.2% in 2015.
Revenues accruing to the State in terms of taxes represent only between 2% and 6% of
total government revenues.
There is no revenue-forecasting model. According to officials from Ministry of Oil and the
Tax Board, projections are made with reference to historical data and actual performance
adjusted for the current year based on macro-fiscal assumptions (GDP, exchange rate,
inflation and interest rate) and the global commodity prices, particularly crude oil. Oil prices
are determined based on global prices, conservatively; where global price exceed the
budget price, surpluses are used to finance the budget deficit. In recent times (at least over
the last two years), the fall in global crude oil prices has had a devastating effect on central
government domestic revenues, leading to continuous borrowing to finance the budget
13
deficit; this has also been compounded by the security situation requiring more resources
to fight terrorism.
Table 3.3 below provides a summary of the results matrix based on approved budgeted
and actual revenues for the three years under review (details appear in Annex 3C);
whereas there was no budget in 2014, total actual revenue (unaudited) stood at IQD105.6
trillion. In 2014, the Council of Representatives rejected government budget proposals;
parliament requested government to amend the estimates but government disagreed with
the legislature. The rating of this dimension is therefore based on data for 2013 and 2015
only; it is important to state that the absence of a budget in 2014 does not influence the
outcome of the score, as the PEFA methodology makes provision for one irregular fiscal
year.
Table 3.3: Total revenue deviation

Year 2013 2014 2015
95.4% No budget 70.7%
Actual revenues were 95.4% in 2013 and 70.7% in 2015 when compared with approved
budgeted revenues for the same fiscal years. Detailed analyses are shown in Annex 3C.
3.2 Revenue composition outturn

Central government revenue is made up of seven main revenue elements including but not
limited to: (i) revenue from oil and minerals, (ii) taxes on goods and services, (iii) taxes on
income and capital gains, (iv) social security contributions, (v) fees and fines, and (vi)
property income, (vii) share of public corporations’ profits. Table 3.4 below shows that the
first of these is by far the largest.
Table 3.4: Composition of GoI revenue (in Trillion IQD)

FY 2013 2014 2015
Government revenue 113.8 105.6 66.4
Government oil revenue 111.1 97.0 51.3
Government Taxes and Fees revenue 2.5 2.5 2.6
Others 0.2 6.1 12.5
*’Others’ represent all remaining revenue other than oil and taxes and fees
Table 3.5: Composition of GoI revenue (% of GDP)

FY 2013 2014 2015
Government revenue and grants 42.2 39.1 30.2
Government oil revenue 38.6 36.9 27.4
Government non-oil revenue 3.5 2.2 2.8
As Table 3.6 below shows, the revenue composition variance was marginal at 0.2% in
2013; it however increased significantly to 14.1% in 2015. There was no composition
variance computed for 2014 since there was no budget. The huge variance in 2015 was a
result of a shortfall in crude oil production volumes coupled with the continuous fall in oil
prices. Revenue from crude oil constitutes about 95% of total government revenue and any
economic or production shocks influence negatively government revenues.
Table 3.6: Revenue composition variance

Year 2013 2014 2015
0.2% No budget 14.1%
Dimension rating = C
14
factors
Revenue outturn A D+
3.1 Aggregate revenue A D Revenue outturns for Scores not
outturn FY2013 & FY2015 comparable:
were 95.4% & 70.7%, revenues from
of approved budgets. external sources
(N.B. no budget in now included.
FY2014)
3.2 Revenue N/A C Revenue composition New dimension.
composition outturn variance was 0.2% in
FY2013 and 14.1% in
FY2015 (N.B. no
budget in FY2014)
Ongoing reforms: No major reforms.
15
Pillar II. Transparency of public finances
PI-4 Budget classification
4.1 Budget and accounts classification is consistent with international standards

This indicator assesses the extent to which the government budget and accounts
classification is consistent with international standards. There is one dimension for this
indicator.
Iraq Budget classification suffers from fundamental deficiencies, including a lack of a

functional classification and an inadequate economic classification. In 2014, a mission from
the IMF Middle East Regional Technical Assistance Centre (METAC) provided guidance
regarding the economic and the functional classifications of the budget in line with the
Government Finance Statistic Manual (GFSM 2001) and the Classification of the Functions
of Government. This was followed by a technical assistance mission from the Fiscal Affairs
Department of the IMF in 2015 to provide guidance on selected PFM matters, enter alia,
program-based budgeting. The mission reported the need for revising the budget
classification, including the chart of accounts, to include a program segment, a functional
classification, and to bring the economic classification in line with internal standards. The
current budget economic classification needs strengthening and introducing a functional
classification is warranted consistent with GFSM. Furthermore, the chart of accounts does
not have a program segment that allows consolidation of capital and current transactions.
A new budget classification was developed and adopted by MOF starting FY15 in
accordance with local standards yet the new classification is found capable of producing
consistent documentation comparable with at least level “2” of GFS standard.

factors
Budget classification C C .
4.1 Budget C C Budget formulation, A new budget
classification execution, and classification has
reporting are based been adopted, which
on administrative & is less
economic comprehensive that
classifications that the 2007(more
can produce GFMS 2001-based)
consistent version. The
documentation classification
comparable with framework does not
GFS standards (at allow direct
least level 2 of the derivation of the
GFS standard – 2 main analytical
digits) measures of fiscal
policy.
PI-5 Budget documentation
5.1 The comprehensiveness of the information provided in the annual budget documentation
is measured against a list of ‘basic’ and ‘additional items
This indicator has one dimension to assess the comprehensiveness of the information
provided in the annual budget documentation presented by the Executive to the Council of
16
Representatives, and is measured using a list of ‘basic’ and ‘additional’ elements included
in the last budget submitted to parliament, i.e. the FY2017 budget.
Table 3.7 provides a summary of the information contained in the annual budget proposal
submitted to the Council of Representatives for legislative scrutiny and approval. As can
be seen in the table, while three of the four basic elements are met, only three of the eight
additional elements are met. That said, basic element #4 (aggregate and detailed budget
data for both revenue and expenditure for the current year's budget) is partially met;
however similar aggregate and detailed revenue and expenditure data for the previous year
are not provided in the current year's budget.
Table 3.7: Budget documentation benchmarks

No. Budget documentation benchmarks Availability
Basic elements
1. Forecast of the fiscal deficit or surplus (or accrual operating result). Yes
2. Previous year’s budget outturn, presented in the same format as Yes
the budget proposal
3. Current year’s budget (either the revised budget or the estimated Yes
outturn), presented in the same format as the budget proposal
4. Aggregated budget data for both revenue and expenditure Yes/partially
according to the main heads of the classifications used (ref. PI-4),
including data for the current and previous year, in addition to the
detailed breakdown of revenue and expenditure estimates
Additional elements
5. Deficit financing, describing anticipated composition Yes
6. Macro-economic assumptions, including at least estimates of GDP Yes
growth, inflation, interest rates, and the exchange rate
7. Debt stock, including details at least for the beginning of the No
current year presented in accordance with GFS or other
comparable standard
8. Financial Assets, including details at least for the beginning of the No
current year presented in accordance with GFS or other
comparable standard
9. Summary information of fiscal risks including contingent liabilities No
such as guarantees, and contingent obligations embedded in
structure financing instruments such as PPP contracts, etc.
10. Explanation of budget implications of new policy initiatives and No
major new public investments, with estimates of the budgetary
impact of all major revenue policy changes and/or major changes
to expenditure programs
11. Documentation on the medium-term framework Yes
12. Quantification of tax expenditures No

factors
Budget documentation D C
5.1 Budget D C Budget Scores not directly
documentation documentation comparable,
fulfills 6 elements, although subject
including at least 3 matter is similar to
basic elements. previous PI-6 of
2008 framework,
but new elements
now included. Only
6 of 12 elements
fully met, as in
2008: no
improvement in
performance
17
PI-6 Central government operations outside financial reports
This indicator measures the extent to which government revenue and expenditure are
reported outside GoI financial reports.
In principle, all Government operations using public finances should be included in budget
reports to ensure transparency, public disclosure, more efficient allocation and use of the
resources, as well as budget sustainability. This will be the case if the expenditure and
revenue of extrabudgetary units and expenditure and revenue related to extrabudgetary
activities of budgetary units are insignificant or if such revenues and expenditures are
included in the government financial reports and are submitted timely for evaluation.
6.1 Expenditure outside financial reports

There is no properly collected information from government referencing expenditures
outside the budget and financial reports. A credible budget should capture all central
government revenue and expenditure both own resources and donor financed. Further,
strategic resource allocation requires alignment of resources tactically in order to ensure
economy, efficiency, and effectiveness of service delivery. Duplication of efforts is bound
to occur following from poor coordination between government and donors on one hand,
and among donors on the other hand.
Dimension rating = D*
6.2 Revenue outside financial reports

The government could not provide information relating to revenue accruing to the State but
not reported in either the federal budget or annual financial reports. World Bank, USAID,
JICA and EU loans and grants including technical assistance are not included in federal
budget and reports except for the WB Development Policy Loan (DPL) of US$1.2billion.
Projects and programmes funded by development partners are not reported in the
government financial reports. This defeats the transparency and accountability framework
as well as comprehensive financial reporting in addition to concerns over budget credibility.
Table 3.8: Data on revenue outside financial reports 2015

Content Amount
Revenue outside financial reports *
Total revenue *
Revenue outside financial reports *
Fees and charges retained by extrabudgetary units *
Extrabudgetary funds *
Ratio (II/I*100) *
*MoF did not provide the necessary Information.
6.3 Financial reports of extra-budgetary units

In order to have a comprehensive view of central government operations, the consolidated
annual financial statements should capture all revenues and expenditure of both budget
entities and extra budgetary3 units as defined by GFS 2014. Examples of these institutions
could include quasi-governmental agencies receiving subsidies from government but at the
same time mandated by the law to raise and use own revenues. There are also projects
and programmes funded by development partner institutions outside central government
budget but in most cases managed by sector ministries; expenditure is paid directly by the
donor for public service. There are also private institutions with government contracts to
render a service on behalf of government for a fee; these fees are usually charged as gross
3General government entities with individual budgets not fully covered by the general budget are
considered extra budgetary
18
and the net income (gross income less service provider expenses/charges) are remitted to
government; this system is rare in Iraq as the country is a state-run economy. In all cases,
majority of extra budgetary units do not submit detailed financial reports to government.

factors
Central government D
operations outside
financial reports
6.1 Expenditure outside D D* No information from Rating not directly
financial reports GoI on expenditure comparable, as dim
outside financial reformulated &
reports and budget. scope widened to
include donor
expenditure in
addition to GoI
expenditure.
6.2 Revenue outside N/A D* No information from Not comparable:
financial reports GoI on revenue new dimension.
outside financial
reports and budget.
6.3 Financial reports of N/A D Majority of extra Not comparable:
extra-budgetary budgetary units do new dimension.
units not provide regular
financial reports to
GoI. Technical
Assistance is not
reported to GoI
PI-7 Transfers to subnational governments
This indicator assesses the transparency and timeliness of transfers from the GoI
government to subnational governments with direct financial relationships to it. It considers
the basis for transfers from central government and whether subnational governments
receive information on their allocations in time to facilitate budget planning.
7.1 System for allocating transfers

Article 121 of the Constitution states that “Regions and Governorates shall be allocated an
equitable share of the national revenues sufficient to discharge their responsibilities and
duties, but having regard to their resources, needs and the percentage of their population”:
however, the system of fiscal transfers and allocations to Governorates remains essentially
ad hoc. Although Article 121 provides the foundation for a stable revenue sharing structure,
at present, this stability only exists in the KRG, and the other Governorates (outside KRG)
receive a lump sum dedicated to investment projects, based on population, using a
weighted method. However, this is augmented for some Governorates through shared oil
revenue transfers, and results in significant per capita variations in the level of investment
resources.
Fifteen governorates function under a common intergovernmental structure which is more

integrated with the central government, while the Constitution treats governorates in the
KRG as a regional government. Asymmetry also exists within this structure at the sub-
Governorate level. The current intergovernmental structure allows for asymmetry in the
assignment of responsibilities across levels of local government. The Governorates have
19
the authority to assign/delegate functions to districts and sub-districts based on local
capacities and preferences.
Budget allocations to the Governorates are dependent upon the MoF and negotiation, and
lack both vertical and horizontal balance. Negotiated budgets not only open the door to soft
budget constraints, but also foster uncertainty on the part of subnational jurisdictions.
Subnational budget allocations are subject to change from one year to the next, negatively
impacting incentives. Resource certainty can be enhanced by fixed rules for subnational
shared revenues and transfers, and by transparent mechanisms for establishing
subnational budget allocations. Elements of derivation-based resource sharing exist in the
form of per-barrel distributions from oil production, as well as for customs and in-bound air
traffic. However, these are problematic candidates for such revenue sharing. Border
regions should not benefit from entry into or out of a nation beyond that needed to
accommodate border traffic and infrastructure. Likewise, natural resource endowments are
generally better thought to convey national wealth. The result is significant horizontal
disparities in Governorate access to revenue. Appropriately structured transfers are the
essential bridge between expenditure responsibility and more limited revenue authority.
Accountability and transparency can be enhanced by a subnational revenue system, which

includes revenue instruments of sufficient yield and local discretion to command the
attention of the population. The lack of access by the Governorates to significant broad-
based revenue instruments impairs accountability.
Legal provisions for Governorate revenue have been evolving. However, these provisions
require enabling regulation by the Central Government, which has not been forthcoming.
Therefore, there is no provision for a level of local discretion in setting tax rates or bases
needed to qualify as a local revenue source. The Governorates need discretion over the
decision of whether to adopt a revenue instrument. They also require discretion to
establish the rate and/or base of the instrument. While it appears that there may be more
discretion for fees and charges (although even here, there is reference to approval by the
ministries), there are no significant discretionary local revenue sources presently available
to the Governorates.
7.2 Timeliness of information on transfers

Budgetary resources to subnational governments should be available and released as
budgeted. Otherwise, planning, prioritization, responsiveness, and management are
defeated. Subnational governments receive information on their annual transfers through
the regular budget calendar (cf. PI-17). MoF’s stated policy is to disburse a percentage of
the investment budget for each of the Governorates at the beginning of the fiscal year and
then make subsequent disbursements throughout the year, until the entire budgeted
amount of funds has been disbursed. It appears that recently, these disbursements, have
been delayed until late in the second quarter of the fiscal year, complicating project
programming. This points to the need for more realistic budget planning processes both at
the centre and for the Governorates.
Dimension rating = B

factors
Transfers to C+
subnational
governments
7.1 System for C C The horizontal GoI put in place
allocating transfers allocation of some several policy and
20
factors
transfers to procedural steps
subnational supporting
Governorates from decentralization,
central government however,
is determined by intergovernmental
transparent, rule- fiscal relations &
based systems, service delivery
based on population. remain highly
centralized, &
allocations remain
ad hoc.
7.2 Timeliness of C B Subnational
information on Governments’
transfers budget calendar is
consistent with the
national process,
and they receive
information on
annual transfers
through the regular
budget calendar.
Ongoing reforms:
Global Affairs Canada is providing support to GoI in the area of fiscal federalism and
decentralization. This includes assisting GoI in developing legal framework around
federalism and decentralization, fiscal arrangements, institutional capacity building, and
staff capacity building necessary to implement fiscal decentralization arrangements.
PI-8 Performance information for service delivery
Good practice indicates that key performance indicators for the planned outputs and
outcomes of programs or services that are financed through the budget are included in the
executive’s budget proposal and related documentation as well as in the year-end report,
audit reports and performance evaluation reports, in order to promote greater operational
efficiency in service delivery. Service delivery units should also know what resources they
can expect to be available to enable them to discharge their responsibilities and achieve
annual and medium-term performance targets as well as strategic sector objectives.
8.1 Performance plans for service delivery

Performance measurement benchmarks form part of sector strategic documents. For
instance, the Ministry of Education has developed a 10-year educational strategy for the
period 2012-2022 with 63 investment projects at a total cost of IQD36.5trillion; this strategy
has three main strategic objectives: (i) increase access to public education, (ii) improve
quality of education, (iii) capacity development. Medium-term (three years) educational
sector strategies are developed from the long-term National Development Plan, from which
annual action plans are prepared with six key components, namely: institutional
development, increased infrastructure, service quality, easy access, good financial
management and scientific research. Key Performance Indicators (KPIs) used to
benchmark service delivery, especially in the educational sector include rate of budget
execution for programmes and projects, number of student enrolment, student dropout
rate, student success rate, equity in educational facilities, among others. These KPIs are
not published; however, Ministry of Education publishes the academic performance of
students as well as performance of public schools.
21
Road construction and maintenance, construction of schools and hospitals and all other
government construction projects is the responsibility of the Ministry of Construction, Public
Works, and Municipalities. Once the construction is complete, the management of the
facilities is transferred to the sector or line ministry. In most cases, the Ministry of Public
Works mounts notices/billboards describing the project to be constructed, the funding
agency, the cost of the project, and the expected completion time; however, it does not
publish completion reports/results of projects initiated.
8.2 Performance achieved for service delivery

As described in PI-8.1 above, KPIs form part of annual action plans and medium to long-
term policy documents. Each line ministry has a monitoring and evaluation (M&E)
department that collects and analyses statistical data. The M&E department in each line
ministry works in close collaboration with government statistical service – a department
under the MoP. The statistical department of MoP provides statistical reporting templates
to line ministries for data collection and analysis. Publication of performance achieved for
service delivery is not routinely done in accordance with set KPIs; however, interactions
with officials of Ministry of Education suggests that student examination results are
published in addition to performance of public schools.
8.3 Resources received by service delivery units

Service delivery in Iraq is a key government priority; nonetheless, resource limitation from
the national budget as a result of global economic shocks particularly the continuous fall in
oil prices coupled with the need to commit more resources to fight ISIS insurgence has led
to poor and/or limitation in service delivery. Information on resources received in cash and
kind from most development partners is rare and not systematically reported to
government. The financial reporting framework is unable to report on resources received
by primary service delivery units, such as primary schools and clinics even though
governorates have the mandate to report on these units. There is no survey – Public
Expenditure Tracking Survey (PETS) conducted in the last three completed fiscal years to
track resource allocation to primary service delivery units.
8.4 Performance evaluation for service delivery

This dimension assesses the extent to which the design of service delivery programs and
the efficiency and effectiveness of those programs is assessed in a systematic manner
through independent performance evaluations. However, there is no evidence to suggest
that independent performance evaluation of the efficiency and effectiveness of service
delivery have been carried out over the last three years, other than Value for Money (VFM)
studies by the internal M&E framework in each line ministry and limited performance audit
by FBSA. The conduct of such independent evaluations provides an impartial view of
performance benchmarks coupled with the critical assessment of agencies responsible for
service delivery.

factors
Performance D D
information for service
delivery
8.1 Performance plans N/A D Performance New dimension in
for service delivery benchmarks are PEFA 2016.
developed in sector
22
factors
strategies, long term,
medium term and
annual action plans;
but are not published
8.2 Performance N/A D Publication of New dimension in
achieved for service performance achieved PEFA 2016
delivery for service delivery is
not routinely done in
accordance with set
KPIs; that said, MoE
makes public student
examination results
as well as
performance of
schools
8.3 Resources received D D Over the last three Subject matter
by service delivery completed fiscal unchanged, but
units years, no surveys rating &
(PETS) has been performance not
conducted. Further, comparable
there is no because additional
mechanism to track information on two
resources (both cash large line
and kind) received by ministries is
primary service required
delivery units
8.4 Performance N/A C Value for Money New dimension in
evaluation for (VFM) studies are PEFA 2016
service delivery performed by the
internal M&E
framework in each
line and limited
performance audit by
FBSA.
PI-9 Public access to fiscal information
9.1 The comprehensiveness of fiscal information available to the public

Good practice requires ready public access to key fiscal information. This indicator
assesses the public access to information about different aspects of budget performance,
as a measure of fiscal transparency. The PEFA assessment framework lists nine elements
of fiscal information, including five ‘basic’ elements and four ‘additional’ elements. The
scoring is based on assessment of public access (through appropriate means such as
websites, billboards, notice boards, etc.) to the number of the above information elements.
The GoI has an official government website for publishing public information in addition to
individual websites of government ministries and agencies. According to officials, the main
source of dissemination of government notices and fiscal reports is through the official
government website. Table 3.9 below analyses the type of fiscal information made
available to the public through appropriate means and in a timely manner; only two (annual
executive budget proposal documentation and the enacted budget) of the five basic
elements complies fully with the assessment criteria. That said, two other elements (one
basic and one additional) partially meet the assessment criteria in terms of availability to
the public but with substantial delays.
23
Table 3.9: Public access to key fiscal information
No. Fiscal information Availability Notes (Means of Availability)
benchmarks (Yes/No)
Basic elements
1. Annual Executive Budget Yes Government officials say fiscal
Proposal documentation: A information is made public once the
complete set of executive Council of Representatives approves
budget proposal documents it.
(as assessed in PI-5) is
available to the public within
one week of the executive
submitting them to the
legislature.
2. Enacted Budget: The annual Yes Enacted budget is published on both
budget law approved by the MoF website and the official
legislature is publicized within government website under the Prime
two weeks of passage of the Minister's Office within two weeks
law following passage of the
Appropriation's Act by Parliament
3. In-year budget execution Yes, with Whiles in-year (monthly) budget
reports: The reports are delays execution reports are published on
routinely made available to the MoF website, (in accordance with
public within one month of their Section 9(7) Annex A of the Financial
issuance, as assessed in PI-27 Management 2004), significant
delays of at least three (3) months
are encountered
4. Annual budget execution No The Iraqi Government does not
report: The report is made publish consolidated annual financial
available to the public within reports. The Government opines that
six months of the fiscal year's such information should be made
end. public only after the said accounts
have been audited by the Federal
Bureau of Supreme Auditors (FBSA)
5. Audited annual financial No Significant delays occur in publishing
report, incorporating or audited annual financial reports. As of
accompanied by the external April 2016, the 2014 financial reports
auditor’s report: The report(s) were still under review and are yet to
are made available to the be published on government website.
public within twelve months of The 2015 reports are yet to be
the fiscal year's end. audited by FBSA. That said, the 2013
audited financial reports are on MoF
website.
Additional elements
6. Pre-Budget Statement: The No This is discussed at the Council of
broad parameters for the Ministers level but not made public
executive budget proposal until after legislature approval of the
regarding expenditure, planned annual budget proposal which usually
revenue and debt is made takes place at the start of the new
available to the public at least fiscal year
four months before the start of
the fiscal year.
7. Other external audit reports: No No other external audit reports from
All non-confidential reports on the FBSA are published except for
central government the audited annual consolidated
consolidated operations are financial reports
made available to the public
within six months of
submission.
8. Summary of the Budget No Abridged budget known as the
Proposal: A clear, simple citizen's budget is not yet produced at
summary of the Executive’s this stage. That said, the World Bank
Budget Proposal or the is supporting the Iraqi Government
Enacted Budget accessible to through the Ministry of Finance under
the non-budget experts, often the Externally-Financed Output
referred to as a ‘citizens’ signed in 2015 to produce a citizen's
budget’, and where appropriate budget
translated into the most
commonly spoken local
24
No. Fiscal information Availability Notes (Means of Availability)
benchmarks (Yes/No)
language, is publicly available
within two weeks of the
Executive Budget Proposal's
submission to the legislature
and within one month of the
budget’s approval
9. Macroeconomic forecasts: Yes, with While macroeconomic forecasts are
The forecasts as assessed in delays discussed as part of the budget
PI-14.1 are available within strategy4, they are not made public
one week of its endorsement. within a week after endorsement by
the Council of Ministers.

factors
Public access to fiscal D D
information
9.1 Public access to D D Only two of five Scores are not directly
fiscal information basic elements are comparable, although
fully met. the subject matter
Nonetheless, two remains unchanged. In
other elements (1 2016, elements are
basic & 1 split into ‘basic’ and
additional) are ‘additional’ none of
partially met; the which were met in
main challenge is 2008; hence, there is a
the delay in marginal improvement
publication of in performance.
information
Ongoing reforms:
MoF, with consultation with the IMF and the World Bank, is currently developing a new
PFM law that is expected to improve transparency and public access to fiscal information.
Furthermore, the World Bank under the Iraq Public Management, Transparency and
Regulatory Reform TA is assisting the GoI produce a citizen's budget going forward,
upgrade MoF internet and intranet portals for quick public access to fiscal information.
4 The latest budget strategy 2016-2018 has been developed but not yet published.
25
Pillar III. Management of assets and liabilities
PI-10 Fiscal risk reporting
This indicator measures the extent to which fiscal risks to GoI are reported. Fiscal risks can
arise from adverse macroeconomic situations, financial positions of subnational
governments or public corporations, and contingent liabilities from the GoI’s own programs
and activities, including extrabudgetary units. They can also arise from other implicit and
external risks such as market failure and natural disasters.
10.1 Monitoring of public corporations

Iraq’s management of the public corporations is currently decentralized in various
ministries and coordination with the Ministry of Finance beyond providing some financial
statements is ad hoc. Given the magnitude of the sector and its structural and cyclical
problems, the Prime Minister decreed5 the establishment of a Committee for public
corporations restructuring to establish, operate and supervise a database to monitor the
fiscal risks as well as to improve comprehensive, accurate and timely data collection on
public corporations. A report commissioned by the Prime Minister Advisory Commission
(PMAC) dated February 2015 indicates that there are 176 public corporations in Iraq out
of which 157 were evaluated but for 19 due to lack of information. Forty-four of one-hundred
and fifty-seven public corporations proved to be viable and/or profitable but for the current
security situation coupled with the global economic challenges. Although the report on SoE
restructuring, which contains fiscal risk report on public corporations, has been submitted
to parliament on 24th June 2016, it is yet to be published. At least 75% of public
corporations in Iraq are loss-making entities and pose huge fiscal risk on central
government. For the two years running 2012 and 2013, government subsidised these
corporations with an amount of IQD191billion6 for remuneration of over 21,6007 workers.
Public corporations are required by law – FML 2004 Section 8 – to prepare and submit
monthly, bi-annual and annual audited report to the Minister of Finance. Evidence provided
by the FBSA indicates that 168 out 176 public corporations are audited annually, but with
considerable delays due to late completion and submission of annual financial statements
to FBSA. There are significant delays in submitting annual audited reports to MoF; as at
the time of this assessment, 92 public corporations did not present their annual reports of
the year 2015, while only 38 public corporations have complied with the law but these audit
reports are for FY2012 and FY2013.
10.2 Monitoring of subnational governments

This dimension assesses the extent to which information on financial performance,
including the central government’s potential exposure to fiscal risks, is available through
the audited annual financial statements of subnational governments. It also assesses
whether the central government publishes a consolidated report on the financial
performance of the subnational government sector annually. Fiscal risks created by
subnational governments can take the form of debt service defaults with or without
guarantees issued by the central government, operational losses caused by unfunded
subnational governments’ quasi-fiscal operations, expenditure payment arrears, and
unfunded pension obligations. The net fiscal position of subnational governments that have
direct fiscal relations with the central government should be monitored, at least on an
annual basis, with essential information on fiscal risks reported to the central government
official responsible for subnational government oversight.
5 Decree No. 446 of October 20, 2015

6 Table on page 12 of PMAC SoE report dated February 2015
7 Table on page 12 of PMAC SoE report dated February 2015
26
The availability of information about the utilization of all public financial resources at the
subnational level is not adequate. Although the collection and consolidation of subnational
government statistics is common in many countries with advanced PFM systems, the
manual based system(s) currently found in the government of Iraq’s administrative
structures may prove to be an overwhelming obstacle to effective consolidation. Systematic
collection of subnational administration finance data requires consistency in the
governmental financial chart of accounts and budget classifications across the central and
subnational government administrations. In addition, the economic budget classifications
and the revenue classifications used by the central and subnational administrations must
be aligned.
All government agencies in Iraq including the Governorates, follow the Law of Financial
Administration and Public Debt No. 94, 2004, and the unified accounting bylaw issued in
2011 by the Iraqi Federal Board of Supreme Audit (FBSA). Governorates follow the cash
basis of accounting by which resources and uses of funds are recorded when cash is
received or when payments are made. The Governorates use manual-based accounting
systems supported with Excel and Word applications to generate basic regular and ad hoc
financial reports, such as trial balance, bank reconciliations, and monthly details of revenue
and expenditures. Automated accounting systems are believed to reduce human error, and
improve record keeping and reporting. The installation of such automated systems in Iraq
would eventually lead to better decision making. Therefore, implementing an automated
accounting system at the national and subnational government administration levels is a
priority.
The external audit function needs to be strengthened at the Governorate level. With the
additional powers and resources that will be transferred to the Governorates, it will be
important to strengthen the external audit function performed by the Federal Board of
Supreme Audit (FBSA) to enhance the oversight and accountability of public spending.
According to Iraqi Federal Board of Supreme Audit (FBSA) Law 31 (2011), “the Board shall
carry out an extremely wide range of tasks, including: (i) Making an extensive mission of
auditing the accounts and activities of all public bodies, including evaluating their
performance and investigating all matters related to the efficient use of public money; and
(ii) embarking on a mission to investigate corruption, fraud, waste, abuse and inefficiency
in matters related to the receipt, disbursement and use of public money.” The audit is
carried out by the audit commission teams that exist in all governmental entities (including
the Governorates) and state-owned enterprises (SOEs).
It is our understanding that Governorates may be subject to two audits per year; one is
performed by the FBSA, and in addition, an independent private firm conducts annual
audits on selected governorates (sample basis) as part of the “Development Fund for Iraq”
project. However, Governorates’ financial reports are not published.
10.3 Contingent liabilities and other fiscal risks

At present, there is no evidence at MoF suggesting the monitoring and reporting of central
government contingent liabilities arising out of either PPPs or other government financial
transactions including sovereign guarantees for public corporations. However, available
information from the Ministry of Education suggests that there is an explicit contingent
liability estimated at IQD14billion with respect to financial transactions and contracts with
building contractors and suppliers of educational materials as a result of government failure
to perform its part of the bargain. Whereas there is currently no PPP law, regulations or
policy, line ministries do have some PPP engagements with potential liabilities; these are
not monitored and reported. Contingent liabilities are potential liabilities that may occur,
depending on the outcome of an uncertain future event. They are recorded in the
27
accounting records if the contingency is probable and the amount of the liability can be
reasonably estimated. These pose huge fiscal risk on central government finances and
therefore should be of paramount importance as far as monitoring and reporting are
concerned.

factors
Fiscal risk reporting D
10.1 Monitoring of public D D MoF is making This dimension is
corporations substantial efforts comparable to 2008
to monitor public PI-9 (dim ii):
corporations: oversight of
however, at time of aggregate fiscal risk
assessment, most from other public
of public sector entities.
corporations did
not submit their
financial
statements
10.2 Monitoring of D D Performance is This dimension is
subnational less than required comparable to 2008
governments for ‘C’ as financial PI-9 (dim ii):
reports are not oversight of
published. aggregate fiscal risk
from other public
sector entities.
10.3 Contingent liabilities D There is no New dimension;
and other fiscal evidence performance not
risks suggesting comparable.
monitoring and
reporting of central
government
contingent
liabilities
Ongoing reforms:
GoI, the under the supervision of the Prime Minister’s Advisory Commission (PMAC), has
commissioned a study into the viability of state owned enterprises. At present, 38 SoEs
have been assessed out of 166 (177 before merger of some SoEs). The report is dated
February 2015. Going forward, government intends to restructure these public enterprises
to reduce over-reliance on central government subsidies.
With the additional powers and resources that will be transferred to the Governorates, it
will be important to strengthen the external audit function performed by the Federal Board
of Supreme Audit (FBSA) to enhance the oversight and accountability of public spending.
As part of efforts to provide a legal framework for PPP, government has secured a grant of
US$ 3 million from the World Bank to undertake a diagnostic study on PPP arrangements.
Meanwhile, the Ministries of Finance and Planning are collaborating to regulate all PPP
arrangements with the assistance of the World Bank.
28
PI-11 Public investment management
This indicator assesses the economic appraisal, selection, costing, and monitoring of
public investment projects by a government, with emphasis on the largest and most
significant projects. Good practice requires that appraisals are conducted according to
national guidelines, the analyses are reviewed by an entity other than the sponsoring
entity, and that the results are published.
The country is facing the dual shock of a fiscally, socially and politically costly brutal war
waged by the Islamic State of Iraq and Syria (ISIS), and the sharp fall of the price of oil.
This assessment comes at a time when the country is undergoing a large fiscal shock that
could lead to a much deeper economic and social crisis that would disproportionately hurt
the poor and further delay the reconstruction of Iraq. In this context of the current country
situation, and that public projects would mainly aim to restore basic services to citizen, it
was agreed that rating this indicator would not be meaningful.
Ongoing reforms
The MoP has recently finalized the development of the Iraqi Development Management
System (IDMS)—an aid management solution promoting good governance and public
accountability and transparency. However, the IDMS does not provide a workflow for all
the processes and sub-processes of the PIM System. Based on the content of Cabinet
Decree No 445 (October 2015) related to the new PIM framework for Iraq, the MoP is
currently establishing a public investment decision process that covers everything from
project ideas to pre-feasibility and feasibility studies, capital investment prioritization (based
on cost–benefit analysis and expenditure efficiency), financing modalities, continuous
monitoring of the fiscal affordability of all projects, project execution, operation and ex-post
evaluation. This should gradually be made effective during the implementation of the 2016–
2018 PIM Action Plan, and will become effective from 2017.
Relevant government officials at both federal and governorate level will be trained as of
October 2016 in project selection and prioritization in the context of the implementation of
the 2016–2018 PIM Action Plan, and the “Simplified Manual for Public Investment Projects
Selection and Prioritization in Iraq” (December 2015).
The PFM Draft General Financial Management Law (March 2016) makes specific
references to multi-year project budgeting, and it is expected that this will be adopted this
year by the Council of Representatives.
PI-12 Public asset management
This indicator assesses the management and monitoring of government assets and the
transparency of asset disposal, and has three dimensions: 12.1 assesses the level at which
financial assets (government investments in public or private companies) are monitored
and reported; 12.2 examines the extent to which non-financial fixed assets are monitored
and reported; 12.3 measures the level of transparency of asset disposal.
12.1 Financial asset monitoring

It appears there is a unit within MoF responsible for monitoring government investments in
equities, which maintains information as to ownership and control (percentage shares),
capital appreciation or loss, return on investments, among others: however, all efforts to
meet officials proved futile. There is no information on total government investments in
equities in the 2013 AFS, nor could any reliable information relating to the monitoring of
financial assets (including shares in public corporations) be found for FY2015.
29
However, an ad hoc study commissioned by the Prime Minister’s Advisory Commission
(PMAC) and published in February 2015 showed that 44 public corporations are potentially
viable and could be self-sustaining and eventually be in a position to pay dividends to
government.
12.2 Nonfinancial asset monitoring

There is no centralised agency responsible for recording and reporting all central
government non-financial assets in a consolidated statement. That notwithstanding, line
ministries and budget entities prepare as part of their annual financial statements, a fixed
asset statement for external audit in accordance with Section 11(5) of the FML 2004. Each
budget entity also maintains a fixed asset register with information on date of purchase,
asset type, cost, location and condition or status. The Ministry of Construction, Public
Works and Municipalities also maintains records of all capital projects executed on behalf
of other line ministries and budget agencies. As an oil economy, the publication of
information about oil and gas fields is of paramount importance to Iraqis, in addition to the
publication of all other government fixed assets with information on their lifespan.
12.3 Transparency of asset disposal

The Public Procurement, Sale and Lease Law (No. 32 of 1981) covers the sale and lease
of government properties and fixed assets. It outlines guidelines for asset disposal. Article
3 says the sale of public assets should be done through public auction. Article 4 prohibits,
up to the 4th lineage, all persons directly involved in the sale and lease process from
acquiring those assets, including spouses. Articles 6, 8, 9 and 10 outlines the mandatory
evaluation and sale committees - which must be two different committees, the membership
of the committees - at least three persons with at least one been a qualified accountant.
The law requires that by 31st December each year, each budget entity's inventory
committee evaluates all fixed assets in its custody and determines those to be disposed.
The inventory committee submits its report to the Minister in charge for approval, then to
the evaluation committee, followed by advertisement in at least three state print and/or
electronic media for a minimum period of 30 days in accordance with Article 12. The
advertisement informs the public of the date and venue of the public auction. The
successful bidder - the highest bidder takes ownership after all the necessary payments
have been made and ownership transfer is concluded. For central government line
ministries and budget entities, the proceeds are paid directly into the State Treasury
Account held by CBI; public corporations however pay their proceeds into their respective
individual corporate bank accounts usually with state banks. MoF reports the proceeds
from fixed assets disposal in the monthly and annual financial statements, which are
submitted to the Council of Representatives each quarter and year. For instance, in
FY2015, proceeds from sale and lease of government fixed assets amounted to
IQD83.05billion.
30
factors
Public asset N/A C+
management
12.1 Financial asset N/A D There is no reliable New dimension:
monitoring data on monitoring of not comparable.
government financial
assets.
12.2 Nonfinancial asset N/A B While GoI does not New dimension:
monitoring have a consolidated not comparable.
fixed asset register,
each budget entity
maintains a register
which is audited by
FBSA
12.3 Transparency of N/A B Rules and procedures New dimension:
asset disposal for the disposal of GoI not comparable.
fixed assets are
established in the
Public Procurement &
Lease Law - Law 32
of 1981. Proceeds are
reported in AFS.
PI-13 Debt management
This indicator assesses the management of domestic and foreign debt and guarantees. It
seeks to identify whether satisfactory management practices, records, and controls are in
place to ensure efficient and effective arrangements.
13.1 Recording and reporting of debt and guarantees

Good practice requires full information to be available about all general government debt
(including debt guaranteed by government), with accuracy ensured by monthly
reconciliations between data sources. Total public debt at 30th June 2016 was USD 52.09
billion, of which USD 34.78 billion is domestic and USD 17.31 billion external.
Whiles a Debt Management and Financial Analysis System (DMFAS) software has been
procured for recording and reporting public debt, it is not in use for reasons including
capacity and capability constrains, logistical constraints such as a well secured and
ventilated storage space as well as spares for the servers and computers, among others.
The Public Debt Department (PDD), metamorphosed from the former Debt Management
Unit established in 2005, and uses Microsoft Excel Spreadsheets for recording and
reporting public debt. Whereas monthly debt reconciliation is done by the PDD on principal
and interest payments in line with planned payment schedules, and between PDD and
Accounts Department, comprehensive annual reconciliation takes place based on
statements received from creditors, with minor reconciliation differences usually from
exchange and interest rate differences. Officials of PDD maintained that debt figures are
accurate and comprehensive; this position is however doubtful since there exist major
reconciliation challenges between the Accounts Department and the Public Debt
Department. Further, coordination between PDD and Accounts Department leaves much
to be desired. Following from this, the IMF has advised the appointment of an external
auditor to carry out a comprehensive public debt audit. It should be noted that while debt
reports are produced annually, they do not meet international debt reporting standards.
31
MOF has appointed an international audit firm to perform due diligence of Iraq public debt
(international and domestic), which is still ongoing and not finalized at the time of the
assessment.
13.2 Approval of debt and guarantees

Best practice envisages that a single Government entity will be responsible for approving
the contracting of all loans and the issue of all guarantees, and that the borrowing policy
will be implemented within a framework, which establishes transparent limits on
outstanding debt, which are consistent with the government’s fiscal targets.
Section II (1) Annex B of the Financial Management Law and Public Debt Law 2004
enacted under the Coalition Provisional Authority Order Number 95 mandates the Minister
of Finance as the sole government official to secure loans and issue guarantees on behalf
of the Government of Iraq. Once contracted, the loans and guarantees shall be managed
by the Central Bank of Iraq in accordance with Section I (10) Annex A and Section II (2)
Annex B of the same law. Furtherance to these, the law also provides for, under Section II
(3) Annex B, the authority of the Minister of Finance for the determination of the terms and
conditions governing these debts and guarantees in terms of date of maturity, interest
rates, forms of security, interest computation, debt currency, principal and interest payment
date, among others. Interactions with officials of the Public Debt Department of MoF in
addition to evidence adduced point to the fact that the laws and regulations governing
public debt and guarantees, as well as guidelines contained in the debt management
strategy 2017-2019 are adhered to. Until 2004, the GoI had no borrowings following from
the fact that the budget always had a surplus. Thereafter, GoI began borrowing, not for
budget financing but for capacity development and training, as well as to gain experience
from international and domestic borrowing strategies in addition to activating the treasury
market. The level of sovereign guarantees, as of the time of this assessment was
approximately USD 428 million for the energy sector, representing 0.42% or 0.72% of total
government budget or expenditure respectively for FY2015.
13.3 Debt management strategy

The MoF developed a current three-year medium-term debt management strategy (DMS)
spanning 2017-2019. The strategy outlines an overview of the functions of the Public Debt
Department, among which include but not limited to negotiating debt payment schedules,
issuing government treasury bills and bonds for the domestic financial market, and
securing new affordable external loans from bilateral and multilateral creditors.
Government borrowings for the FY2015 amounted to IQD 18.74 trillion; this is expected to
increase to IQD 20 trillion in 2016 mainly due to the continuous decline of the price of crude
oil with a projected barrel price of USD 45 at a forecast production volume of 3.5 million
barrels per day.
The DMS is not published, and is limited in scope in terms of providing a detailed outline
of risk implications of government borrowings such as interest and exchange rate risks,
among others. Whiles the DMS provides composition of external financing by, lending
agency, principal and interest payment: however, it does not provide same for domestic
borrowing.
32
factors
Debt management C D+
13.1 Recording and C C Total public debt The scores are
reporting of debt records (foreign & directly
and guarantees domestic) are comparable.
reconciled & updated Score and
annually based on performance
creditor statements, unchanged
with minor
reconciliation
differences. Monthly
reconciliation is also
done between PDD
and Accounts
Department but with
major reconciliation
differences
13.2 Approval of debt C C The Minister of The scores are
and guarantees Finance is the sole not directly
official authorized by comparable,
law to contract loans although the
and issue guarantees subject matter is
on behalf of GoI. unchanged from
DMU responsible for PI-17 (III) in 2008.
managing
government debt
portfolio. Loans and
guarantees are
approved by the
Council of
Representatives.
13.3 Debt management NA D A 3-year medium- Not comparable:
strategy term DMS has been new dimension
prepared for 2017-
2019, which outlines
composition of
external borrowing but
lacks detailed
analysis of risks. No
information on
domestic borrowing
for forecast period, &
is not published.
Ongoing reforms:
Japan International Cooperation Agency (JICA) is providing assistance on Debt
Management issues through the ongoing Debt Management Performance Assessment.
33
Pillar IV. Policy-based fiscal strategy and budgeting
PI-14 Macroeconomic and fiscal forecasting
This indicator measures the ability of a government to develop robust macroeconomic and
fiscal forecasts, which are crucial to developing a sustainable fiscal strategy and ensuring
greater predictability of budget allocations.
14.1 Macroeconomic forecasts

The Budget Department in the MoF uses projections incorporating GoI policies set out in
the ‘National Development Plan (2013-17)’ and the ‘Strategy for Combating Poverty’ (2009)
as well as ad hoc inputs from line Ministries, the Central Bank, and the Central Statistics
Organization to produce a ‘Federal Budget Strategy for Fiscal Years 2016-2018’ (FBS) –
effectively a Budget Framework Paper.
The FBS includes the latest available information and developments in GoI policies that
may impact on revenues and expenditures, as well as macroeconomic data and
assumptions about GDP, inflation (CPI), population growth and exchange rates. Previous
trends are observed and forecasting techniques are used to derive projections which in
addition to the above estimate loan disbursements and repayments, other financing items,
and the oil price. This data is combined into a report which is shared with Parliamentary
working groups on the budget, but it is neither published, nor reviewed by another
(independent) entity.
14.2 Fiscal forecasts

Effective forecasting of future revenue flows will ideally define the size of the envelope for
meaningful planning of medium-term expenditures: this is an essential part of any PFM
system and ideally is transparent, formalized and accountable in what is largely a political
process. However, in GoI, revenues are overwhelmingly generated (85%) from a single
natural resource – Oil – and which are of course highly susceptible to the volatility in world
markets. Hence considerable attention is given to the projections generated by the Ministry
of Oil about future prices when formulating the fiscal framework. The FBS contains various
tables, for example, of projected revenues for fiscal years 2016 to 2018 (compared to the
estimates for 2015).
Table 3.10: Revenue projections for 2016 to 2018 (Billions IQD)

2015 2016 2017 2018
Total revenues 63500 66000 79100 85600
- Revenues from crude oil exports 57700 58000 68600 74500
- Non-oil revenues 5800 8000 10500 11100
Taxes (direct & indirect) 1400 4700 6 7
- Direct taxes 1849.245 2100.585 2465.184 2656.702
Individual income ta 389.245 847.327 932.060 1025.266
Corporate income tax 671.633 275.156 302.672 332.939
Corporate taxes: foreign oil co. 618.000 870.000 1050.000 1100.000
Income tax for civil servants 170.367 108.102 180.452 198.497
- Indirect taxes 2475.000 2546.000 2870.000 3490.000
Customs duties 2065.000 2106.000 2400.000 3000.000
Excise tax 410.000 440.000 470.000 490.000
Interest 15.180 10.853 11.688 12.835
Treasury’s profits of B enterprises 3235.166 3002.071 3289.989 3618.988
Fees for services 105.523 165.370 500.000 700.000
Other revenues 105.523 6475.278 5494.122 6043.432
Non-tax revenue 4400 3300 3500 3900
Source: FBS, 2016
34
Similarly, projected expenditures for fiscal years 2016 to 2018 are compared to estimates
for 2015, assumed rates of growth, and the share of the investment budget of total
expenditure:
Table 3.11: Expenditure projections for 2016 to 2018 compared to estimates for 2015
(Billions IQD)
2015 2016 2017 2018
Total expenditures 89.3 82.8 95.0 98.6
- Current expenditures 57.6 66.2 69.6 74.6
Growth rate (percent) -- 6.1 1.4 1.4
Additions -- 4.777 1.195 1.2
- Investment expenditures 31.6 16.6 25.4 24.0
Growth rate (percent) -- -26.0 10.0 10.1
Additions -- -- -- --
Total revenues 63.5 66 79.1 85.6
- Revenues from crude oil exports 57.7 58.0 68.6 74.5
- Non-oil revenues 5.8 8.0 10.5 11
Deficit -25.8 -16.6 -15.9 -13.0
Ratio of investment exp to total 35.4 20.0 26.7 24.3
budget exp (percent)
Ratio of current expenditures to total 64.5 80.0 73.3 75.7
budget expenditures (percent)
Ration of deficit to total budget -a28.9 -20.2 -16.7 -13.2
(percent)
Ratio of deficit to GDP (percent) -12.3 -8.2 -7.0 -5.3
Consumer price index (inflation) 1.4 2 2 2
Gross national product 210.2 205.1 227.4 243.8
Population (x 1,000) 35,282 37,016 39,977 41,195
Source: FBS, 2016
As might be expected in an economy so heavily dependent on a single revenue source,

forecasting is formalized, led by the Ministry of Oil and integrated in the budget process.
This is sufficiently top-down to influence the allocation of expenditure across all GoI
priorities, and MoF consults with key stakeholders (including Parliamentary working
groups) on the impact of current and new revenue policies to derive recommendations for
inclusion in the annual budget law.
14.3 Macrofiscal sensitivity analysis

The FBS does not explicitly include assessments – quantitative or qualitative – of the
impact of alternative macroeconomic assumptions., given the sensitivity of markets to such
information.

factors
Macroeconomic and C+ New indicator.
fiscal forecasting
14.1 Macroeconomic new B Projections of New dimension.
forecasts inflation, the Oil price,
loans and other
financing items are
made but not
published, nor
reviewed by an
independent entity.
14.2 Fiscal forecasts new B Revenue forecasting New dimension.
is formalized, driven
35
factors
by assumptions about
oil prices.
14.3 Macrofiscal new D The FBS does not New dimension.
sensitivity analysis explicitly include
quantitative or
qualitative
assessments of the
impact of alternative
macroeconomic
assumptions.
Ongoing reforms: IMF assistance has been provided in this area, and is expected to
continue.
PI-15 Fiscal Strategy
This indicator provides an analysis of the capacity to develop and implement a clear fiscal
strategy. It also measures the ability to develop and assess the fiscal impact of revenue
and expenditure policy proposals that support the achievement of the government’s fiscal
goals.
In the extremely difficult circumstances facing the country stemming from the continuing
ISIS insurgency and the global oil price decline, GoI is facing a large financing gap of more
than 9% of GDP, and hence the strategy has been reactive to deal with the immediate
crises.
15.1 Fiscal impact of policy proposals

This dimension focuses on proposed policies as well as the key assumptions underpinning
the macroeconomic environment, as a failure to anticipate the impact of policy changes
can lead to abrupt revenue reductions, unanticipated deficits and further undermine service
delivery: this has been the situation faced by GoI, as the recent reduction in oil prices on
the world market and the security situation in the country have combined to create a deficit
(over 9% of GDP) in the current year’s budget.
In this context and with IMF assistance, GoI has adopted a number of short- and medium-
term measures to deal with the crisis, including
• strengthening the fiscal position with a number of revenue-enhancing measures such

as introducing customs tariffs and sales taxes;
• reprioritizing investment expenditures (eliminating or postponing less necessary
projects);
• reviewing project selection and procurement practices;
• improving the delivery of electricity and containing energy subsidies, with strongly
progressive rates for the largest consumers with minimal impact on the rates for low-
income households;
• increasing domestic fuel prices, which are now among the highest in oil producing
countries;
• financing the deficit from domestic as well as external sources;
• actively pursuing a credit rating;
• seeking support from international financial institutions (primarily the World Bank.
36
Hence the combined effect of the measures outlined above which were designed to provide
short term stability to GoI, are quantified and recorded in the MoF’s ‘Federal Budget
Strategy 2016-18’ and in the (publically available) IMF ‘Article IV’ report.
15.2 Fiscal strategy adoption

For several years, the FBS has set out the fiscal framework within which the budget is
formulated, although GoI recognises that the budget process itself requires considerable
improvement, and this will be addressed over the medium term as part of the financial
management reform program. Fiscal data collected by the Budget Department in MoF is
formulated into a MTF Framework to project aggregate ceilings for the budget, and
forecasts of the fiscal balance: different scenarios are modelled for internal use but are not
included in the document presented to Parliament. As well as defining and preparing a
series of standard assumptions to ensure that the basis upon which fiscal forecasts are
produced is both robust and transparent, the FBS discusses the issues to be considered
in formulating a financing policy, including the risks to be mitigated and the structural
changes necessary to develop the economy. The strategy reflects a medium-term vision
aimed at strengthening the link between budget allocations and GoI priorities for utilizing
the resources available for the coming FY.
The latest strategy document projected expenditure limits for FY2016 and the two following
years, and identified the following medium-term objectives:
• provide recurrent financing for completed investment projects (such as new schools
and hospitals);
• increase the accuracy of spending units’ projections, to enhance their planning
capacity and limit overly ambitions projections in their annual budgets;
• reduce economic fluctuations.
As mentioned above, following the 2015 ‘Article IV Consultation’ the IMF has agreed a
“Rapid Financing Instrument” of approximately USD 1.24 billion to support GoI in
addressing the financing gap, on the basis that the measures agreed will be implemented.
15.3 Reporting on fiscal outcomes

This dimension assesses the extent to which GoI makes available – as part of the annual
budget documentation submitted to the legislature – an assessment of its achievements
against the stated fiscal objectives and targets. The FBS presented to Parliament (and the
IMF Article IV report) contains data on the actual deficit compared to the planned figure,
and these can be seen in Table 3.12 below:
Table 3.12: Difference between actual & originally forecasted primary fiscal balance
2013 2014 2015
% % %
Planned 7.1 1.8 1.2
Actual -5.5 -5.0 -16.2
Difference 12.6 6.8 17.4
Source: IMF Article 4, 2015
The difference was 12.6% in 2013, 6.8% in 2014, and 17.4% in 2015.
37
factors
Fiscal strategy C
15.1 Fiscal impact of new C In the context of the New dimension
policy proposals recent reduction in oil
prices on the world
market and the
security situation in
the country GoI (with
IMF assistance), has
adopted a number of
short & medium-term
measures to deal with
the crisis (a deficit
over 9% of GDP).
15.2 Fiscal strategy new C The strategy reflects a New dimension
adoption medium-term vision to
strengthen the link
between budget
allocations & GoI
priorities for utilizing
available resources
for the coming FY;
however, this is not
presented to
Parliament.
15.3 Reporting on fiscal new C GoI prepares New dimension
outcomes progress report
against its fiscal
strategy and attached
to the annual budget
submitted to the
Parliament.
PI-16 Medium-term perspective in expenditure budgeting
This indicator examines the extent to which expenditure budgets are developed for the
medium term within explicit medium-term budget expenditure ceilings. It also examines the
extent to which annual budgets are derived from medium-term estimates and the degree
of alignment between medium-term budget estimates and strategic plans.
16.1 Medium-term expenditure estimates

The FBS submitted to Parliament includes the forecast fiscal years and the next two years
on both revenue and expenditure with explanatory notes, and uses both administrative and
economic classifications. The Minister of Finance’s budget speech to Parliament follows
the FBS and highlights key assumptions, including the impact of the global economic
conditions; the Oil price; donor aid flows; and foreign direct investment.
In line with the ‘National Development Plan (2013-17)’, budget consultations for FY2016
were led and coordinated by MoF, and fully informed by preceding planning consultations
where broad priorities were agreed. Budget requests by sector ministries and affiliated
agencies were scrutinized for compliance with agreed priorities: however, the overall fiscal
crisis limited the possibilities for additional resources and Ministries were advised to
reprioritize recurrent expenditure in favor of investment projects.
38
16.2 Medium-term expenditure ceilings
In the Federal Budget Strategy (2016-18), MoF recommends the Council of Ministers pass
a resolution requiring ministries and spending units to comply with the ceilings established
in the strategy as a basis for preparing estimates. It also notes that ceilings encourage
spending units to develop realistic spending plans, and support investments and focus on
high priority services with. GoI has incorporated ceilings in the budget strategy since 2010,
and the chart below indicates the positive impact of this change. As can be seen In Table
3.13 below, the difference between the budget proposed by MDAs and the approved
budget has declined, as officials have gradually shifted to planning for the medium-term.
Table 3.13: Difference between ceilings and actual expenditure

250000000.000
‫المقترح‬
200000000.000 ‫المصدق‬
150000000.000
100000000.000
50000000.000
0.000
(‫مليون دينار‬/ ‫)المبلغ‬ 2010 2011 2012 2013 2015
Source: FBS 2016-18
16.3 Alignment of strategic plans and budgets

The country’s national investment program is set out in the the ‘National Development Plan
2013-17’ (NPD), and MDAs are prioritizing the projects contained in this plan, within the
policy shift away from recurrent expenditure. However, the difficult fiscal environment
means that while all MDAs do have medium-term plans linked to the NDP, progress is
restricted by the (unpredictable) availability of annual allocations.
16.4 Consistency of budgets with previous year estimates

The FBS states that “the budget for fiscal year 2016 is consistent with the medium-term
fiscal framework, which broadly continues the policy started in 2014”. As discussed
previously, total planned expenditure for FY 2016 has changed, and there is a shift from
recurrent to investment expenditure, as a result of the expenditure prioritization policy, as
well as the adjustments necessary to deal with the fiscal crisis: i.e. these changes are
explained.
39
factors
Medium-term D+ B
perspective in
expenditure budgeting
16.1 Medium-term C B Estimates are Related to former
expenditure presented for budget PI-12 (i), but not
estimates and following 2 FYs comparable
using administrative &
economic
classifications.
16.2 Medium-term B Budget ceilings are New dimension
expenditure ceilings contained in the
‘Federal Budget
Strategy’.
16.3 Alignment of D B MDAs do have Related to former
strategic plans and medium-term plans PI-12 (iii) & (iv), but
medium-term linked to the NDP not comparable
budgets
16.4 Consistency of C Adjustments caused New dimension
budgets with by the fiscal crisis are
previous year explained.
estimates
PI-17 Budget preparation process
This indicator assesses the budget formulation process that allows for an effective top-
down and bottom-up participation of the MDAs, including their political leadership
represented by Cabinet. It also assesses the extent to which the annual budget preparation
process supports the linking of the draft budget to public policy objectives. Dimensions 1
and 2 are assessed using the last budget submission, for FY17. Dimension 3 is assessed
on the basis of the last three approved budgets: i.e. the FY 2014, 2015, 2016.
17.1 Budget calendar

Section 6 of the Financial Management and Public Debt Law 95 of 2004 stipulates a
timetable for the preparation of the annual budget, as follows: the process starts in June
each year where the Minister of Finance, in consultation with the Minister of Planning and
Development Cooperation, and based on the priorities for fiscal policy established by the
Council of Ministers, issues a circular setting guidelines and objectives of fiscal policy for
spending units for the preparation of their budgets. Each July, spending units submit budget
proposals to the Minister of Finance, who uses these to prepare the draft federal budget
and submit it to the Council of Ministers for approval. The Minister of Finance submits the
budget by October 10th to the Parliament. This calendar is clear, provides sufficient time
for agencies to prepare submissions and was followed for the last budget cycle for most
agencies.
17.2 Guidance on budget preparation

Financial Management and Public Debt Law 95 of 2004 section 6 paragraph 3 requires the
Minister of Finance, in consultation with the Minister of Planning and Development
Cooperation, and based on the priorities for fiscal policy established by the Council of
Ministers, to issue a budget call circular setting guidelines and objectives of fiscal policy for
spending units for the preparation of their budgets. The requires the circular to include key
economic parameters, based on the macroeconomic framework, the procedures and
40
timetable for budget preparation, as well as total levels of expenditure for each spending
unit. This will serve as the basis for the spending unit to prepare its budget request. The
Budget call circular of 2017, for both investment recurrent expenditures, was a reissue of
the previous year’s circular, but provides total budget expenditure for the full fiscal year,
and administrative ceilings.
17.3 Budget submission to the legislature

Financial Management and Public Debt Law 95 of 2004 section 6 paragraph 8 requires the
Minister of Finance to complete the draft annual federal budget by September of each year
and submit it to the Council of Ministers (CoM) for approval. The Minister of Finance by not
later than October 10th to submit it to the body vested with the national legislative authority
for approval. Under the Constitution, legislative authority is vested in two bodies; the
Council of Representatives (CoR) and the Council of Union. The CoR consists of 275
members who are elected for four year terms. The CoR approves federal laws, oversees
the Executive, ratifies treaties, and approves nominations of specified officials. It elects the
president of the republic, who selects a prime minister from the majority coalition in the
Council18. The Council of Union, or Federation Council (Majlis al- Ittihad), is to consist of
representatives from Iraq’s regions. Its precise composition and responsibilities are not
defined in the Constitution and are to be determined by the CoR. The Finance Committee
reviews the Budget and provides a report to the CoR.
The Budgets of 2017 and 2016 were submitted to the CoR two months before the start of
the fiscal year, October 23, 2016 and November 1, 2015, respectively. While the 2015
budget was submitted late to the CoR (December 25, 2014). The executive slightly did not
adhere to the Organic Budget Law 94/2004 on the submitted of the budget to CoR for 2017
and 2016, while the 2015 budget was submitted very late (a week before the start of the
fiscal year.

factors
Budget preparation NA B+
process
17.1 Budget calendar B B A clear annual budget No change, budget
calendar exists and is calendar is clear
largely adhered to. and provides
The calendar allows sufficient time for
budgetary units at agencies to
least four weeks from prepare
receipt of the budget submissions and
circular. Most majority of
spending units are spending units
able to complete their complies in
detailed estimates on submitting their
time. detailed estimates
on time.
17.2 Guidance on D A The Budget call The scores are
budget preparation circular of 2017 was a indirectly
reissue of the comparable as the
previous year, but 2016 calibration
does provide totals includes externally
and ceilings. financed
projects/programs
which were
excluded in 2008
assessment.
41
factors
17.3 Budget submission NA B The executive Not comparable:
to the legislature submitted the draft new dimension.
budget of 2017 to the
Parliament in Sept,
budget of 2016 was
submitted to the CoR
in Nov. 2016, while
budget of 2015 was
submitted in Dec 25,
2014.
PI-18 Legislative scrutiny of budgets
This indicator assesses the legislative scrutiny and debate of the annual budget law as
described by the scope of the scrutiny, the internal procedures for scrutiny and debate and
the time allocated to that process, in terms of the ability to approve the budget before the
commencement of new FY, and also assesses the existence of rules for in-year
amendments to the budget without ex-ante approval by the legislature.
18.1 Scope of budget scrutiny

Good practice envisages that the legislature will be able to have an impact on the
Government’s fiscal policy proposals, the medium-term budget framework, medium-term
budgetary priorities, and budget revenue and expenditure estimates, through its scrutiny
and discussion of the budget proposals. The CoR along with other political institutions, has
suffered from the deteriorating security situation and the political gridlock that has
paralyzed the GoI. In April 2016, protesters stormed the parliament and set up camp
outside its premises in protest of the continued deadlock. A couple of months later the
Federal Court nullified two controversial parliament sessions held on April 14 and 26,
during which the critically divided MPs voted on removing the Speaker.
Despite the escalating political tensions, the CoR continues to perform its legislative and
oversight functions. Among its responsibilities, the CoR is mandated by the Constitution
(article 62) to review and adopt the annual budget law. The government submits to
parliament the draft budget along with an economic impact assessment report prepared by
the Ministry of Finance (MoF).
The legislature’s review of the budget covers details of expenditure and revenue. These
include the overall amounts allocated for investment projects, the estimated revenues and
their sources, the estimated expenditures, and the budget deficit or surplus. However, the
budget does not include medium or long term fiscal priorities or forecasts. The CoR does
not analyse the investment budget in detail, but rather the total amount allocated to it. It
does review some fiscal policies but on an ad-hoc basis. It has not discussed some of the
major medium term development plans, such as the National Development Plan (2013-
2017) nor its amendments.
18.2 Legislative procedures for budget scrutiny

The Finance Committee is the standing committee tasked with scrutinizing the budget and
government’s fiscal policies. Upon receiving the Annual Budget Bill from the government,
the bill goes through a first reading in the plenary. It is then referred to the Finance
42
Committee, which submits its report including proposed amendments to the budget. The
budget then goes through a second plenary reading, during which MPs can discuss the
budget, direct questions to the government, and finally vote to adopt the budget law.
The parliamentary bylaws offer general guidelines for committee work such as formation,
reporting, and quorums (Bylaws, articles 68-118). However, some Members of Parliament
(MPs) complained that the bylaws are only partially followed. The Finance Committee lacks
internal rules of procedure that regulate internal organization, public consultation, technical
support and analysis, coordination with other committees etc. Over the past two years, the
Chair of the Finance Committee has opted to form subcommittees to study the budget of
specific sectors, yet this was an informal procedure.
The Finance Committee does hold hearing sessions with representatives of ministries and
other public bodies, especially Ministry of Finance, while discussing the draft budget. It also
has some expertise available to it including in house advisors as well as support from
multiple international organizations including UNDP and the World Bank among others.
18.3 Timing of budget approval

GoI is required to submit the draft budget bill to parliament by October 10 each year, which
was not achieved in 2016 budget (draft budget was submitted to the Parliament on
November 1, 2015). The parliament is required to vote and adopt the budget law by 31st of
December, which gives the CoR around two and a half months to discuss and adopt the
budget.
The Parliament did not approve the budgets of 2016 and 2015 before the start of the new
fiscal years as both budgets were approved in January of respective fiscal years. For
budget of 2015, the parliament did not receive the budget from the government in time and
was unable to adopt it before the beginning of the new fiscal year (see Table 3:14 below).
The 2014 budget proved to be particularly problematic as there was no consensus among
the political parties in parliament; the budget proposals submitted were rejected and the
legislature requested government to revise the estimates.
Table 3:14: Budget Submission to CoR and Adoption (2014-2016)

Budget Year Draft Budget Submitted to CoR Budget Adopted by Parliament
2014 March 2014 Not approved
2015 December 2014 January 2015
2016 November 2015 January 2016
Dimension rating =C
18.4 Rules for budget adjustments by the executive

PEFA defines good practice as requiring the existence of clear rules limiting the
government’s power to make in-year budget amendments without the prior approval of the
legislature.
The CoR has the power to reallocate or decrease budgeted funds of different units
(FMPDL, section 7.3). However, the law does grant the Minister of Finance to carry-out in
year adjustments according to the following conditions (FMPDL, section 9.8):
• The Minister can reallocate a maximum of 5% of the total appropriations of the annual
or supplemental budget of the spending unit whose budget was reduced, with the
condition that no funds are reallocated between the current expenditure of one
spending unit and the capital expenditure of another, or between transfer payments of
43
one spending unit and other items, including salaries, goods, and services or capital
expenditures, of another.
• Spending units may, with the approval of the Minister of Finance, reallocate their
approved funds between line items by up to 5% of the total amount of funds approved
provided that no funds can be reallocated from capital to current expenditures or
between transfer payments and other current expenditures, including salaries, goods
and services. Virement from salaries or current spending to capital spending of up to
5% may be permitted with the approval of the Minister of Finance.
According to the CoR’s Finance Committee, approximately 10-20% of the budget funds
have been reallocated in the past few years. Furthermore, reallocations have not always
respected the conditions for reallocation, for example the Board of Supreme Audit (BSA)
2014 report shows that funds were reallocated from investment to operational budgets.
The Ministry of Finance is required to submit on a quarterly basis a report of these transfers
to the COR. For 2015, the Ministry published monthly report on the status of the budget
implementation on its website. These reports show that the government often faces
challenges implementing the budget and disbursing the allocated funds. This prompts
Parliament to question Ministers, for example, the CoR to the Minister of Electricity in
August of 2015. However, the pressure on spending the budget fast may create perverse
incentives to increase operational costs, raise expenses etc.
The FMPD law also grants extensive rights to the government to amend the budget through
passing a supplementary budget, but only on the basis of a significant and unexpected
change in economic circumstances or national priorities (FMPDL, section 7.5). The Minister
of Finance recommends the supplementary budget to the Council of Ministers, who
approves it and then submits it to the CoR for approval. In 2012, the government approved
a supplementary budget of 9.3 billion Dollars (approximately 10% of the total annual budget
adopted) and submitted it to parliament for approval, however the parliament voted against
approving the budget.
As clear rules exist that are adhered to in some instances, and extensive administrative
reallocations as well as expansions of total expenditure are allowed, a C rating is
considered appropriate.

factors
Legislative scrutiny of D+# C+
budgets
18.1 Scope of budget C B Budget strategy is No change.
scrutiny attached to budget
proposal submitted to
the Parliament; which
includes fiscal policies
and aggregates for
the coming years,
besides details of
revenue and
expenditures,
however: it does not
appear that fiscal
policies are reviewed
and challenged.
18.2 Legislative C C Finance Committee No change.
procedures for lacks internal rules,
budget scrutiny but has adopted
informal procedures
44
factors
to hold hearings with
Ministries etc.,
(especially MoF) &
has support from e.g.
UNDP and WB.
18.3 Timeliness of B C The legislature Rated B in 2008,
budget proposal approved the budgets based on the time
approval of FY16 and FY15 parliament spent
within a month of the debating the
start of FY budget rather
than when it was
approved.
18.4 Rules for budget D C Clear rules exist and The 2008 report
adjustment by the are adhered to in emphasized that
executive some instances: in addition to GoI
however, extensive partially adhering
administrative to reallocation
reallocations as well rules, there was
as expansions of total no proof of a
expenditure are supplementary
allowed, Over the budget being
past few years submitted. This
approximately 10- area witnessed
20% of the budget some
funds have been improvement in
reallocated. the following
years, with a
supplementary
budget submitted
to & rejected by
CoR in 2012.
# Was PI-27 in 2008 version of the Framework
Ongoing reforms:
A technical assistance support program, funded by the EU and managed by the World
Bank, is under preparation aiming to enhance budget oversight and accountability
mechanisms in the use and management of financial resources of relevant institutions in
the Federal Government of Iraq and the Kurdistan Regional Government. Some of the
project priorities are supporting the Supreme Audit Institutions; Parliamentary Budget
Oversight; and the Anti-Corruption Institution.
45
Pillar V. Predictability and control in budget execution
PI-19 Revenue administration
The assessment of this indicator cuts across the entire revenue administration of central
government including tax and non-tax revenue. Two MoF departments are responsible for
collections, the General Commission of Taxes (domestic tax collection) and the General
Commission of Customs (customs and excise duties and other import tariffs). The indicator
has four dimensions: 19.1 assesses the rights and obligations of taxpayers; 19.2 measures
the risk associated with revenue management; 19.3 looks at audit and fraud investigation
measures; and 19.4 assesses the mechanisms for monitoring and collecting revenue
arrears.
19.1 Rights and obligations for revenue measures

Information on taxpayer obligations and rights to redress is quite comprehensive, clear and
simple to understand. Dissemination of information on taxpayer obligations and right to
redress is limited, to a minimal distribution of leaflets and internet access on tax authorities'
web portals with links to MoF website. Media (both print and electronic) campaigns have
been reduced drastically, according to officials, mainly due to the high cost of advertising.
Income Tax
Income Tax Law 113 of 1982 outlines comprehensive and simple measures regarding
direct and indirect tax obligations. Article 2 details sources of taxable income; Article 3 talks
about tax assessment; Article 7 and 8 provide information on exemptions and deductions
respectively. Whereas Articles 11, 12, and 13 describe loss transfer, chargeable
allowances and effective tax rates respectively, Article 14 mentions tax on corporate
chargeable income. Details on filing and submission of tax returns are provided under
Article 27. Further, Article 56 provides detailed information on offences and penalties. In
addition to Law 113 of 1982, there are also a number of tax instructions from MoF, one of
which is Instruction No.1 of 2005 which relates to tax regulations on direct deduction
(deduction from source).
There is a ‘Large Taxpayer Unit’, which deals with approximately 55,000 companies, and
the 2010 amendment No.19 of Law 113 of 1982 changes the tax imposed on the profits of
oil companies from 15% to 35%, with a 7% tax on ‘secondary’ companies.
According to Articles 33 to 34, taxpayers have the right of objection to tax assessed.
Taxpayers have the right to administrative tax appeal as provided for under Articles 35 to
36 where they can appeal within 21 days after notification of tax liabilities. If administrative
appeal remains unresolved, both taxpayer and the General Commission of Taxes can
appeal to a Tax Appeals and Cassation Committee, chaired by a judge with other two
members of financial acumen, within 21 days following from the date of rejection.
Interactions with officials suggest that this is functional; it was however impossible to
triangulate with views from civil society organisations and members of the business
community due to the precarious security situation in Iraq.
Customs
Law No. 23 of 1984 is the main provision on customs duties and levies, and is clear and
comprehensive. Part III, Articles 8 to 21 outlines vividly the tariff regime as well as goods
subject to customs tariffs. Part IV, Articles 22 to 29 talks about restrictions and prohibitions
on goods entering or leaving Iraq. Whereas Articles 34 to 37 describe valuation of goods
imported into or exported from Iraq, Articles 54 to 61 outline customs declaration framework
and documentation requirements. The most elaborate part of the customs law are Articles
191 to 220, regarding offences and penalties. Article 239 allows for administrative
46
prosecution where the Director General of Customs imposes fines and penalties in
accordance with Law No.23 of 1984. Where there are objections by the taxpayer, a
customs court is set up to hear cases as provided for under Articles 241 to 246. If the
taxpayer fails to respond to the administrative judicial process within 15 days, the Customs
has the right to file a case to the Customs Court. In general, risks are perceived to be low
and collections are good.
Legal provisions for both Income Tax and Customs are clear, simple and elaborate;
however, public access to information on tax obligations and redress processes are very
limited.
19.2 Revenue risk management

Tax authorities in Iraq do not apply risk-based management processes for revenue
administration and collection, as the bulk of revenue is generated from a small number of
oil-related companies.
There is no tax self-assessment in Iraq; tax administration and assessment are manual,
based on historical data of taxpayers. Risk management is fundamental to ensuring
compliance, regarding taxation and revenue collection. An efficient risk management
environment coupled with functional tax audit and fraud investigation systems in addition
to deterrent tax penalty regime combine effectively to deter tax evasion. Whiles there
appears to be a deterrent tax penalty framework, the other two legs are missing, thereby
significantly reducing the effectiveness of tax administration and revenue collection.
19.3 Revenue audit and investigation

Tax audit and fraud investigations are not fully functional: neither Customs or the General
Commission on Taxes do not prepare tax audit and investigations annual work plans. In
the last three completed fiscal years, no tax audits and fraud investigations have been
conducted and reported on. That said, there is an internal audit department that examines
tax assessments against historical taxpayer information as a way of checking compliance.
The General Commission of Taxes (income tax division) imposes a 3% flat rate on the
value of imports as part of the pre-assessment mechanism; this is set off against income
tax payable whenever tax returns are filed.
It is not clear how the tax authorities in collaboration with the Ministry of Oil monitor the
activities of oil companies in Iraq; the 2016 ‘Extractive Industries Transparency Initiative’
(EITI) Report recommends that national oil companies be audited according to international
standards even though the country is EITI compliant, based on 2013 data8. This therefore
raises serious concerns regarding tax compliance of these companies.
19.4 Revenue arrears monitoring

Neither of the tax authorities monitor or keep records of tax revenue arrears; therefore,
there are no records of tax arrears. Information from Ministry of Oil regarding revenue
forecasting and data on arrears from sale of crude oil was not readily available. As regards
tax revenues, officials state that the main reason for there is no data on arrears is that
domestic tax revenue constitutes less than 5% of total government revenue, and hence is
insignificant; more than 95% of central government domestic revenue is from crude oil and
natural gas. Another important reason is the absence of an accurate taxpayer database
with up-to-date information on taxpayer, address, type of business and tax identification
8 2013 data is the latest available information
47
number even though taxpayer files have unique file numbers. These and many more
(including political considerations) make it extremely difficult to identify taxpayers, let alone
monitor and record tax arrears.
Customs duties are levied and paid at source, therefore, with little arrears if at all they exist,
officials have confirmed; the only situation where arrears arise is out of fraud investigations
and audits to determine whether taxpayer(s) under-declared the value of their imports.
Inland Revenue on the other hand re-iterated that whereas arrears could be significant in
relation to tax assessed, poor and inaccurate data on taxpayers inhibit any tax arrears
collection efforts; that said there are no arrears on pay-as-you-earn (PAYE) since this is
deducted at source from employees' salaries.

factors
Revenue administration D
19.1 Rights and N/A C The majority of Dimension
obligations for revenue collecting reformatted to
revenue measures agencies provide include tax & non-
clear, comprehensive tax revenue
& simple information arrears;
on taxpayer performance not
obligations. Also, an comparable
administrative and
judicial mechanism for
redress.
19.2 Revenue risk N/A D Tax authorities do not New dimension:
management apply risk-based performance not
processes for comparable.
managing risk
19.3 Revenue audit and N/A D Both Customs and Subject matter
investigation General Commission maintained, but
of Taxes do not data requirements
prepare tax audits revised; therefore
and fraud not directly
investigations annual comparable
plans; no tax audit
has been done in the
last three years.
19.4 Revenue arrears NR D* There are no records Dimension
monitoring of the stock of reformatted to
revenue (tax and non- include tax & non-
tax) arrears. Whereas tax revenue
revenue officials arrears;
attest to the fact there performance not
could significant tax comparable.
arrears, poor and
inaccurate record
make it difficult to
track and record tax
revenue arrears. No
information from
Ministry of Oil about
arrears on sales of
crude oil.
48
PI-20 Accounting for revenue
This indicator assesses procedures for recording and reporting revenue collections, and
has three dimensions. Dimension 20.1 examines the information provided by all revenue
collecting agencies to MoF; 20.2 measures the effective transfer of revenue from all
revenue collecting agencies to MoF; and 20.3 assesses the revenue reconciliation
mechanism in terms of assessment, collections, transfers to MoF and revenue arrears.
20.1 Information revenue collections

Oil revenues constitute 82% of total federal government domestic revenue as of September
2016, at IQD29trillion (unaudited). The Central Bank of Iraq is responsible for oil revenue
collections, and reports to MoF on daily collections and performs monthly reconciliations.
It does so with inputs from the national oil marketing company – SOMO. On the other hand,
two departments within MoF, the General Commission of Taxes (responsible for domestic
tax collection) and the General Commission of Customs (responsible for customs and
excise duties and other import tariffs) each prepare monthly tax revenue reports, which are
consolidated and presented by MoF as part of the in-year budget execution reports. MoF
also reports on revenue from oil and other non-tax revenues such as property income and
income on investments.
The monthly report from the General Commission of Taxes shows that revenue from
income tax on employees (pay-as-you-earn (PAYE)) in June 2016 amounted to
IQD161.15billion, made up of IQD123.53billion and IQD37.62billion for the public and
private sectors PAYE respectively. Income tax on telecommunications and hoteliers was
IQD271.36billion and IQD0.93billion respectively. The cumulative revenue from income tax
for the half-year ending June 2016 amounted to IQD1.57trillion. Evidence adduced by the
General Commission on Taxes shows a sturdy improvement in domestic revenue
mobilization; the total revenue from income tax was IQD1.47trillion and IQD1.72trillion in
FY2014 and FY2015 respectively, an increase of 17% over the 2014 figure. Customs on
the other hand reported total customs revenue of IQD514.64billion and IQD416.36billion in
2014 and 2015 respectively; these were broken down monthly into revenue types. The
reports provide statistical analyses indicating revenue trends of revenue type. The tax to
GDP ratio has been improving year-on-year; in 2013, it was 0.5% and 0.92% compared to
GDP including oil and excluding oil respectively. In 2014 and 2015, these increased to
0.57% and 1.8% of GDP with oil respectively, and 1.03% and 2.69% of GDP without oil in
that order. Oil revenues on the other hand constitute 92% of total federal government
domestic revenue for FY2014, and 77% of FY15, and 82% for FY16 as of September
(unaudited).
20.2 Transfer of revenue collections

Oil and gas sales (77% to 98% of total federal government domestic revenue) through the
national oil marketing company (SOMO) are deposited directly to Treasury Account
(300600) at CBI, no funds from oil sales are received by SOMO. Both the General
Commission of Taxes and the General Commission of Customs maintain holding bank
accounts, approved by MoF, with three state banks head office branches in Baghdad for
revenue collection across Iraq. In addition to these holding accounts, there are other
subsidiary bank accounts with state banks in each governorate with branch offices of tax
authorities. Taxpayers pay either directly into the nearest bank branch or at the offices of
the tax authorities. Whereas both GCT and GCC transfer tax collections from branch bank
accounts into the holding accounts daily, transfer from the holding accounts to the State
Treasury Account is rather monthly; it should be noted that tax revenue constitutes between
2% to 23% of total federal government domestic revenues.
49
20.3 Revenue accounts reconciliation
There is no mechanism for complete and comprehensive revenue accounts reconciliation
within the revenue administration framework. The only reconciliation that occurs is between
revenue collections and transfers to MoF, which occurs monthly between revenue
collecting agencies and MoF. A ‘Complete Revenue Accounts Reconciliation’ refers to the
process of comparing total revenue (Tax and non-tax) assessed in a given period to actual
revenue collected, then arrears which arise because of the difference between revenue
assessed and revenue collected, and finally comparing actual revenue collections to total
revenue transferred to the Treasury. The national oil company – SOMO, under the
supervision of Ministry of Oil performs monthly revenue transfer reconciliation with MoF
and CBI; this reconciliation involves total revenue collected and deposited into treasury
account No. 300600 held at CBI. As indicated in PI-19.4, poor taxpayer database remains
a major concern in Iraq, and therefore does not lend itself to ensuring systematic and
sustainable revenue account reconciliation.

factors
Accounting for revenue N/A C+
20.1 Information on N/A B MoF obtains monthly New dimension.
revenue collections revenue reports
disaggregated into
revenue types from
most revenue
collecting agencies;
these are
consolidated and
reported in the in-year
budget execution
reports.
20.2 Transfer of revenue B A Oil and gas revenues Subject matter
collections are deposited directly comparable, but
to State Treasury data requirements
Account (300600). increased to
However, transfers include non-tax
from revenue revenue.
collecting agencies is
monthly from tax
authorities' holding
bank accounts into
State Treasury
Account; that said,
daily sweeps are
made from tax
agencies' branch
account into holding
accounts.
20.3 Revenue accounts D C Complete and Subject matter
reconciliation comprehensive maintained but
revenue accounts data requirements
reconciliation is not revised: hence not
done; only monthly directly
reconciliation is comparable, but
between revenue performance
collections and appears
transfers to State unchanged since
Treasury Account; oil, 2008.
gas and tax included.
50
Ongoing reforms:
As part of measures to improve domestic revenue, government has introduced a number
of income tax and customs tariffs on importation of vehicles, tobacco, alcohol, mobile
telephony and internet usage. These tax measures began in January 2016 and are
expected to continue in the long term.
PI-21 Predictability of in-year resource allocation
This indicator examines the extent to which a consolidated cash balance is prepared for all
central government bank accounts (21.1), a forecast cash flow statement is prepared and
undated regularly (21.2), timely transmittal of expenditure commitment ceilings to line
ministries and budget entities (21.3), and budget reallocation mechanisms (21.4) For
effective budget execution, it is crucial that MDAs receive reliable information on the
availability of funds, and for all three dimensions, the assessment is based on the last
completed FY, 2015.
21.1 Consolidation of cash balances

Consolidation of government cash balances is crucially important for efficient and effective
cash management, particularly where central government revenues, majority of which is
from oil, continue to fall because of the incessant decline in global crude oil prices. Further,
proper cash management ensures that government borrows only when it is necessary in
order to reduce high borrowing cost and, also crowding out liquidity for the private sector –
which might not be extremely important in Iraq because of a state-led economy, but may
become imperative for private sector growth, going forward.
The Treasury operates two main bank accounts held by the Central Bank of Iraq. There
are other MoF authorised bank accounts held by line ministries for projects and
programmes; these are held in state banks. Line ministries receive monthly cash allotments
from MoF into their individual authorised bank accounts for expenditure payment. Officials
of MoF say consolidation of government cash balances takes place each month, and
includes treasury balances and balances from line ministries.
21.2 Cash forecasting and monitoring

Legislative budget approvals are usually late in Iraq, and in 2016, this only occurred in
March contrary to Section 7(4) of FML, which requires parliament to pass the budget law
by December 31 before the commencement of the new fiscal year. Line ministries and
budget entities prepare annual cash flow plans based on their approved budget allocations,
for consolidation by MoF; but this is not effectively monitored and updated regularly, either
monthly or quarterly The volatile security situation in Iraq coupled with low inflows from oil
exports due to the incessant fall in crude oil prices has made it extremely difficult to
effectively forecast and monitor cash flows, the resultant of which is the inability of budget
entities to deliver on their core mandate (education, health, water and sewerage, transport,
electricity, just to mention a few).
21.3 Information on commitment ceilings

Delays in passing the appropriations bill affects budget execution. Section 7(4) of the
Financial Management Law gives authority to the Minister of Finance to allocate one-
twelfth of the previous year's budget appropriations to each line ministry and budget entity
should the appropriations bill for the current year be delayed. The budget department of
MoF under the authority of the Minister of Finance issues annual expenditure commitment
ceilings to each budget entity once the budget is approved. As indicated in PI-21.2 above
51
referencing the late passage of the appropriations bill, the annual commitment ceilings in
effect will only cover three quarters of the fiscal year since the first quarter commitments
and expenditures will be based on the one-twelfth allocations. Whereas annual
commitment ceilings are issued, actual cash allocations are monthly based on available
cash inflows from tax and non-tax revenue; any gap is financed by borrowings from
domestic and foreign sources.
21.4 Significance of in-year budget adjustments

In-year budget reallocations are frequent, numerous and fairly transparent. Budget
reallocations within votes tend to be very frequent. In FY2015 for instance, MoF approved
at least eight thousand (8,000) budget virements at the request of line ministries and budget
agencies. Budget reallocations within and across votes are allowed by law, as provided for
under Section 9(8)(b) of the FML 2004, up to 5% of total approved budget of budget entities
including between salaries and/or recurrent expenditure to capital budget but with the
approval of the Minister of Finance. Budget reallocations across votes have become more
frequent, due to extreme pressures on government resources as described in PI-21.2
above, mandates the Minister of Finance to report on a quarterly basis, all such virements
to the Council of Representatives; in practice this is adhered to.

factors
Predictability of in-year C C+
resource allocation
21.1 Consolidation of C C Most consolidation of Rating is directly
cash balances government cash comparable, and
balances takes place shows no change
each month. in performance.
21.2 Cash forecasting C C Budget agencies Rating is directly
and monitoring submit annual cash comparable, and
flow plans to MoF for shows no change
consolidation but this since 2008.
is not updated However, at that
regularly, either time there was no
monthly or quarterly. pressure on GoI
revenues hence
effective
monitoring was not
required; this has
changed in the last
three years.
21.3 Information on C A MoF issues annual improvement.
commitment expenditure Expenditure
ceilings commitment ceilings: commitment
nonetheless cash ceilings are set for
allocations are three quarters of
monthly. the year for all
categories of
expenditure which
was not the case in
2008.
21.4 Significance of in- C C In-year budget Rating is directly
year budget reallocations within comparable, and
adjustments and across votes may shows no change
be frequent but are since 2008.
transparent.
52
PI-22 Expenditure Arrears
This indicator has two dimensions: 22.1 assesses the level of stock of expenditure arrears;
while 22.2 examines the framework for monitoring expenditure payments arrears.
22.1 Stock of expenditure arrears

Central government expenditure arrears appear to be increasing alarmingly. Officials from
MoF and MoP have indicated that the main reasons for the rise in expenditure arrears are
the continuous fall in oil prices leading to a fall in government revenues for budget
financing, and the volatile security situation in Iraq emanating from the ISIS insurgence,
which requires additional government funding for security operations. As reported by IMF
Article IV report on Iraq dated August 2015, preliminary expenditure arrears amounted to
US$8.8bn (USD 2 billion for domestic contractors/suppliers plus USD 6.8 billion for
International Oil Companies) for the fiscal year ended 31st December 2014. Data obtained
from the Public Debt Department (PDD) of MoF shows an increase of USD 1.4 billion from
the 2014 IMF figures to USD 10.2 billion in 2015. It is believed that a significant amount of
expenditure arrears is not captured in the above figures on the basis that there is no
systematic framework for monitoring arrears from line ministries that might be engaged in
unauthorised spending. Line ministries have confirmed the existence of expenditure
payment arrears; however, figures were not available. There is also no data on expenditure
arrears from state owned enterprises (SoEs). As shown in Table 3.15 below, expenditure
arrears based on available data represent 11.28% of total government expenditure in
FY2014; this increased sharply by 3.99% of the 2014 figure to 15.27% in FY2015.
Table 3.15: Analysis of stock of expenditure arrears

FY2013 FY2014 FY2015
Domestic arrears (USD) No available data 2,000,000,000 6,000,000,000
Foreign arrears (USD) No available data 6,800,000,000 4,200,000,000
Total arrears (USD) No available data 8,800,000,000 10,200,000,000
Exchange rate @ 31st Dec No available data 1,453.929 1,232.571
Total arrears (IQD) No available data 12,794,496,000,000 12,572,214,000,000
Total GoI expenditure No available data 113,473,517,460,463 82.333,363,750,000
% of total arrears to total
exp 11.28% 15.27%
Source: IMF Article IV report CR15/235, August 2015 & data from Public Debt Department
22.2 Expenditure arrears monitoring

Presently, central government has no system of monitoring expenditure payment arrears.
Since 2014, following from the economic crisis coupled with the insurgence of ISIS,
government budget has been running on deficit, thereby requiring domestic and foreign
financing which has not been sufficient during the budget implementation year. It therefore
presupposes that expenditure payment arrears do arise for works, goods and services.
The absence of a systematic monitoring framework for expenditure arrears provides an
avenue for excessive government spending, huge accrued payment arrears with fiscal risk
implications on the economy. Further, government sector priorities are likely to be derailed
because of the need to settle outstanding commitments in favour of present (current)
service delivery requirements. Fiscal discipline is potentially undermined by the lack of
proper expenditure arrears monitoring mechanism.
9 Exchange rate from EU website:

http://ec.europa.eu/budget/contracts_grants/info_contracts/inforeuro/index_en.cfm
53
factors
Expenditure arrears NR D
22.1 Stock of NR D IMF Article IV and MoF Not comparable:
expenditure data indicate that scoring criteria
arrears expenditure arrears have been
represent 11.28% and tightened in 2016.
15.27% of total NR in 2008 for lack
expenditure for FY2014 of reliable data.
& FY2015 respectively.
This reflects an increase
of 3.99% from 2014. No
available data on
arrears in FY2013.
22.2 Expenditure D D There is no framework Scores not directly
arrears for generating and comparable as
monitoring monitoring expenditure criteria reformatted:
payment arrears. however,
performance
appears
unchanged.
Ongoing reforms:
The World Bank PFM Institutional Development and Capacity Building Project will improve
financial management information and transparency, cash management and debt
management, public investment management and public procurement modernization at
federal and selected governorate levels. IFMIS design and implementation will automate
core budget execution functions (management of appropriations; commitments; payments;
receipts; cash management; accounting and fiscal reporting) at the MoF, MoP, two MDAs,
and two governorates: once operational, arrears monitoring will improve significantly.
PI-23 Payroll controls
This indicator is concerned with the payroll for public servants only: how it is managed, how
changes are handled and how consistency with personnel records management is
achieved.
23.1 Integration of payroll and personnel records

The payroll function in Iraq is decentralized at the ministry, department and agency level.
There is no centralized payroll operations or supervisory activity form MoF or any other
central authority. For this assessment, The Ministry of Interior has been selected, as it has
the largest single payroll (excess of 594K employees) after the Ministry of Defence. In
addition, a review was made of the Ministry of Education, the second largest employer
within central government, and identified a very similar set of payroll processes and
procedures.
Each public entity is responsible to manage and process its own public servants’ database:
i.e. there is no central database for all personnel. Each public entity maintains a list of its
personnel along with their fixed data, and variable data. The respective human resources
department manages the processing of payroll by consolidating monthly changes that are
communicated by the respective departments. Nevertheless, the personnel database is
updated based on changes in status (promotions, etc..), however, this database is stand-
alone, and is not connected with the system that processes payroll (‘visual.net’ in the MoF),
where changes are re-entered manually, thus increasing the risk of error and non-
reconciling data between those two. It should also be noted that public entities may use a
54
different database application from that used by MoF, further reducing the possibility of
integration of records. Staff hiring and promotion is in general checked against the
approved budget prior to authorization.
23.2 Management of payroll changes

Staff promotions and increase in salaries are defined in a law, the latest of which is updated
in 2015. The law includes schedules that reflect the amounts of increase per number of
years of service and the grade level. A public servant is entitled to a yearly salary increase,
as per the law. Nevertheless, the employee is responsible to notify his superior about that
increase, otherwise no HR action is taken. The head of the respective department, once
the request is received from the employee, prepares the required approval and notifies the
Human Resources department (HR) for processing. As for increase in salaries resulting
from grade promotion, approval is required from the dead of department as well as the
Director General of the respective Ministry. Upon obtaining the required approvals, HR
prepares the increase and makes changes to payroll. Nevertheless, changes to payroll,
whether related to promotions or systematic annual increase are not effective immediately,
and may take more than a month to take effect – mainly explained by limited coordination
between HR and accounting. This is penalizing the employee, as changes are not
retroactive; rather they are effective from the date of approval by the respective head of
department and DG (whenever it is needed). In addition, any changes due to retirement
are not taken in consideration in budget estimates, and no deductions are reflected in case
of no envisaged headcount replacement, thus overestimating the budget in some
instances. As there is insufficient data to provide a definitive rating, “D*” is used.
23.3 Internal control of payroll

An annual budget process exists for payroll that is the foundation for an effective control
system and monitoring. However, and as described in the other parts of this section, the
absence of central database, the lack of effective integration of personnel database, the
use of manual recording of personnel attendance, non-existence of employees fixed coding
number, and lack of effective computerized integrated applications, render the internal
controls related to payroll prone to errors and manipulations. In fact, the applications and
software used to account for employees’ fixed personal data, as well as changes are not
interlinked and no automatic synchronization takes place, which leads to inconsistency of
personnel details from one application to another until HR manually, updates the changes.
In some instances, errors occur and not corrected until after the monthly compliance audit
takes place. Employees do not have their own code identification number, which makes
traceability often lengthy and time consuming.
Attendance of employees, as detailed in the next section, are only evidenced by a manual
signature of the respective employee and confirmed by the Head of the department. No
other verification is conducted to account for employees’ presence, and absence. Scanning
computerized system for attendance exist only in few public entities, and the majority of
entities relies on the manual signature method.
In addition, the MDAs process their own payroll and use separate and different payroll
application with limited consistency with the respective Ministry rendering verification and
controls limited in that regard.
Irregularities noted in the earlier PEFA assessment are still valid, and no effective reforms
have taken place in this critical area where payroll of public servants constitute a large
portion of the government public expenditures.
55
23.4 Payroll audit
Each public servant signs a manual attendance sheet on daily basis: these are in the
custody of the Head of department, and are used to account for any sick days, annual
leave, and number of hours of attendance. These practices are made manually in majority
of public entities thus increasing significantly the risk of manipulation by either the civil
servants or their superiors. These sheets are sent to human resource department at the
respective public entity to feed into the computation of the employee net monthly salary.
The audit conducted is generally a review of monthly variances rather than undertake of
audit checks. In addition, there is no audit conducted on the payroll sheets, meaning that
the risk of ‘ghost’ employees is high (signatures and actual attendance are not verified or
audited by other than the respective head of department).

factors
Payroll controls D+ D+
23.1 Integration of D D Payroll and No substantial
payroll and personnel records progress in this
personnel records are not integrated to area
ensure data
consistency
23.2 Management of D+ D* There are Efforts are made to
payroll changes considerable delays effect changes to
in effecting changes payroll however
to the payroll, but delays are still
are impossible to witnessed.
quantify.
23.3 Internal control of D D Sufficient controls to No substantial
payroll ensure integrity of progress in this
the payroll data do area
not exist
23.4 Payroll audit C C Partial audits are Substantial
conducted. evidence of sound
audit is not
available
Ongoing reforms:
There is ongoing effort to improve the payroll audit and payroll system. This is part of the
World Bank support to the government of Iraq through the programmatic Development
Policy Fund (DPF) 2016. A number of actions related to improving the controls over payroll
have been agreed upon. For instance, the installation of biometric identification systems to
verify civil servants’ daily attendance by 2018, which has been already carried out through
issuance of a decree. Other actions requiring the shift by 2020 to electronic payments of
civil servants’ salaries.
PI-24 Procurement
This indicator is based on the last completed FY, 2015 and examines key aspects of
procurement management. It focuses on transparency of arrangements, emphasis on open
and competitive procedures, monitoring of procurement results, and access to appeal and
redress arrangements.
Public procurement is a major component of the national economy, cutting across every
sector and area of planning, program management, and budgeting. For example, in 2013,
out of a total budget of nearly USD 130 billion, over 40% passed through the public
procurement system (includes capital investment).
56
Despite its sizable share in the economy, capital investment budget is often underspent.
There is a broad consensus among stakeholders that federal and regional governments
continue to struggle to spend their procurement budgets. Nationally, an average of less
than 64% of capital expenditures was executed for the years 2010-2013. Moreover, doing
business with the Iraqi government presents considerable challenges and high fiduciary
risks. Issues with corruption and transparency in Iraq, as evidenced by the country’s
consistently low rankings in international surveys such as ranking 161 out of 168 countries
under Corruption Perception Index of Transparency International (2015), exacerbate these
challenges.
Public Procurement in Iraq was governed by the Coalition Provisional Authority (CPA)
Order No 87 of 2004 and the implementing regulations No. 1 for 2008 promulgated by
Council of Ministers and prepared by the Ministry of Planning since 2004. However, the
Council of Ministers issued a Resolution dated May 16, 2011 to abolish the existing
procurement framework, namely CPA Order No 87 of 2004. A draft Law was developed by
an inter-ministerial working force with the assistance of the World Bank and reviewed by
the Sharia Council as an appropriate legal framework for the country, but there were calls
to discard the draft Law and instead to prepare a new concise By-Law or Regulation.
Consequently, and in the absence of a new legal framework, the Ministry of Planning has
issued a set of regulations in 2014 to replace the 2008 regulations.
Under World Bank previous engagements, general Standard Bidding Documents (SBDs,
and sector SBDs were developed, piloted, issued for mandate in July 2016; consequently,
achieving efficiency gains through speeding-up bidding operations with minimum risk of
discretion or omission. Additionally; training needs strategy had been completed and
working with universities on sustainable capacity building program had been developed
and launched.
24.1 Procurement monitoring

Ministry of Planning – Directorate of General Governmental Contracts (DoGGC) has
established a system for collection of information on procurement activities; however,
public access to that information had not yet been established. Publication requirements
currently are applicable only to advertisements in newspapers and ministry’s website. In
general, one of the weakness of the current institutional and organizational arrangements
of public procurement in Iraq is lack of a procurement database indicating procurement
methods, contracts, values, additional costs and variation orders, and other relevant data.
To address this weakness, MOP – DoGGC collects data for all contracts above IQD 10 M.
24.2 Procurement methods

The legal framework (Regulations no 1 for 2014 – Execution of Public Contracting) provides
a number of procurement methods, including open tendering, limited tendering, and the
procedures for use in open tendering are generally in line with international standards.
There are weaknesses and gaps in those provisions, including: lack of clarity as to the
hierarchy among the procurement methods (although to one extent or another a semblance
of a hierarchy could be figured out through a deductive process). Based on the data
received from DoGGC for contracts signed as of January 2016, the majority of contracts
used competitive methods as shown in Table 3.16 below.
57
Table 3.16: Procurement methods used
Procurement methods Total procurement value
Amount IQD Percentage
Open bidding 109,135,121,088 75
Restricted bidding and Direct Contracting 36,378,373,696 25
Source: MoP- DoGGC data January 2016
24.3 Public access to procurement information

Key procurement information to be made available to the public is listed in Table 3.17.
Table 3.17: PEFA requirements to rate this dimension, FY2015

The following key procurement information is available to the public through
appropriate means:
1 Legal and regulatory framework for procurement Yes
2 Procurement plans: The procurement planning process is not well defined, No
and the budget is prepared independently from any multi-year planning.
Linkages between the procurement system and other systems are
impacted by the slow nature of the procurement process, including the
long time typically required for each of the internal approvals involved in
the process.
Based on MOP circular no 4/7/16422 dated August 4, 2014, it became a
mandate for all implement agencies to submit their annual procurement
plans to MOP DoGGC. In the recent years, many ministries started to
publish the annual procurement plans on their websites and it became a
requirement for
3 Bidding opportunities: In the 2014 regulations – decree no 2, advertising Yes
requirements in 3 newspapers are required. There is no single-portal
website, and no single newspaper of wide circulation has been designated
for the publication of record for advertisements, and no official gazette in
which procurement notices are published. Nevertheless, MOP is planning
for development of e-portal for all contract advertisement and awards.
4 Contract awards (purpose, contractor and value) Provisions on publication No
contents of contract awards are incomplete in the current legal framework
5 Data on resolution of procurement complaints Yes
Complaints submitted to MoP- DoGGC and General Secretariat of Council
of Ministers through Citizen E-Government are published on MOP and
www.ca.iq
6 Annual procurement statistics No
24.4 Procurement complaints management

Regulations 1 for 2014 establish the right of bidder to raise a complaint to a centralized
committee at each procuring entity. However; bidders do not have adequate access to
independent administrative review and appeal processes. Although civil courts have
jurisdiction over civil and commercial matters, access to them is perceived as inadequate
by participating bidders, and the administrative review and court systems are not operating
adequately under current circumstances. Although CPA 87 of 2004 stipulated the right to
file a protest with the Administrative Tribunal; however; the administrative tribunal was not
created. It cannot be said that the complaint procedure meets the test of independence
from the officials that are involved in the actions, omissions and decisions that may be the
subject of the review. The implementing entity is the body to which the complaint is brought,
is also the body that approves the key aspects of the proceeding under review (in particular,
the contents of the bidding documents and the award decision). In the absence of formal
58
independent complaint mechanism, bidders are appealing to MoP-DoGGC or through the
applications of General Secretariat of Council of Ministers through Citizen E-Government
Table 3.18 below lists the features of an independent administrative procurement

complaint system. National legislation prescribes these features, and all six criteria are met:
however, in GoI the system has yet to be tested, as no complaints have been registered.
Table 3.18: Mechanisms for reviewing procurement complaints

Complaints are reviewed by a body which:
1 is not involved in any capacity in procurement transactions or in the √
process leading to contract award decisions
2 does not charge fees that prohibit access by concerned parties √
3 follows processes for submission and resolution of complaints that are X
clearly defined and publicly available
4 exercises the authority to suspend the procurement process; X
5 issues decisions within the timeframe specified in the rules/regulations X
6 issues decisions that are binding on all parties (without precluding √
subsequent access to an external higher authority)

factors
Procurement C+
24.1 Procurement NR C To address Indicator changed:
monitoring weaknesses in data not comparable.
collection, MoP –
DoGGC now collects
data for all contracts
above 10 million IQD
24.2 Procurement NR B Data from MOP had Indicator changed:
methods been collected. not comparable.
24.3 Public access to NR C Three of the elements Indicator changed:
procurement of ‘key procurement not comparable.
information information’ are public
24.4 Procurement NR C 3 criteria out of 6 were Indicator changed:
complaints met including criteria not comparable.
management #1
Ongoing reforms:
There have been recent positive steps in reforming public procurement system at the
federal level namely: i) Standard Bidding Documents (SBDs) were developed, piloted, and
mandated for use in July 2016; ii) a national implementation manual was published on the
Ministry of Planning website; and iii) a training strategy was prepared and collaboration
with universities have started to build capacity of procurement professionals.
The World Bank will continue its support to the Iraqi authorities on a multi-year engagement
under new PFM project by providing implementation support at the Federal and KRG levels
to use of the issued SBDs, create a sustainable capacity building program including online
courses, establishment of a web-based single portal for procurement information, and
strengthen management and monitoring of procurement activities.
59
PI-25 Internal controls on nonsalary expenditure
This indicator covers a wide range of processes and type of payment across central
government including existence of segregation of duties, effectiveness of expenditure
commitment controls and effectiveness of the payment controls systems.
25.1 Segregation of duties

The “Law for Financial Administration and Public Debt No. 94 of 2004” regulates the
activities and operations of line ministries and other public institutions. This law defines the
processes for budget preparation and budget execution. In addition, MoF Law No. 92 of
1981 provides the regulation of public funds and monitoring the adequacy of the use of
such funds, in addition to description of roles, responsibilities, and authorities over public
expenditures. In general, key elements of basic payment, control systems are in place with
multiple level approvals at every stage of the transaction is required as per the law and
regulations. Nevertheless, the current information system processing capacity is limited
given the significant number of transactions taking place, which undermines the payment
controls, and compliance monitoring. The main incompatible responsibilities (i)
authorization, (b) recording, (iii) custody of assets, and (iv) reconciliation or audit are
segregated. However, precise definitions of important responsibilities are lacking and are
not well documented.
25.2 Effectiveness of expenditure commitment controls

Controls over expenditure commitments are mainly based on liquidity management rather
than on a clear control procedure. Therefore, line ministries commit to expenditure only
when they have enough budgeted liquidity, i.e. MoF allocates the necessary funds for their
respective budgets. Indeed, during the last couple of years and due to liquidity problems
facing the country with the falling oil prices, line ministries and other public entities have
faced serious shortage of liquidity, as MoF did not transfer the respective funds to meet the
budget allocations. Although commitments on capital expenditures were in line with the
allocated budget, a serious gap in financing arose leading to a high level of unpaid
commitments and accordingly to lawsuits from contractors and suppliers. The payments
for CAPEX for the year 2015 represented only 30% of the total commitments of the year,
resulting in substantial expenditures arrears. For the current year 2016, although line
ministries received an allocated approved budget, but without any financing to support it,
accordingly many CAPEX expenditures were frozen until further notice, Nevertheless, the
Council of Ministers approves any urgent contracts so that the necessary financing is
allocated to it. Moreover, the FBSA 2014 annual report mentioned many irregularities in
several ministries related to expenditure commitment. Instances of spending over
commitments were noted, and these overrun in expenditures were recorded in incorrect
classifications to conceal the overspending. In addition, some governmental entities, when
faced with budget limitations in their operating expenditure, began to record overruns in
these types of expenditures as CAPEX.
25.3 Compliance with payment rules and procedures

Payment rules and procedures are reflected in the laws and guidance notes issued in that
regard. Nevertheless, major exceptions were noted to payments and advances throughout
the last three years where a major project was granted exceptional ceiling for advances to
suppliers and contractors (from 20% up to 60%) at the Ministry of Education. Although this
was justified and approved by the Council of Ministers, the override of the applicable laws
and regulations constitute a substantial exception (project worth USD 2 billion/ years 2011-
2014).
60
However, the only substantial exceptions noted in the year of assessment (2015) occurred
in the Ministry of Education.

factors
Internal controls on D+ D+
25.1 Segregation of NA C Although segregation of This is a new
duties duties for main dimension
functions exist, introduced in 2016,
definitions and roles are therefore; a
not documented, and comparison is not
not sufficiently clear. possible.
25.2 Effectiveness of D D Controls are linked to Exceptional
expenditure liquidity availability due circumstances
commitment to the economic and affecting he
controls financial situation of the effectiveness of
country. commitment
controls.
25.3 Compliance with C D* Material exceptions Override of rules
payment rules and regarding advances and procedures to
procedures ceiling did take place in accommodate
the Ministry of exceptional needs
Education, but overall, and
the majority of circumstances.
payments are
compliant.
PI-26 Internal audit
International good practice in public financial management looks for the operation of
internal audit as a service to management, with the function to identify ways of correcting
and improving systems, to improve the efficiency, economy and effectiveness of the
delivery of public services.
26.1 Coverage of internal audit

The Internal audit “function” in Ministries is carried out by the “Internal Audit Department”
that reports to the respective line Minister. These new reporting lines were effective since
2013 where amendments to the legal framework were introduced to provide more
independence to the internal audit function by shifting its reporting from the Director
General. The Internal Audit departments performs ex-ante control as well as some ex-post
reviews on the respective line Ministry revenues and expenditures. The internal bylaws
dictate the responsibility and coverage of the work to be performed. An annual program is
prepared that list the tasks along with the frequency. The work performed is compliance in
nature with existing procedures and regulations so that to have assurance on balances and
figures rather than internal audit as per the modern definition.
As stated earlier, each ministry has its own internal audit department and cover most total
budgeted expenditures and collecting most budgeted government entities, though the
internal audit as explained in later paragraphs, is more of a compliance function than an
internal audit as per the modern definition of it.
In addition, the capacity of these departments to date is limited and the ability to undertake
modern internal audit function in line with the International Standards for the Professional
61
Practice of Internal Auditing depends on a large extent to the availability of technical
assistance to develop manuals, procedures, and required training,
An Inspector General (IG) is established in each Ministry and public institution for the
purpose of reviewing, auditing and investigating. Each IG submits his or her annual report
to the Minister, hence impairing independence. The IG is performing three tasks: (1) Ex-
post Internal Audit; (2) Inspection; and (3) limited ex-ante review. To what relates to ex-
post internal audit, IG is involved in basic financial and compliance audit only. IG has the
legal capacity to monitor and inspect all the departments related to a ministry including the
“Internal Audit department”. The latter’s work on internal audit (mainly compliance)
complements that of IG though the IG law #57/2004 is silent in respect to the relationship
with those “internal audit departments” and other monitoring bodies.
26.2 Nature of audits and standards applied

Although the Law of Administrative Finance and Public debts allows the issuance, of
procedures for carrying out internal audit in line ministries and other public institutions, this
remains theoretical as the standards were not identified nor translated and the necessary
requirements for implementing those standards were not developed and made applicable.
As described earlier, the nature of the work performed by those internal audit departments
is rather a compliance in nature rather than internal audit as per the modern definition of
this function. The audit is conducted on all transactions regardless of their value with due
care to compliance with laws and regulations.
On the other hand, the IG is the government inspection body rather than internal auditors
also lacks a clear legal definition of its application of technical and professional standards
as well as code of ethics as there are no specific reference to these. The IG does not have
a defined methodology, nor a set of policies and procedures to provide guidance on the
work carried out as evidence of a systematic and disciplined approach. As for
independence, this is limited as IG staff reside at each line Ministry and report to the
respective Minister.
26.3 Implementation of internal audits and reporting

The Internal Audit department in government entities performs daily, weekly, monthly and
annual tasks of compliance and review of the entity’s operations through a defined program
that lists all compliance and review activities to be performed. In general, these programs
are the same from one year to another and may include minor additions according to
needs. These departments have an audit manual; however, it is not comprehensive and is
not based on international standards. In addition, the reports that are prepared, more of a
“memo” form, are not standardized, and do not detail the audit work covered, unless there
is a major element to be raised for immediate remediation in terms of compliance with
procedures. Nevertheless, these audit reports are submitted to the concerned parties and
may include hand written remarks and recommendations for compliance. In fact,
irregularities are investigated and errors are corrected as they arise.
The IG has annual simplistic plans that are not based on a documented risk assessment.
These annual plans are not linked to the key risk areas and policy objectives of the Line
Ministries. Nevertheless, there is in place a standard operating procedures manual that is
only used on consultative basis. The audit documentation is limited thus it cannot provide
evidence that sufficient, relevant and useful information were gathered to reach the
conclusions as mentioned in the final report. The respective reports produced including
recommendations are submitted to the Minister who may either accept or reject the report.
62
In case of rejection, the reports are submitted to the General Commission on Public
Decency (Integrity).
26.4 Response to internal audits

The response to audit/ compliance reports are generally not documented, and if it is, it is
mentioned in hand written remarks on the report by the auditee. In general, the comments
raised by the audit are taken in consideration for immediate application.
The IG does perform follow up on audit finding and recommendations and whether these
were implemented or not. Nevertheless, these follow ups are limited as there is no
structured approach carried out to monitor the progress of recommendations and action
plans implementation.

factors
Internal audit D+ C+
26.1 Coverage of C B Limited independence IA units in each
internal audit for IA, and IG. Most ministry are
activities are covering now
compliance in nature most of budgeted
and not adhere with expenditures and
the international revenues.
standards on IA.
Nevertheless, IA is
present in each
ministry and covers
most of budgeted
expenditures and
revenues.
26.2 Nature of audits NA C Primarily focused on This is a new
and standards financial compliance, dimension
applied with non-alignment introduced in
with international 2016, therefore; a
standards and good comparison is not
practices. possible.
26.3 Implementation of C B Limited Although non-
internal audits and documentation, non- standard reports
reporting standard reports, are issued from IA
majority of audits are units, they are
completed, as done
evidenced by the systematically.
distribution of the
reports to concerned
parties, etc.
26.4 Response to D C Management provides More partial
internal audits Partial responses to responses are
internal audit, while witnessed.
there is limited
response to IG
recommendations
with lack of structured
follow up approach
Ongoing reforms:
A World Bank project “Modernization of Public Financial Management systems” is under
preparation that include a component that aims to increase the efficiency of the internal
audit function at MoF. This component builds on the work completed under the “Public
63
Finnacial Management Reform project10”, closed in June 2013, and the program on
“Improving Governance through Strengthened Financial Management 11” closed in
November 2014. This component includes the following schemes:
1. Supprting MoF in the risk assessment process that aims to optmize the direction of the
audit resources to areas of higher risks through a comprehensive understanding of the
audit universe and the risks associated with the ministry. Ultimately, the risk
assessment will lead to the selection of audit assignements to be included in a 3-year
audit plan. The risk assessment process will include the following key stags:
a) Plan the risk assessment;
b) Develop understanding of MoF’s business;
c) Develop General understanding of MoF’s major processes;
d) Indetify and asess MoF’s significant risks;
e) Prepare risk assessent report
2. Upon the completion of the above risk assessment process, a stratigic audit plan and
annual audit plans will be developed for MoF;
3. The final stage is a pilot audit execution of two major processes in MoF. This will
involve: (i) field testing of the developed internal audit methodological framework and
guidance materials in actual audit conditions; and (ii) detailed examination/testing of
the process, methodology and outputs, and iii) audit report writing.
10 The project financed a study on financial internal controls and the roles of internal auditors and
Inspectors General (IGs). The study assessed the current internal financial controls, including
the roles of Internal Auditors and IGs arrangements in four ministries and prepared a roadmap
for implementing reforms to the internal financial control environment.
11 Under this TA, tools were developed for MoF to reform the internal audit function in line with
international lead practices and Iraq context. Project developed: i) new organizational structure
for Internal Audit Department, ii) jobs responsibilities and duties as per the new organization
structure, iii) new internal audit charter, iv) new internal audit methodology that is based on risk.
Necessary on-hands trainings were provided to internal auditors at MoF on those new tools.
64
Pillar VI. Accounting and reporting
PI-27 Financial data integrity
Reliable reporting of financial information requires a system of consistent checking and

verification of accounting records and practices as a critical part of internal controls to
ensure quality decision-making information. This indicator assesses the extent to which
treasury bank accounts, suspense accounts, and advance accounts are regularly
reconciled and how the processes in place support the integrity of financial data.
27.1 Bank account reconciliation

At present, there is no functional Treasury Single Account within central government even
though Section 4(9) of the Financial Management Law (FML) 2004 makes provision for the
establishment and operation of a Treasury Consolidated Account linked to a Treasury
Single Account. MoF operates two bank accounts at the Central Bank of Iraq (CBI); the
USD Account and the IQD Account. The IQD Account is the operations accounts whereas
the USD Account is used for foreign reserves. The Cash Accounting Division of the
Accounts Department of MoF receives monthly bank statements from CBI for reconciliation
purposes. Section 8(4) of the FML 2004 requires all public corporations including line
ministries to reconcile all financial transactions including bank accounts no later than 10
days after the end of the preceding month. In practice, however, reconciliation of treasury-
managed bank accounts is completed within two months after the end of the preceding
month. The opening of any central government bank account requires the prior
authorisation and approval of the Minister of Finance or his/her authorised representative
as prescribed by law under Section 4(10) of the FML 2004; this is the practice. Line
ministries do operate bank accounts with state-owned commercial banks (Rafidain Bank,
Rasheed Bank and Trade Bank of Iraq – all of which are state-owned). Unfortunately, MoF
has no database of the number of such line ministries bank accounts that are operational
or dormant. Reconciliation of these line ministries bank accounts held in state banks is
done but with significant delays of up to three months. There is no reliable information
regarding public corporations bank reconciliations.
27.2 Suspense accounts

The audited financial statements for FY2013 which were finalised in January 2016 were
however available; there was no suspense account balance at 31st December 2013. The
unaudited financial statements for FY2015 provides an aggregate closing balance of (both
suspense and advances) IQD74.7trillion for recurrent and capital budget expenditures; this
is yet to be reconciled and acquitted. A number of issues contribute to suspense accounts
including but not limited to misclassification of financial transactions, delays in bank
accounts reconciliation, transposition errors, among others. The existence of, and failure
to fully reconcile and clear suspense account balance provides a fertile ground for financial
malpractices.
27.3 Advance accounts

The use of advance accounts continues to be a major phenomenon in central government
operations following from 2008 PEFA assessment. These advances include the one-twelfth
of the previous year's actual expenditure advanced to line ministries in accordance with
Section 7(4) of the FML 2004, because of delays in passing the appropriations bill by
parliament, and cash advances to staff on official government duties. Reconciliation and
acquittal of staff cash advances takes place within two months after the preceding month;
there are however un-reconciled balances brought forward at the end of the financial year.
Advances to line ministries for operational purposes prior to budget approval continue
65
unabated and remain un-reconciled at the end of the financial year; nevertheless, attempts
are made to reconcile these advances at least annually. For instance, as at the end of
January 2015 the closing balance in the advance account to lines ministries stood at IQD
351.54 billion and IQD 20.05 billion for recurrent and investment budget respectively. By
close of FY2015, advances to line ministries increased to IQD 115.2 trillion12; this is very
alarming. According to the FBSA, cash advance increased by 23.1% from the 2012 figures,
total unretired advances (staff cash advance plus advances to line ministries for their
operations) stood at IQD 113 trillion13 between 2005 and 2013. The existence of balances
in the advance accounts, therefore, raises serious concerns regarding the credibility and
accuracy of financial data.
27.4 Financial data integrity processes

In general, the FBSA opines that there are two main weaknesses referencing central
government annual financial statements; these are financial weaknesses and
organisational weaknesses. Data security is a major concern. MoF uses FoXPro Program
Language, a simple Visual or DOS application for recording and reporting financial
transactions. Access is denied to unauthorised persons. Each authorised staff is granted
access through passwords generated and administered by the system administrator; the
passwords are changed thrice a year. The data is not encrypted. Data storage and backup
is rudimentary; at present data storage and backup are done daily on Compact Disks (CDs)
as well as on external hard-drive and distributed to authorised senior staff for safekeeping.
There is no offsite data storage facility. The Unification Division of MoF is responsible for
ensuring the accuracy of financial transactions. This they do by reviewing transactions
submitted by line ministries monthly. That said, capacity constraints undermine the quality
of financial data generated. The FBSA raised a number of issues in the 2013 audit report;
key issues include bank reconciliation challenges, resulting in an un-reconciled figure of
IQD601million, ineffective internal audit units, missing financial records, falsified financial
records, among others.

factors
Financial data integrity D+ D
27.1 Bank account C D Reconciliation of all Not directly
reconciliation active Govt. bank comparable;
accounts does not scoring
take place within 8 requirements
weeks after the end of have been
month or quarter. strengthened.
Whereas treasury
managed bank
accounts are
reconciled within two
months, line ministries
reconcile theirs within
three months. There
is no reliable
information on public
corporations’ bank
reconciliations.
27.2 Suspense accounts D D As at end of FY2015, Not directly
aggregate suspense comparable, as
and advances stood subject matter
at IQ74.7trillion; this is separated from
dimension 27.2.
12 Unaudited financial statements FY2015

1313 This is equivalent to about USD97bn
66
factors
yet to be reconciled
and acquitted.
27.3 Advance accounts N/A D Advances to line Not directly
ministries & staff for comparable, as
official duties continue subject matter
unabated. Whiles separated from
some advances are dimension 27.2.
reconciled at least
annually within two
months, significant
un-reconciled
balances are brought
forward.
27.4 Financial data N/A D The Unification Not comparable:
integrity processes Division of MoF new dimension.
verifies financial
transactions received
from line ministries;
however, the unit is
constrained with
human capacity.
While there are
restrictions to data
usage in addition to
some level of data
storage, it is
rudimentary and lacks
standardized data
protection and
storage framework
Ongoing reforms:
The World Bank sponsored implementation of IFMIS is expected to improve financial
accountability, data accuracy and integrity
PI-28 In-year budget reports
This indicator assesses the comprehensiveness, accuracy and timeliness of information

on budget execution. In-year budget reports must be consistent with budget coverage and
classifications to allow monitoring of budget performance and, if necessary, timely use of
corrective measures.
28.1 Coverage and comparability of reports

At present, coverage of in-year budget execution reports is limited to the actual revenue
and expenditure outturns at aggregate levels only. The consolidated monthly reports
produced by the Ministry of Finance based on monthly budget execution reports
submissions from line ministries and agencies allow direct comparison with, and provide
an impetus for statistical analysis of the original approved budget at the aggregate level of
main administrative and economic classifications. Nonetheless, commentary on statistical
analyses is lacking. The implementation of the Integrated Financial Management
Information System (IFMIS14) scheduled for 2016-2020 has been extremely slow, thereby
affecting negatively both integrity and timeliness of financial reporting as well as coverage
and comparability of budget execution reports at detailed level. That said, these reports, at
present are produced from an excel-based application. Whiles a new budget classification
14 IFMIS implementation plan 2016-2020 as captured in paragraph 5.3 of the Iraq Emergency
Fiscal Stabilization Development Policy Financing dated December 3, 2015
67
model, coupled with the development of a new chart of account with segments for reporting
on administrative, economic, functional and geographical classifications have been
progressive, delays in implementing and rolling out IFMIS potentially defeats the overall
purpose of an integrated good financial management reporting.
28.2 Timing of in-year budget reports

Monthly in-year budget execution reports are prepared and published on MoF website but
with significant delays of at least three months. Officials of MoF have indicated that these
delays principally occur due to delays from line ministries monthly in-year report
submissions. Section 9(7) Annex A of the Financial Management Law and Public Debt Law
2004 requires all budget entities and spending units including governorates to prepare and
submit monthly budget execution reports to the Minister of Finance or his/her authorised
representative within 30 days after the expiration of the previous month. The monthly
budget execution report must capture both revenue and expenditure. Furtherance to that,
the law, under the same Section mandates the Ministry of Finance to prepare a
consolidated monthly in-year budget execution report within 15 days thereafter based on
submissions from budget entities and spending units and make these reports available to
the public through appropriate means, including official government gazette, the website
and any other media. At present, publication of consolidated in-year monthly budget
execution reports are done mainly through the official government website as well as MoF
website; but issued 12 weeks following the end of the previous month.
28.3 Accuracy of in-year budget reports

Generally, the usefulness of financial data for budget execution analysis is not undermined
by the concerns regarding financial data integrity and accuracy. These concerns are not
highlighted in these in-year budget execution reports. The Federal Bureau of Supreme
Audit (FBSA), over the assessment period (FY2013, FY2014, FY2015), raised reservations
regarding the accuracy of the financial statements submitted for external audit, contrary to
the views of officials of the Ministry of Finance. Concerns raised by FBSA regarding
financial data accuracy include but not limited to bank reconciliation challenges,
procurement regulations breaches, un-acquittal of cash advances, transposition errors,
among others. Delays in, and accuracy of accounts reconciliations (bank, suspense, and
advances - ref PI-27 above) point to concerns over financial data integrity. Nonetheless,
in-year budget execution reports are consistent and comparable with original approved
budget but no statistical analysis is provided; however, these reports capture expenditure
at payment stage only (not at commitment stage).

factors
In-year budget reports D+ D+
28.1 Coverage and C C In-year budget The scores are
comparability of execution reports not directly
reports produced by MoF comparable,
allow for easy although data
comparison with the requirements are
original approved unchanged. That
budget at aggregate said, there
administrative and appears to be no
economic main improvement.
headings only.
28.2 Timing of in-year D D MoF produces As above
budget report consolidated monthly
budget execution
68
factors
reports within 12
weeks following the
end of the previous
month. These reports
are published on MoF
website as well as the
official government
website
28.3 Accuracy of in-year C C Expenditures are The subject
budget reports reported only at the matter remains
payment stage but not unchanged but
at the commitment scoring criteria
stage; further, there has been
are data accuracy reformatted to
concerns but these include budget
are not highlighted in analysis.
the reports. Nonetheless,
there appears to
be no change
Ongoing reforms
The World Bank is providing support for the implementation of IFMIS under the Iraq Public
Management, Transparency, and Regulatory Reform TA Support, aimed at significantly
improving financial accountability, accurate and timely reporting, among others. Further,
Cabinet has approved on 19th July 2016 the draft amended PFM bill for onward submission
to parliament.
PI-29 Annual financial reports
This indicator uses three dimensions to assess the extent to which annual financial
statements are complete, submitted by MoF to the Federal Board of Supreme Audit (FBSA)
in a timely manner, and whether accounting standards are consistently used and disclosed.
This is crucial for accountability and transparency in the PFM system.
29.1 Completeness of annual financial reports

The legal requirements for information to be included in the audited annual financial
statements are comprehensively spelt out under Section 11(7) of the FML 2004. These
include:
• External audit report from the Board of Supreme Audit;

• A report of differences between budgeted and executed receipts and payments and
on the financing of any deficit or the use of any surplus;
• A statement of spending from contingency reserves;
• Opening and closing balances of the Treasury Consolidated Account and a summary
of movements for the year;
• A statement of all federal government borrowings for the year, and the total debt
outstanding, including any payment arrears;
• A statement on federal government guarantees issued during the fiscal year;
• A statement on all borrowings by regional governments and governorates;
• A statement on outstanding amounts on capital contracts and retentions (carryovers)
due on contracts;
• A statement on letters of credit entered into, for which funds have been placed but for
which goods have not been received; and
69
• A statement on all guarantees by regional governments and governorates.
According to the FBSA, the consolidated annual financial statements are 90% complete.
The draft financial reports for 2014 and 2015 were available for the team's review in terms
of determining the completeness of annual financial statements; these should be audited
and finalised in due course.
Table 3.19: Information Contained in FBSA Audited Financial Statements of FY13

Financial heading Sub-financial heading Presence in Financial
Statements
Revenue Direct tax Direct and indirect tax reported
Indirect tax but not segregated
Non-tax revenue (incl. IGF) Yes
Grants Yes
Expenditure & transfers Personnel Emolument Yes
Administration Yes
Service Yes
Investments Yes
Statutory payments Yes
Subsidies & Transfers Yes
Retained IGF (own revenue)
expenses Yes
Donor funded projects Yes
Assets Cash & Bank balances Yes
Advances Yes
Public loans (receivable) Yes
Equity & other investments Yes
Revenue arrears No
Liabilities Public debts (domestic) Yes
Public debts (foreign) Yes
Statutory obligations Yes
Expenditure arrears No
The financial report is comparable to budget estimates. As shown in Table 3.19 above,
information on tax revenue is provided but not segregated into direct and indirect tax. The
report also provides information on all economic category of expenditure including
subsidies, transfers and own revenue expenses. Information on cash, advances, loan
receivables, financial assets is provided but for revenue arrears. Likewise, there is no
information on expenditure arrears and guarantees but public debt (domestic and foreign),
as well as statutory obligations is provided.
29.2 Submission of reports for external audit

Section 11(6) of the Financial Management Law 2004 mandates the Minister of Finance to
prepare and submit consolidated annual financial statements (AFS) to the Federal Board
of Supreme Audit (FBSA) by the 15th of April after the end of the previous financial year,
for external audit. The first draft of the 2013 AFS was submitted to FBSA on 30th November
2014; this was re-submitted on 10th June 2015 due to fundamental misstatements in the
report. The main reason for the delay in submission of AFS to FBSA is the late completion
of line ministries reports. Whereas the 2013 annual financial statements (AFS) have been
audited, the 2014 and 2015 reports are not; 2014 AFS have not been submitted to FBSA
because of the absence of an approved budget. According to MoF officials, there has been
a major disagreement between MoF and FBSA regarding the 2014 AFS; whereas FBSA
contends it cannot audit the 2014 reports on the basis that there was no approved budget
in 2014 MoF has a contrary view. This disagreement will delay the audit of 2015 figures.
70
Interactions with the Auditor-General suggest that the issues surrounding the 2014 AFS
will be resolved soonest following from FBSA's recommendations to parliament to
retroactively approve the 2014 federal budget. The assessment team opines that FBSA
can still go ahead and audit the 2014 actual revenue and expenditure figure and issue a
disclaimer or a qualified opinion on the final accounts in order that the 2014 closing
balances can be used for 2015 opening balances.
29.3 Accounting standards

Central government has adopted and used cash-based accounting standards for financial
reporting as required by Section 11(7) of FML 2004. Cash accounting requires that revenue
and/or expenditure is recognised only when actual revenue is received and/or expenditure
payment is made. Public corporations established by law however prepare and present
their financial statements on accrual basis in consonance with international best practices.
Cash accounting standards were used and disclosed in 2013 audited final accounts; these
standards were consistently applied in preparing the 2014 and 2015 AFS in accordance
with the legal framework.

factors
Annual financial D+ D+
reports
29.1 Completeness of C C Consolidated annual Ratings not directly
annual financial financial statements of comparable, as
reports central government scoring
are prepared each requirements
year; these are expanded to
comparable with improve
approved federal transparency such
budget. The AFS as disclosure of
provide information on govt. guarantees.
revenue, expenditure, That said, there
financial assets, appears to be no
liabilities but no change
disclosure of
guarantees
29.2 Submission of C D The 2013 financial Ratings not directly
reports for statements were comparable. Time
external audit submitted to FBSA 11 required for
months after the end submission of AFS
of the financial year to FBSA shortened,
& hence more
stringent. There
appears to be no
change
29.3 Accounting D C Cash accounting Ratings not directly
standards standards were comparable, as.
consistently used over subject matter
the last three expanded to require
completed financial more explanation of
years in accordance accounting
with the legal standards. There
framework appears to be no
change.
Ongoing reforms:
The World Bank sponsored implementation of IFMIS is expected to improve financial
accountability, data accuracy, timeliness of preparation and submission of annual financial
statements as well as completeness of financial reporting.
71
Pillar VII. External scrutiny and audit
PI-30 External audit
This indicator assesses the quality of the external audit in terms of the scope and coverage
of the audit, adherence to appropriate audit standards (including independence of the
external audit institutions), the focus on significant and systemic PFM issues in its reports,
and the performance of a full range of financial audits, such as the reliability of financial
statements, the regularity of transactions and the functioning of internal control and
procurement systems. The assessment covers all government institutions, including MDAs
and extra-budgetary funds (where they exist). The timeliness of submission of audit reports
to the legislature is also important in ensuring timely accountability of the executive to the
legislature and the public, much as it is for a timely follow up of the external audit
recommendations. The assessment focuses on the last audited financial year, FY2014.
30.1 Audit coverage and standards

The Federal Board of Supreme Audit (FBSA or BSA) is Iraq’s supreme audit institution
(SAI). FBSA Law No. 31 for the Year 2011 grants the FBSA’s an extensive mandate that
includes auditing public finance, as well as conducting value for money (VFM) or
performance audits. Auditing is conducted in compliance with auditing standards detailed
in auditing manuals published by the Council of Accounting and Auditing Standards in Iraq.
The FBSA is a member in international and regional SAI bodies, such as INTOSAI and
ARABOSAI, and has taken several steps towards adopting modern auditing approaches.
For example, risk-based performance audit was introduced in the 2016 audit plan, while
audit of systems and programs (performance auditing) was introduced in 2015 audit plan.
Comparing FBSA’s auditing activity for 2013 and 2016, there is a noticeable shift towards
diversification of activities. While most reports published by FBSA in 2014 focused on
financial auditing (FBSA’s 2014 annual report), the FBSA has conducted performance
audits of several institutions, as well as fields visits, and contract auditing, in addition to
financial auditing (FBSA, First Quarterly Report, 2016). Table 3:20 below shows the
FBSA’s ability to implement its annual audit plan despite the political challenges.
Table 3:20: FBSA’s capacity to implement its annual work plans during the past 3
years (%)
Year Contracts Performance Periodical Action Final
% Audit Reports Results Accounts
% % % %
2013 147 82 74 83 57
2014 135 93 89 62 67
2015 35 77 85 64 28
Final accounts include revenues, expenses, assets, and liabilities (see above, dimension
29.1 and Table 3.19), Auditing complies with audit manuals issued by the Accounting and
Auditing Standards Council in Iraq, based on ISSAIs. Examples include the auditor
responsibility for post events; financial accounts audit report, basic auditing standards,
etc.). ISSAIs are complied with for activities that are not covered in those manuals.
Examples include risk-based audit, performance audit, etc... A peer review of the
performance audit function completed by the Netherlands Court of Audit in 2013 found that
the performance audit function of the FBSA meets most of the ISSAIs. Nevertheless, due
to the deteriorating political and security conditions, the FBSA was unable to complete the
audit reports for all audited bodies. For example, the public institutions located in the areas
occupied by ISIS like Ninawa, Salahudinne, and Anbar were excluded.
72
30.2 Submission of audit reports to legislature
The FBSA is required to submit an annual report to the CoR within 120 days of the end of
the fiscal year (Law no. 31, article 28). The report details the status of implementing the
FBSA’s annual strategy, the findings and proposed recommendations.
During the past three years, the FBSA submitted three annual reports (for 2012, 2013,
2014) and 12 quarterly reports to parliament, as well as reports requested by the CoR:
• 53 performance reports of programs and policies;

• 25 performance reports of public auditing offices;
• 159 reports on contracts auditing.
The FMPDL (section 11.6) requires the Minister of Finance to submit the Annual Final
Accounts of the federal budget, including special budgetary funds to the FBSA by April
15th of the succeeding year. The FBSA audits the accounts and provides an audit report
to the Ministry June 15th. The Council of Ministers then submits the final accounts and the
related audit report to the CoR by June 30th.
The final accounts have been problematic in Iraq over the past few years. For the most
part, the government had delayed or avoided submitting its final accounts to the FBSA for
auditing. As a result, the final accounts for the years 2005-2012 were only submitted to
parliament at the beginning of 2015. The FBSA received the final accounts of 2013 from
the MOF on 30/11/2014. The audit was completed and the audit report was sent to the
parliament on 4/1/2016. It has not been yet discussed in parliament to this date. The final
accounts for 2014 were received from MOF on 9/11/2016; however, the FBSA is still
debating with MOF how to audit them, given that no budget was passed that year. This
delay has caused severe criticisms by parliamentarians, civil society and media about the
government’s financial performance and the parliament’s oversight capacity in light of
accusations of corruption and mismanagement. Thus, no audited final accounts for 2014
and 2015 have been submitted to parliament.
Table 3.21: Schedule of date of receipt of Audited Reports by Parliament

Name of Audit Report Date of receipt by Parliament
2013 2014 2015
GoI Audited Final Accounts 4/1/2016 - -
30.3 External audit follow-up

Good practice envisages that audited units will respond constructively to audit
recommendations, which may address how to improve the performance of systems and
how to strengthen discipline over employees as well as strictly financial issues, and also
that information will be collected about the extent to which recommendations are followed,
and the results obtained.
The FBSA has a specialized Scrutiny and Follow up Unit (SFU) responsible for following
up on recommendations issued by the FBSA and the actions taken by the audited bodies.
These recommendations and actions taken, or lack thereof, are documented in the FBSA’s
annual and periodical reports. The SFU also follows on these recommendations with the
Accounting and Oversight Standards Council (which is also headed by the BSA’s president
and includes representatives of several ministries (MoF, MoP, etc.), and the official
responses received from the audited bodies. In 2015, the Prime Minister’s Office formed a
specialized committee tasked with following up with the different ministries and providing
official responses to the BSA’s questions and recommendations.
73
30.4 SAI Independence

The FBSA is the highest financial controlling body in Iraq. It is a financially and
administratively independent body with a judicial personality, and is attached to the CoR
(BSA Law 31, article 5). The President of the FBSA is appointed by the CoR for a term of
four years, based on a proposal from the council of ministers, by a majority vote. The
President has the authorities of a Minister of Finance regarding the Board's issues, staff
and budget. The FBSA is independent in preparing its annual work plans and preparing its
annual budget, which is submitted to the CoR.
The FBSA has a wide scope of authority as previously mentioned, which includes:
• Auditing and control over accounts and activities of the entities under the Board
jurisdiction and verifying sound disbursement of public funds and efficient
implementation of laws, regulations and provisions;
• Conducting performance evaluation of entities subject to the Board’s control;
• Providing technical support in the fields of audit, accounting and administration and the
related organizational and technical matters;
• Evaluating overall financial and economic plans and policies
• Conducting administrative audit on issues requested for review by the CoR.
To carry its mandate, the FBSA law granted it the authority to access information needed,
including: all the documents, transactions, orders and decisions, and obtain clarifications
from all relevant bodies (BSA law no 31, article 13). The FMPDL (sections 14.1 & 2) also
subject the federal budget and any supplementary budgets to the FBSA’s audit and
required the Minister of Finance to make available to the BSA the following:
• The approved federal budget and any supplementary budgets, and any accompanying
documents;
• The reported results of all internal audits;
• The quarterly and annual reports on loans, borrowings, guarantees, and debt;
• Final accounts of public corporations and the results of all audits;
• Documents discussed by the Council of Ministers its role of oversight of operations, as
well as the results of any internal audits; and
• Any other documents, information and explanation requested by the FBSA in
connection with the performance of its audit functions.
Despite its vast mandate and knowledge gathering powers being enshrined in the laws,
the FBSA continues to face significant obstacles in accessing information in a timely
manner. The case of the delay of final accounts is a good example of how this has hindered
the role of the FBSA in the past, and made its findings almost irrelevant or obsolete as
many of the findings involved officials that are no longer in charge. The last couple of years
have witnessed some improvement although the final accounts continue to be received
later than the deadlines. The government submitted the final accounts for 2013 on 30
November 2014 (the deadline being 15 April). The FBSA was only able to finish auditing
the final accounts on January 4th 2016 given the delays they faced in obtaining the needed
information and reports from the Ministry of Finance. The scenario is similar for the 2014
final accounts that were submitted late to the FBSA (on 9 November 2015) and are still
being audited by the FBSA.
This dimension is more focused on the extent that the independence of the SAI is protected
by law, as well as the extent of its mandate, specifically regarding financial, compliance
74
and performance audits of government’s annual financial reports, which are different than
performance audits covered under PI-8.
Table 3.22 below assesses each of these elements in accordance to the core elements of
INTOSAI standards.
Table 3.22: Independence of SAI in relation to INTOSAI standards

INTOSAI Standards Adherence of external audit practices to
INTOSAI standards
AG Independence i.e. appointment, Yes. independence is stipulated in the
termination, salary Constitution and specified in Law of State Audit
Financial Independence of OAG and Yes
Staffing Arrangements
Access to Public Records Yes. 100% access to documents by law, but
delays in practice.
Independence in Preparation of Annual Yes
Audit Work Plan

(M1) 2008 2016 2016 score change/other factors
External audit D+
30.1 Audit B B The FBSA has an The FBSA had a revised
coverage and extensive mandate that law No. 31 for the Year
standards includes auditing public 2011 that grants it an
finance, as well as extensive mandate that
conducting value for includes auditing public
money (VFM) or finance, as well as
performance audits, conducting performance
which are conducted in audits. Over the last 3
compliance with years, the FBSA has
international auditing taken concrete steps
standards. The final towards adopting
accounts include modern auditing
revenues, expenses, approaches. Risk-based
assets and liabilities. audit was introduced in
However, despite the the 2016 audit plan,
deteriorating political while audit of systems
and security conditions, and programs was
the FBSA was able to introduced in 2015 audit
complete the audit plan. A peer review of its
reports for all audited performance audit
bodies, except those function was completed
governorates under by the Netherlands Court
ISIS rule. of Audit (NCA) in 2013
found that the
performance audit
function of the FBSA
meets most of the
ISSAIs. Comparing
FBSA’s auditing activity
for 2013 and 2016, there
is a noticeable shift
towards diversification of
activities. The FBSA
confirmed that they audit
all public expenditure
(with the exception of the
Kurdistan region).
30.2 Submission of D D The FBSA is required The final accounts for
audit reports to submit an annual the years 2005-2012
to the report to the CoR were only submitted to
legislature within 120 days of the parliament at the
end of the fiscal year. It beginning of 2015. The
75
(M1) 2008 2016 2016 score change/other factors
is also mandated with 2013 final accounts were
auditing the only submitted in
governments Final January 2015, but not
Accounts. During the discussed yet. The
last 3 years, it FBSA is working with the
submitted 3 annual Ministry of Finance on
reports and 12 how to audit the final
quarterly reports to accounts of 2014, given
CoR. However, it could that no budget was
not submit the final passed that year.
accounts audit report to
government as they
were not made
available to it.
30.3 External audit D C The FBSA has a The SFU also follows on
follow-up specialized Scrutiny recommendations with
and Follow up Unit the Accounting and
(SFU) that is Oversight Standards
responsible for Council. In 2015, the
following up on the Prime Minister’s Office
recommendations formed a specialized
issued by the FBSA committee tasked with
and the actions taken following up with the
by the audited bodies, different ministries and
which are documented providing official
in the FBSA’s annual responses to the FBSA’s
and periodical reports. questions and
recommendations.
30.4 SAI NA B The FBSA is a This is a new dimension
Independence financially and introduced in the 2016
administratively PEFA Framework;
independent body with therefore, a comparison
a judicial personality, of scores is not possible.
and is attached to the
CoR. The President of
the FBSA is appointed
by the CoR to carry its
mandate the FBSA law
granted it the authority
to access information
needed. However, the
FBSA continues to face
significant obstacles in
accessing information
in a timely manner.
Ongoing reforms: The FBSA had received support from the World Bank at the beginning
of 2016 to enhance the audit report effectiveness and as well to improve its audit of
refugees and internally displaced peoples aid audit. The FBSA is also working with the
Netherlands Court of Audit on developing its communication strategy.
PI-31 Legislative scrutiny of audit reports
This indicator focuses on legislative scrutiny of the audited financial reports of central
government, including institutional units, to the extent that either (a) they are required by
law to submit audit reports to the legislature, or (b) their parent or controlling unit must
answer questions and take action on their behalf. There are four dimensions that focus on
the timing of audit report scrutiny (over the last three years), the hearings conducted, the
legislature’s recommendations, and the transparency of the legislative scrutiny. The
assessment of the first dimension is based on the audit reports submitted to legislature
within the last three years, while other dimensions are assessed on the last 12 months.
76
31.1 Timing of audit report scrutiny
The CoR had been unable to conduct proper scrutiny of audit reports over the past three
years due to the fact that the government failed to submit its final accounts for almost a
decade despite it being required by the Constitution (article 62) to submit the draft general
budget bill and the final account to the CoR for approval.
At the beginning of 2015, the CoR received the final accounts for the years 2005-2011.
The CoR adopted the final accounts for the years 2005-2006 in October 2015, and the
accounts for 2007 in March 2016. The backlog of accounts will require time for the
parliament to be able to go through and approve. The 2013 final accounts were submitted
to the CoR in January of 2016 but have not been discussed yet. The final accounts that
were submitted did have significant findings. For example, the 2007 final accounts showed
that almost 75 trillion Iraqi Dinars were unaccounted for.
Table 3.23: Timeliness of Examination of Audit Reports by Parliament

Year Receipt by Laid in Status at PAC Motion
Parl’nt Parl’nt PAC level Reports adopted by
laid in Parl’nt
House
FY 2013 4/1/2016 - - - -
FY 2014 - - - - -
FY 2015 - - - - -
Source: FBSA
Dimension rating = NA
31.2 Hearings on audit findings

The CoR committees can hold hearing sessions for any public official, as well as members
of the civil society or private sector (Parliamentary Bylaws, article 76). The CoR can also
question members of the executive in general assembly sessions, which are public. For
example, since 2014 the economic committee held several hearings for different
government officials including the Minister of Commerce, the Minister of Planning, the
Central Bank’s Governor, and the Ministry of Industry. On average, the CoR holds 3-6
hearing sessions a year. The FBSA representatives are present in some of these sessions.
The depth of the hearings could not be determined. There was no discussion of audited
final accounts since 2012.
31.3 Recommendations on audit by the legislature

The CoR in its general assembly issues recommendations on actions to be implemented
by the executive based on requests submitted by MPs and committee reports. Some of
these recommendations are based on findings of audit reports or committee reports, and
others are a result of debates and hearings initiated by the legislature as part of its oversight
role. The follow up on the implementation of these recommendations is mostly carried out
in the relevant committees. There is no systemic mechanism in place for follow up on the
status of implementation of these recommendations; however, some of the standing
committees have opted to form subcommittees for this purpose. For example, the Finance
committee formed two subcommittees in 2015 (on oil and non-oil revenues, and on
licensing), and one in 2016 (on Iraqi money smuggled outside Iraq). There was no
discussion of audited final accounts since 2012.
77
31.4 Transparency of legislative scrutiny of audit reports
On the transparency of the legislative scrutiny of audit reports, the committee meetings
held to discuss these reports are in camera, and their reports are, currently, not published
online on the CoR’s website. The general assembly sessions are public and covered by
the media. There was no discussion of audited final accounts since 2012.
PI-31 Dimension Score Score Justification Performance

(M2) 2008 2016 for 2016 score change/other
factors
Legislative scrutiny of D NA
audit reports
31.1 Timing of audit D NA The CoR was At the beginning of
report scrutiny unable to 2015, the CoR
scrutinize the audit received the final
reports on annual accounts for the
financial reports as years 2005-2011.
they had not been The CoR adopted
submitted to the final accounts for
parliament on time the years 2005-2006
during the past in October 2015, and
three years. the accounts for
2007 in March 2016.
The backlog of
accounts will require
time for the
parliament to be able
to go through and
approve. The 2013
final accounts that
were submitted to
the CoR in January
of 2016 but have still
not been discussed.
31.2 Hearings on audit D NA The CoR Despite the fact that
findings committees can the CoR has not
hold hearing received the audited
sessions for any reports from the
public official, as government, it does
well as members hold hearing
of the civil society sessions, for
or private sector, example in 2014 the
and it can question economic committee
members of the held several
executive in hearings for different
general assembly government official
sessions. But including the Minister
since it has not of Commerce, the
received the Minister of Planning,
reports in a timely the Central Bank’s
manner, it did not Governor, the
hold hearing Ministry of Industry
sessions. on companies
related to ministry.
On average the CoR
holds 3-6 hearing
sessions a year.
31.3 Recommendations D NA The CoR did not There is no systemic
on audit by the receive audited mechanism in place
legislature reports in a timely for follow up on the
manner to discuss status of
and issue implementation of
recommendations. CoR
recommendations,
however some of the
78
PI-31 Dimension Score Score Justification Performance
(M2) 2008 2016 for 2016 score change/other
factors
standing committees
have opted to form
subcommittees for
this purpose. For
example, the
Finance committee
formed two
subcommittees in
2015 (on oil and non-
oil revenues, and on
licensing), and one in
2016 (on Iraqi money
smuggled outside
Iraq).
31.4 Transparency of NA NA The CoR did not This dimension was
legislative scrutiny receive audited introduced in the
of audit reports reports in a timely 2016 PEFA
manner to discuss framework so a
them. comparison of
scores is not
applicable. For the
overdue final
accounts reports that
were received, the
committee meetings
held to discuss these
reports are in
camera, and their
reports are currently
not published online
on the CoR’s
website. The general
assembly sessions
are public and
covered by the
media.
Ongoing reforms: None.
79
4 Conclusions of the analysis of PFM systems
4.1 Integrated assessment of PFM performance
Budget reliability
Whereas the GoI does well in terms of the management and use of contingency fund
(which is 0.1% of total federal government expenditure), the credibility of the entire budget
for both revenues and expenditures leaves much to be desired. Expenditure budget outturn
compared to originally approved budget deviated more than 15% in two of the last three
completed fiscal years. Actual expenditure budget deviations were -13.9% in FY2013 and
-31.2% in FY2015; these deviations reflected significant under spending mainly from the
capital budget, understandably due to the volatile security situation in Iraq. Budget
reallocations across both economic and administrative expenditure categories have been
rampant, up to 31% and 43% respectively, the effect of which is budget implementation
lacking policy intent. Aggregate revenue was satisfactory at 4.6% below budget in FY2013
but poor at 29.3% short of budget in FY2015; whiles it is acknowledged that there was no
approved budget in FY2014, the significant deviations in aggregate revenue outturn in
2015 points to weaknesses in revenue budgeting particularly so when Iraq's domestic
revenue largely depends on oil. Revenue composition variance performed better in 2013
at 0.2% but considerably weak in 2015 at 14.1%; this further confirms weaknesses in
federal government budgeting framework, thereby raising questions with regards to budget
reliability.
Transparency of public finances

GoI's budget formulation, execution and reporting are based on administrative and
economic classification which produces consistent documentation according to GFS 2001
standards. There has been significant improvement in information included in the national
budget, fulfilling seven of the nine PEFA benchmarks; these include forecast of fiscal
deficit, presentation of previous year's and current year's budget in the same format as
originally approved budget, revenue estimates at the aggregate level, deficit financing with
breakdown of sources of finance, and medium term fiscal and expenditure frameworks.
Both expenditure and revenue outside the budget are quite significant, but for lack of data
from government; on the side of development partners, this represents at least 12.1% of
the federal budget.
Whilst there are simple and clear (but ad hoc) rules for sub-national transfers, these rules
are not approved by Parliament each year, but Article 121 of the Constitution lays the
foundation for such transfer rules. The most challenging issue with sub-national transfers
is the unreliability of and delays in transfers. Key performance indicators (KPIs) form part
of most sector strategies; however, these KPIs are not published. Again, performance
outcomes are not made public except for some performance audits reports by the FBSA.
Resources (both cash and kind) received by frontline service delivery units is unknown as
there is no framework for tracking such resources. Public access to fiscal information is still
a challenge: very little information is publicly available.
Management of assets and liabilities

The threat posed by state-owned enterprises and parastatals remain a major concern;
currently, there is no mechanism for monitoring SOEs fiscal risks. That said, a recent study
commissioned by the Prime Minister Advisory Commission (PMAC) on the status of SOEs
is welcoming and provides some assurance of practical steps taken by Government to
address this challenge. Likewise, monitoring of sub-national government is weak as well
80
as information relating to both explicit and implicit contingent liabilities arising out of
government operations. Public investment management, given the current security
situation in Iraq, was not assessed in the light of low execution rate of capital budgets and
government's inability to monitor and evaluate capital investment projects. Going forward,
the federal government through the Ministry of Planning has developed Iraqi Development
Management System (IDMS) as part of efforts to institutionalise and strength public
investment management (PIM). The framework for monitoring all government financial
assets is very weak, likewise non-financial assets in a consolidated manner, even though
line ministries and other budget entities maintain fixed asset registers. The legal framework
(procurement, sale and lease law) enumerates in detail steps and composition of
committees for disposing all public assets, carried out through public auction.
Government's debt portfolio is huge, at a little over USD 52 billion at June 2016;
discrepancies in debt figures necessitated the commissioning of an external debt audit,
pointing to a fragile debt management system. The acquisition of DMFAS has not improved
debt management services largely due to weak human resource capacity to effectively and
efficiently administer this role. The law permits the Minister of Finance as the sole
government official responsible for contracting loans and issuing guarantees on behalf of
government; the approval of loans and guarantees are supposed to be contracted within
set limits but very little information, especially regarding domestic borrowing is made public.
Policy-based fiscal strategy and budgeting

Despite the very difficult political and security situation, this aspect of GoI’s PFM system
works reasonably well, as all five indicators concerned with ‘policy-based fiscal strategy
and budgeting’, (PIs 14 to 18) received satisfactory – or better – overall ratings, and
demonstrate that the processes to allocate budgetary resources in accordance with GoI’s
declared strategic objectives are essentially sound. In particular, the two new indicators
‘Macroeconomic and Fiscal Forecasting’ (PI-14) and ‘Fiscal Strategy’ (PI-15) both score
reasonably well, as do the medium-term focus on expenditure budgeting and the budget
preparation process (PIs 16 and 17 respectively).
The ‘Federal Budget Strategy for Fiscal Years 2016-2018’ (FBS) – effectively a Budget
Framework Paper – includes information and developments in GoI policies that impact on
revenues and expenditures, as well as macroeconomic data such as GDP, CPI, population
growth, exchange rates and the Oil price. However, the FBS does not explicitly include
assessments of the impact of alternative macroeconomic assumptions, given the sensitivity
of markets to such information (PI-14).
GoI is facing a financing gap of more than 9% of GDP, and hence the strategy has been
reactive to deal with the immediate crisis, although there is a medium-term vision aimed at
strengthening the link between budget allocations and GoI priorities for utilizing resources.
The country’s national investment program is set out in the ‘National Development Plan
2013-17’ (NPD), and MDAs are prioritizing the projects contained in this plan, within the
policy shift away from recurrent expenditure. The budget preparation process has
incorporated ceilings since 2010 (PI-16.2), although the difficult fiscal environment means
that while MDAs do have medium-term plans linked to the NDP, progress is restricted by
the (unpredictable) availability of annual allocations (PI-16.3 & 4).
The budget calendar is clear and provides sufficient time for agencies to prepare
submissions (PI-17.1), and while the Budgets of 2017 and 2016 were submitted to the CoR
two months before the start of the fiscal year (PI-17.3), they were not approved before the
FY commenced (PI-18.3), nor did the CoR discuss the major medium term development
plans, such as the National Development Plan. Approximately 10-20% of the budget funds
81
have been reallocated in the past few years, although mostly following the clear rules that
exist (PI-18.4).
Predictability and control in budget execution

Tax revenue administration is satisfactory in terms of providing taxpayer information on tax
liability; the Ministry of Oil also collaborates well with oil and gas companies both in the
upstream and downstream oil and gas industry. A Functional administrative appeal
mechanism exists for both tax and non-tax, to resolve disputes. Enterprise risk
management is non-existent particularly for taxpayers; this assures effective controls
against tax (and non-tax) evasion. Government, to a large extent has control over the oil
and gas sector but needs to be strengthened in the light of the delays in reconciling revenue
and royalties paid by oil companies. Of major concern is the absence of a tax audit and
investigations plan to guide the audit of taxpayers; whereas Iraq was EITI compliant in
2013, questions have been raised on the level of government's commitment towards
transparency of the extractive industry, as pointed out by 2016 EITI report which
recommended the audit of oil companies in accordance with international standards.
Monitoring of both tax and non-tax revenue arrears is weak. Information on both tax and
non-tax revenue is compiled monthly and submitted to MoF. Tax revenue (between 2% to
23%) transfers to MoF State Treasury Account is monthly but transfers from oil and gas
revenues (between 77% and 98%) are daily. Given the importance of complete revenue
account reconciliation, it is sad to note that this is not performed by both tax revenue and
non-tax revenue authorities; the only reconciliation carried out is between collections and
transfers to State Treasury Account.
Consolidation of government cash balances takes place once a month; line ministries and
budget entities submit monthly cash flow forecasts to MoF for consolidation but this is not
updated regularly. Budget entities are given a whole year's expenditure commitment
horizon; this assures predictability of expenditure commitment. Payment is however
monthly. Budget virements are significant but done in a transparent manner. Expenditure
arrears pose significant fiscal risk on federal government; these were quite significant at a
little below 18% of total federal government expenditure in 2015. At present, there is no
systematic mechanism for generating and reporting on stock of expenditure arrears. No
payroll audits have been carried out in the last three completed fiscal years. Payroll controls
are generally weak, with considerable delays in personnel and payroll changes. To ensure
personnel and payroll data integrity, automatic linkages ought to exist between personnel
and payroll data; currently, this is not the case. Central government procurement
management is at acceptable levels though needs to be improved especially with regards
to public access to all procurement information, namely procurement plans, bidding
opportunities, contract awards, and resolution of procurement complaints. The
administrative framework for resolving all procurement complaints needs to be
strengthened in terms of strictly adopting laid down procedures for resolution of
procurement disputes, issuing decisions timely and exercising the authority to suspend
procurement process during resolution of disputes.
The general internal control framework is weak. Processes for non-salary expenditure are
not clearly defined for purposes of segregation of duties; compliance with laid down
expenditure commitment and payment rules remains a challenge. Internal audit functions
are widespread across line ministries, but the level of application of international standards
leaves much to be desired. Periodic internal audit reports are produced and distributed to
audited institutions and other stakeholders, management providing written responses to
audit queries where necessary.
82
Accounting and reporting
A time lag of more than eight weeks occurs in reconciling all treasury managed and active
central government bank accounts. Suspense and advances accounts continue to reflect
huge un-reconciled balances. The overall effect of un-reconciled suspense and advance
accounts, and delays in bank reconciliations is the accuracy of financial data. A centralised
process exists for assuring financial data integrity; this is done by the Unification Division
of MoF but its efficacy is hampered by lack and weak human resource capacity. In-year
budget reports are consistent with originally approved budget at aggregate levels for both
administrative and economic expenditure categories. Nonetheless, there are significant
delays in producing these in-year budget execution reports of at least 12 weeks after the
end of the preceding month. These in-year reports show expenditure at payment stage
only but not at commitment stage. The Annual Financial Statements provide information
on revenue, expenditure, financial assets, liabilities but no disclosure of guarantees; the
statements are comparable with the originally approved budget. Delays in submission of
AFS, which are consistently prepared on cash basis for external audit, are disturbing,
averaging 11 months after the end of the financial year.
External scrutiny and audit

The coverage of external audit is wide across most federal government budgeted entities.
In addition to financial audits, performance audits are also carried out by FBSA according
to INTOSAI standards. In recent times, however, the deteriorating security situation in Iraq
has negatively affected the successful completion of FBSA audits. Submission of external
audit reports to the legislature has consistently been delayed over the last three years,
thereby affecting effective parliamentary scrutiny, a necessary tool for accountability. In
addition, final accounts have been completed by MOF with months of delay. It is
encouraging to state that FBSA enjoys considerable administrative and financial
independence including appointments, termination, and hiring of staff; that said, timely
access to financial information to carry out its legitimate mandate remains a major concern.
The FBSA has developed a formalised audit recommendation follow-up mechanism to
effectively track the status and progress of all audit recommendations. The FBSA strategic
plan for 2018-2022 set an ambitious road map for strengthening external audit through
enhancing transparency and accountability. In particular, the FBSA had committed to utilize
the PEFA framework to assess strengths and weaknesses in PFM.
Parliamentary scrutiny of FBSA audit reports has been weak mainly due to delays in
receiving these reports (delays due to inability of FBSA to complete audits as a result of
the volatile security situation in Iraq). Whereas public hearings form part of the CoR scrutiny
process, the failure to receive FBSA audit reports on time has contributed to its inability to
carry out any public hearings within the last three completed fiscal years; consequently,
CoR recommendations have not been issued
4.2 Effectiveness of the Internal Control Framework
Control environment
The Law for Financial Administration and Public Debt No. 94 of 2004 includes definitions
of monitoring of the execution of the budget. Specifically, Section 11 of the Law covers the
internal monitoring, accounting and auditing requirements for the execution of the federal
budget and that those personnel applying the federal budget shall assume responsibility
for the financial management and the internal monitoring of transactions for revenues and
expenditures in their spending units and sub units. The Law requires that the Minister on
behalf of the government has the obligation to ensure that there are sufficient arrangements
in place for financial management, internal supervision, accounting procedures, and
reports on the application and recording.
83
Ministry of Finance Law no. 92 of 1981 reflects the obligation of the MoF to the
administration and regulation of public funds and monitoring the appropriateness of the use
of such funds. Mechanism of internal monitoring have been established in the MoF in
addition to those provided by other bodies as established in the bylaws of the MoF No. 1
of 1990.
There is no specific code of ethics of conduct for financial controllers in public entities. All
employees are aware of the “Public Servants Discipline law #14 for year 1991” and the
Public Servants Code of Conduct.
Risk assessment
Section 13 of the law for “Financial Administration and Public Debt” grants the Minister of
Finance the authority to specify the means and procedures to be followed by internal audit
departments and spending units in all public institutions. Section 13 requires that internal
audit activities mainly shall be as follows:
(a) Preparing the systematic estimations for the efficiency and activation of the decision
adoption process followed by the ministries and the limitation of risks and internal
monitoring;
(b) Submitting reports regarding the key findings from internal monitoring activities and
developing the monitoring procedures
c) Reviewing the efficiency of the use of the provided services and suggesting methods
of providing said services
Control activities
The task of the Ministry of Finance (MOF) includes the fulfillment of the objectives for which
it was established and the administration and regulation of public funds and monitoring
appropriateness of the use of such funds. Mechanisms of internal monitoring have been
established within the MOF. The law of the Ministry of Finance No.92 of 1981 includes the
provisions for the regulation, administration and controlling of the public funds. The different
department within the MoF has each a responsibility to manage, control and monitor the
execution of the activities in addition to accounting, and internal financial control activities.
The accounting department serves an important controlling role for the supervision of cash
flow in the public treasury, developing the appropriate accounting system, accounting
control on the financial activities and the developing of internal monitoring systems for the
management of public funds, along with investigating the financial violations. Although
segregation of duties exists in practice to what relate to (i) authorization; (ii) recording; (iii)
custody of assets; and (iv) reconciliation and audit, roles and responsibilities are not clearly
spelled out.
Two monitoring departments exist: (a) inspection general and (b) internal auditing
department. They are responsible for the monitoring and execution of laws, regulations,
instructions, procedures, and means of work in addition to conducting audits and following
up with the reports of FBSAA and monitoring the financial affairs. Nevertheless, each has
its own role that is complimentary to the other.
Information and communication

The MoF and line ministries prepare monthly and periodic reporting from the accounting
and financial records. The financial departments maintain records and generate several
accounting ledgers for the preparation of the daily general statements. Reports are
generated for the public revenues and public expenditures.
84
Both the inspection general and the internal audit departments monitor and conduct
verification activities. The related recommendations and reports are shared with the
Minster to whom they report since both the inspection general and the internal audit
deportment report to the line Minister. The former performs three functions: 1) Ex-post
Internal Audit; (2) Inspection; and (3) limited ex-ante review. The related report is submitted
to the line Minister. As for the internal audit departments, they perform compliance reviews
systematically with a predetermined list of verification and monitoring activities detailed in
their bylaws. They have access to information for all departments and have the authority
to request the necessary evidence for their auditing work.
Monitoring
Every department within a public entity has a specific role in terms of executing procedures
and processes as defined in the related law and bylaws. Several monitoring activities are
in place whether internal to that respective department or “external” be it the inspection
general or the internal auditing department. These two departments are responsible for the
execution of the laws, regulations, instructions, procedures and means of work in addition
to conducting audits and with following up with FBSA reports.
4.3 PFM Strengths and Weaknesses
Aggregate fiscal discipline

As might be expected in the very difficult circumstances in which the country finds itself,
fiscal discipline is not good, and most elements in the overall PFM system that contribute
to achieving this objective are not functioning well. In addition, a lack of consensus in
parliament meant that the budget proposed by the Executive was not approved for the
FY2014, while in the last completed year (2015) there is significant under-spending,
particularly on investments (only 33%) while the execution rate for recurrent expenditure
was 70% – both are the result of low cash inflows from tax and non-tax revenues: it must
be borne in mind in excess of 90% of revenue is generated via petroleum products, raised
from a very small number of tax payers or via royalties paid into the SOMO, and hence the
volatility of world oil markets has caused huge disruptions to GoI spending plans, and
required very significant adjustments to be made. This can be seen in the variances in
income against the original budget (PI-3) and also in expenditure (PI-20), which is further
distorted by payment arrears, although the stock of these is declining (PI-22).
In addition, several risks to attaining fiscal discipline are apparent, such as significant
unreported operations (PI-6); a lack of monitoring fiscal risks from other Public Sector
entities including contingent liabilities and ‘Public Private Partnerships’ (PI-10). However,
the recording of government debt and the inclusion of donor funded project bank accounts
into the consolidation of government cash/bank balances is sound (PI-13); and the multi-
year focus in fiscal planning is good (PI-16.3 and 4). There are two new indicators that
relate to this budgetary outcome: ‘Macroeconomic and Fiscal Forecasting’ (PI-14) and
‘Fiscal Strategy’ (PI-15) both of which score reasonably well.
Overall, the various elements of the system concerned with budget execution – including
internal controls – are no more than ‘functional’ and are unable to ensure that aggregate
fiscal discipline is attained.
Strategic allocation of resources

The five indicators concerned with ‘policy-based fiscal strategy and budgeting’, (PIs 14 to
18) all received satisfactory – or better – overall ratings, and demonstrate that the
processes to allocate budgetary resources in accordance with GoI’s declared strategic
85
objectives are essentially sound, in particular, the medium-term focus on expenditure
budgeting and the preparation process (PIs 16 and 17).
Most of the other indicators that contribute to the strategic allocation of resources function
well, notably the comprehensiveness of the budget documentation, and its classification in
accordance with international norms (PIs 5 (‘B’) and 4 (‘C’) respectively). However, and as
mentioned above, the indicators related to revenue collection (PIs 19 and 20) are
concentrated on a very small number of tax payers (or on royalties paid into the SOMO)
and the volatility of world oil markets has caused huge disruptions to the planning of
services, and required very significant short-term adjustments to be made.
There are two completely new indicators relevant to this budgetary outcome, the first of
which ‘Public Investment Management’ (PI-11) was not rated in the context of the fiscal
crisis facing GoI – which has meant that the very scarce resources available for investment
are allocated to meet ongoing emergency needs rather than well-thought through plans.
The second innovation relates to the way a government manages its assets, and except
for financial assets, the practice in GoI reflects “generally accepted good practice”, with ‘B’
ratings for two of the four dimensions (PI-12).
Efficient use of resources for service delivery

Financial management is not an end in itself, but rather a tool to assist a government to
deliver services to its citizens, and of course, services cannot be delivered in the absence
of funds. In this respect, GoI’s PFM system works reasonably well, as can be seen in the
good ratings for the processes that plan services (PIs 16 and 17 mentioned above), as well
as for the revenue indicator (PI-20 – despite the negative consequence of the fall in world
oil prices), and that fact that despite the very difficult circumstances, there is a reasonable
degree of predictability in the availability of funds that support expenditure during the year
(PI-21, ‘C+’).
However, although these indicators might suggest a satisfactory level of performance, the
rating for PI-8, ‘performance information’ – which can demonstrate the efficiency with which
services are delivered – (rated ‘D’) is disappointing, and it is also a matter of concern that
the mechanisms in place to reduce possible leakages in the system, such as internal
controls, controls over payroll and basic accounting controls (PIs 25, 23 and 27
respectively) are weak, and are only partly compensated by measures in place regarding
procurement (PI-24), and the fact that the Internal Audit function (PI-26) is still developing.
Lastly, it must be noted that the oversight arrangements (addressed in PIs 30-31) are less
than effective. While the FSAB is independent and has an extensive mandate that includes
using international audit standards, the deteriorating political and security conditions has
meant that audit have not been completed for all audited bodies, and backlogs are evident.
Moreover, the Council of Representatives was unable to scrutinize audited financial reports
as they had not been submitted on time, and while there are powers to hold hearings, none
have taken place.
In summary, most aspects of the PFM system are functioning at a barely satisfactory level
– one that will make it difficult for GoI to attain its fiscal and budgetary objectives: there are
many areas where significant improvements will be required in the years ahead.
86
4.4 Performance changes since a previous assessment
This is the first assessment using the upgraded Framework, and the guidance issued by
the PEFA Secretariat (October 2016) states that only 14 dimensions are directly
comparable with the 2011 version (it should also be noted that PIs-2, 3 and 19 were
amended in 2011, after the previous assessment). The directly comparable dimensions
are (using the numbers in this report) PI-4.1; PI-5.1; PI-13.1; PI-17.1 & 2; PI-18.1 & 4; PI-
21.1, 2, 3 & 4; PI-23.3 & 4; and PI-25.2: these are shown in Table 0.1 in the Introduction
(above). For completeness, Table 4.1 below shows all applicable ratings from the 2008
assessment.
Table 4.1: Comparison with previous assessment, by indicator and dimension

2016 2008 PI # change
PI-1 Aggregate expenditure D
outturn
1.1 Aggregate expenditure D D 1 Indirectly
outturn comparable.
PI-2 Expenditure composition D+ D* 2 * indicator changed
outturn in 2011
2.1 Expenditure composition D Not comparable.
outturn by function
2.2 Expenditure composition D Not comparable.
outturn by economic type
2.3 Expenditure from contingency A Not comparable.
reserves
PI-3 Revenue outturn D+ A 3 * indicator changed
in 2011
3.1 Aggregate revenue outturn D Not comparable.
3.2 Revenue composition outturn C Not comparable.
PI-4 Budget classification C
4.1 Budget classification C C 5 (i) Directly comparable.
PI-5 Budget documentation C
5.1 Budget documentation C D 6 (i) Indirectly
comparable.
PI-6 Central government D
operations outside
financial reports
6.1 Expenditure outside financial D* D 7 (i) Not comparable.
reports
6.2 Revenue outside financial D* New.
reports
6.3 Financial reports of extra- D New.
budgetary units
PI-7 Transfers to subnational C+ Indirectly
governments comparable.
7.1 System for allocating C A 8 (i) Indirectly
transfers comparable.
7.2 Timeliness of information on B D 8 (ii) Indirectly
transfers comparable.
PI-8 Performance information D
for service delivery
8.1 Performance plans for D New.
service delivery
8.2 Performance achieved for D New.
service delivery
8.3 Resources received by D D 23 (i) Not comparable.
service delivery units
8.4 Performance evaluation for C New.
service delivery
PI-9 Public access to key fiscal D
information
87
2016 2008 PI # change
9.1 Public access to fiscal D D 10 (i) Not comparable.
information
PI-10 Fiscal risk reporting D
10.1 Monitoring of public D D 9 (i) Not comparable.
corporations
10.2 Monitoring of subnational D D 9 (ii) Not comparable.
governments
10.3 Contingent liabilities and D New.
other fiscal risks
PI-11 Public investment NU
management
11.1 Economic analysis of New.
investment proposals
11.2 Investment project selection New.
11.3 Investment project costing New.
11.4 Investment project monitoring New.
PI-12 Public asset management C+
(i) Quality of central government D New.
financial asset monitoring
(ii) Quality of central government B New.
non-financial asset
monitoring
(iii) Transparency in the sale of B New.
non-financial assets
PI-13 Debt management D+
13.1 Recording and reporting of C C 17 (i) Directly comparable.
debt and guarantees
13.2 Approval of debt and C C 17 (iii) Not comparable.
guarantees
13.3 Debt management strategy D New.
PI-14 Macroeconomic and fiscal C
forecasting
14.1 Macroeconomic forecasts B New.
14.2 Fiscal forecasts B New.
14.3 Macrofiscal sensitivity D New.
analysis
PI-15 Fiscal strategy C
15.1 Fiscal impact of policy C New.
proposals
15.2 Fiscal strategy adoption C New.
15.3 Reporting on fiscal outcomes C New.
PI-16 Medium-term perspective B
in expenditure budgeting
16.1 Medium-term expenditure B C 12 (i) Not comparable.
estimates
16.2 Medium-term expenditure B New.
ceilings
16.3 Alignment of strategic plans B D 12 (iii) Not comparable.
and medium-term budgets
16.4 Consistency of budgets with C New.
previous year estimates
PI-17 Budget preparation B+
process
17.1 Budget calendar B B 11 (i) Directly comparable.
17.2 Guidance on budget A D 11 (ii) Directly comparable.
preparation
17.3 Budget submission to the B B 27 (iii) Not comparable.
legislature
PI-18 Legislative scrutiny C+
budgets
18.1 Scope of budget scrutiny B C 27 (i) Directly comparable.
18.2 Legislative procedures for C D 27 (ii) Not comparable.
budget scrutiny
88
2016 2008 PI # change
18.3 Timeliness of budget C A 11 (iii) Indirectly
proposal approval comparable.
18.4 Rules for budget adjustment C D 27 (iv) Directly comparable.
by the executive
PI-19 Revenue administration D Indirectly
comparable.
19.1 Rights and obligations for C B 13 (ii) Not comparable.
revenue measures
19.2 Revenue risk management D New.
19.3 Revenue audit and D B,B,B 14 (i-iii) Not comparable.
investigation
19.4 Revenue arrears monitoring D* NR 15 (i) Not comparable.
PI-20 Accounting for revenue C+
20.1 Information on revenue B New.
collections
20.2 Transfer of revenue A B 15 (ii) Not comparable.
collections
20.3 Revenue accounts C D 15 (iii) Not comparable.
reconciliation
PI-21 Predictability of in-year C+
resource allocation
21.1 Consolidation of cash C C 17 (ii) Directly comparable.
balances
21.2 Cash forecasting and C C 16 (i) Directly comparable.
monitoring
21.3 Information on commitment A C 16 (ii) Directly comparable.
ceilings
21.4 Significance of in-year budget C C 16 (iii) Directly comparable.
adjustments
PI-22 Expenditure arrears D
22.1 Stock of expenditure arrears D NR 4 (i) Directly comparable.
22.2 Expenditure arrears D D 4 (ii) Directly comparable.
monitoring
PI-23 Payroll controls D+
23.1 Integration of payroll and D D 18 (i) Indirectly
personnel records comparable.
23.2 Management of payroll D* D 18 (ii) Indirectly
changes comparable.
23.3 Internal control of payroll D D 18 (iii) Directly comparable.
23.4 Payroll audit C C 18 (iv) Directly comparable.
PI-24 Procurement C+ * indicator changed
in 2011
24.1 Procurement monitoring C New.
24.2 Procurement methods B
24.3 Public access to procurement C
information
24.4 Procurement complaints C
management
PI-25 Internal controls on D+
25.1 Segregation of duties C New.
25.2 Effectiveness of expenditure D D 20 (i) Directly comparable.
commitment controls
25.3 Compliance with payment D* D 20 (iii) Not comparable.
rules and procedures
PI-26 Internal audit C+
26.1 Coverage of internal audit B C 21 (i) Indirectly
comparable.
26.2 Nature of audits and C New.
standards applied
26.3 Implementation of internal B C 21 (ii) Not comparable.
audits and reporting
26.4 Response to internal audits C D 21 (iii) Not comparable.
PI-27 Financial data integrity D
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2016 2008 PI # change
27.1 Bank account reconciliation D C 22 (i) Indirectly
comparable.
27.2 Suspense accounts D D 22 (ii) Indirectly
comparable.
27.3 Advance accounts D D 22 (ii) Indirectly
comparable.
27.4 Financial data integrity D New.
processes
PI-28 In-year budget reports D+
28.1 Coverage and comparability C C 24 (i) Indirectly
of reports comparable.
28.2 Timing of in-year reports D D 24 (ii) Indirectly
comparable.
28.3 Accuracy of in-year budget C C 24 (iii) Not comparable.
reports
PI-29 Annual financial reports D+
29.1 Completeness of annual C C 25 (i) Indirectly
financial reports comparable.
29.2 Submission of reports for D C 25 (ii) Indirectly
external audit comparable.
29.3 Accounting standards C D 25 (iii) Indirectly
comparable.
PI-30 External audit D+
30.1 Audit coverage and C B 26 (i) Not comparable.
standards
30.2 Submission of audit reports to D D 26 (ii) Not comparable.
the legislature
30.3 External audit follow-up C D 26 (iii) Not comparable.
30.4 SAI Independence B New.
PI-31 Legislative scrutiny of audit NA
reports
31.1 Timing of audit report scrutiny NA D 28 (i) Indirectly
comparable.
31.2 Hearings on audit findings NA D 28 (ii) Indirectly
comparable.
31.3 Recommendations on audit NA D 28 (iii) Not comparable.
by the legislature
31.4 Transparency of legislative NA New.
scrutiny of audit reports
90
5 Government Reform Process
5.1 Approach to PFM reforms
Iraq is facing a double shock arising from the war with ISIS and the sharp drop on global
oil prices, which put the public finances of Iraq under severe strain. The fiscal pressure
forced GOI to run a cash-rationed budget with security spending taking priority, although
financing from CBI (via depleted reserves and short-term treasury bills) has covered some
of the gap for payments to workers and contractors, critical services, and payments to oil
companies. This fiscal pressure has magnified weaknesses in public financial
management, notably controlling commitments and cash management. Cash shortage
have led to the accumulation of expenditure arrears estimated to be in the region of IQD
12.7 trillion representing 17.8% of total government expenditures.
5.2 Recent and on-Going Reform Actions
The GoI continues to place priority on PFM reforms and these are at the heart of the
General Framework of Government Program 2014–2018, which aims to achieve economic
and financial reforms, including supporting the transition from a single-resource economy
to one that is diversified, in which the private sector plays an important role and the tax
base is expanded. The implementation of PFM reforms has been delegated to a committee
established by Cabinet Decree No. 88 of 2012. The Committee has developed a work plan
and road map for carrying out its duties in coordination and cooperation with relevant local
experts and international organizations: recent progress includes:
• Draft Budget Law: In consultation with the IMF and the World Bank, a new general
financial management law has been drafted and approved by the Executive, and
presented to the Council of Representatives of Iraq end of FY 2016 for review;
• Integrated Financial Management Information System (IFMIS): The World Bank is

currently working with the authorities on the preparation of a Public Financial
Management (PFM) Development Project aiming to contribute to better fiscal
management and improve GoI budget management practices at both federal and
governorate levels, including in the KRG. The IFMIS design and implementation is the
backbone of the project and will introduce the IFMIS through a comprehensive turnkey
procurement which includes all necessary IFMIS-related work, including the planning,
designing, configuring, testing, commissioning, training, and implementing the IT
solution and all related services and goods in the MoF, MoP, two line ministries, and
two governorates (Baghdad and Babil) or such other governorates as may be agreed
by the Borrower and the Bank.
• Public Investment Management (PIM): Under the same project, a comprehensive

program of technical assistance and related support will be carried out to modernizing
and strengthening of the PIM system at the federal level, including through: (i) the
carrying out of a capacity needs assessment for MoP; (ii) PIM capacity building for
MoP staff and relevant government stakeholders; (iii) updating and improving project
appraisal methodologies and guidelines, including instructions, guidelines and
templates; (iv) development of a framework for ex-post project evaluation; (v)
supporting the establishment of a specialized PIM unit within MoP; (vi) development of
an integrated bank of investment projects, to support investment planning and decision
91
making, to track and monitor investments, and to serve as an investment project
registry; (vii) updating and strengthening the Borrower’s legal and regulatory
framework for PIM; and (viii) developing a PIM/IDMS interface within the IFMIS
developed under Part 1 of the Project.
• Decentralization: Iraq has achieved a significant level of political decentralization

comprised of a partial federal and partial unitary state. The 2005 Constitution provides
for a federal structure with respect to regional government(s) and a unitary structure
with respect to the governorates. To date, no governorates that are not organized in a
region have chosen to form a region. Authorities of regions are not subject to federal
statutory changes; governorate authorities are determined by federal legislation. For
governorates, the Constitution characterizes the governance structure as
administrative decentralization. The Second Amendment to the Law on Governorates
(Law 19, 2013) provides for the devolution of “sub-directorates, departments, tasks
and competencies of parts of eight federal ministries.15 Devolution was supposed to
have been carried out over a two-year period, to be completed by August 2015. The
Ministry of Housing, Municipalities and Public Works is the most advanced in this
process, though no formal transfer of staff, facilities and budgets have taken place as
of late 2015. Based on H.E. The Prime Minister request, the World Bank performed an
assessment of Iraq decentralization. The assessment provides a snapshot of the status
of decentralization process. It, as well, identifies policy and process reform measures
that are necessary to strengthen service delivery by the 15 Governorates of Iraq.
• Public Financial Management, Transparency, and Regulatory Reform (funded by

DFID, implemented in FY2016). Through this project, the World Bank has supported
GOI in developing the following PFM areas:
I. Ministry of Finance (MOF) on-line Information and Transparency: The MoF is

collaborating with the World Bank to develop an “Open Budget Portal” to streamline
publication of information and data on public expenditure accounts in Iraq. The
portal will explore innovative ways to consolidate and improve public access to
fiscal information in Iraq, including using data visualization tools to transform fiscal
data and information into intuitive and user friendly formats. The portal will allow
authorized MOF users to publish key budget documents in Word, Excel, PDF
(Executive’s budget proposal, enacted budget, monthly execution reports, year-
end reports, and audited budgets). In addition, the portal will use dashboard-like
formats and user friendly data visualization tools to illustrate the approved budget
for the current fiscal year and three two past years, actual budget execution figures
for the last available fiscal year; all classified according to the used budget
classification categories by the GoI.
II. MOF Capacity Needs Assessment: The World Bank is supporting MOF in
objectively assessing its needs and how well it is operating in the realm of PFM,
through identifying strengths, weaknesses, gaps and the constraints it faces, which
may include scarce resources, low staff skills, mandate limitations,
underdeveloped systems, among others. Once it has identified these challenges,
the MOF will be in a position to develop an appropriate strategy for developing its
capacity: one that builds on its strengths and addresses (or copes with) constraints
that inhibit its effectiveness.
15 These include the Ministries of Housing and Reconstruction, Municipalities and Public Works,
Health, Education, Labour and Social Welfare, Sports and Youth, and Agriculture and Finance.
With respect to the Ministry of Finance, devolution has meant only the creation of Finance
Departments in the Governorates, and not a devolution of the Ministry of Finance authorities.
92
III. Supporting the Federal Board of Supreme Audit (FBSA): this support included
a review of a sample of audit reports completed by the FBSA (covering financial,
compliance and performance audit) and recommendations for improvement, as
well as exposure to international good practice in audit report preparation through
targeted knowledge sharing activities with peer SAIs.
IV. MOF PFM Assessment (PEFA Framework), which is the subject of this report.
5.3 Institutional considerations
Government leadership and ownership have slightly improved over time and is reflected in
the Federal Government strategies and action plans (Government Strategic Plan 2014 –
2018). This is likely to contribute to a more effective PFM reform process, better direction
and pace, and more clarity regarding organizational responsibilities for the reform process,
and addressing, in a timely manner, any resistance to change. Government leadership with
donors has not strengthened. Responsibility for donor coordination is not clear where it
lies. There is an urgent need for a new donor coordination mechanism, which should
include database to provide sufficient information on ongoing financial assistance, projects,
and programs with link to government strategic priorities.
The organizational arrangements within which PFM is conducted in Iraq operate is fair, yet
coordination should be strengthened, especially on planning and budgeting capital
spending while Iraq is in this critical fiscal situation. The link between the Government
Strategic priorities (2014-2018) and budget MTEF capital expenditures should be reviewed
and confirmed. For PFM reforms, the implementation has been delegated to a Special
Committee established by Cabinet Decree No. 88 of 2012. The Committee has developed
a work plan and road map for carrying out its duties in coordination and cooperation with
relevant local experts and international organizations.
The more sustainable is the reform process, the likely to influence the impact of PFM
reforms. The majority of PFM reforms include capacity-building programs yet enforcement
to ensure the retention of trained staff is lacking. Also, information on funding of the
recurrent costs resulting from the implementation of reforms is not easily accessible.
Transparency of the PFM program is important for setting expectations and soliciting
contributions and collaborations from various stakeholders. Unfortunately, the Federal
Government of Iraq is not managing this very well as neither the public nor the international
community has easy access to such information.
93
6 Annexes
94
Annex 1: Performance Indicator summary
No. Indicator Score Score Performance

2016 2008 change
PI-1 Aggregate D
expenditure
outturn
1.1 Aggregate D Expenditure D Indirectly comparable,
expenditure outturn outturn was as 2016 calibration
between 86.1% in includes externally
FY2013 & 68.8% financed projects
in FY2015: i.e. 2 (excluded in 2008).
of 3 years
reviewed. (N.B. no
budget in
FY2014)
PI-2 Expenditure D+ D* * indicator changed in
composition 2011
outturn
2.1 Expenditure D The variance in Not comparable;
composition outturn the two years for different data & scoring
by function which data is criterion in PEFA 2008.
available is
greater than
permitted for a ‘C’
rating, i.e. -13.9%
and -31.2%. (N.B.
no budget in
FY2014)
2.2 Expenditure D A contingency New dimension
composition outturn reserve is
by economic type embedded in
each MDA
budget; cannot be
rated.
2.3 Expenditure from A The average New dimension
contingency contingency in the
reserves two years for
which data is
available was
0.1%.
PI-3 Revenue outturn D+ A * indicator changed in
2011
3.1 Aggregate revenue D Revenue outturns Scores not
outturn for FY2013 & comparable: revenues
FY2015 were from external sources
95.4% & 70.7%, now included.
of approved
budgets. (N.B. no
budget in
FY2014)
3.2 Revenue C Revenue New dimension.
composition outturn composition
variance was
0.2% in FY2013
and 14.1% in
FY2015 (N.B. no
budget in
FY2014)
PI-4 Budget C
classification
4.1 Budget C Budget C Directly comparable: a
classification formulation, new budget
execution, and classification has been
reporting are adopted, which is less
95
2016 2008 change
based on comprehensive that the
administrative & 2007(more GFMS
economic 2001-based) version.
classifications that The classification
can produce framework does not
consistent allow direct derivation
documentation of the main analytical
comparable with measures of fiscal
GFS standards (at policy.
least level 2 of the
GFS standard – 2
digits)
PI-5 Budget C
documentation
5.1 Budget C Budget D Scores not directly
documentation documentation comparable, although
fulfills 6 elements, subject matter is similar
including at least to previous PI-6 of
3 basic elements. 2008 framework, but
new elements now
included. Only 6 of 12
elements fully met, as
in 2008: no
improvement in
performance
PI-6 Central D
government
operations outside
financial reports
6.1 Expenditure outside D* No information D Rating not directly
financial reports from GoI on comparable, as dim
expenditure reformulated & scope
outside financial widened to include
reports and donor expenditure in
budget. addition to GoI
Expenditure from expenditure.
donor funded
projects &
programs was
11.4% of total GoI
exp in FY2015
6.2 Revenue outside D* No information Not comparable: new
financial reports from GoI on dimension.
revenue outside
financial reports
and budget.
Revenue from
donor funded
projects &
programs
constitute 12.1%
of total govt.
revenue for
FY2015
6.3 Financial reports of D Majority of extra Not comparable: new
extra-budgetary budgetary units dimension.
units do not provide
regular financial
reports to GoI.
Technical
Assistance is not
reported to GoI
PI-7 Transfers to C+ Indirectly comparable.
subnational
governments
96
2016 2008 change
7.1 System for C The horizontal A Indirectly comparable.
allocating transfers allocation of some GoI put in place several
transfers to policy and procedural
subnational steps supporting
Governorates decentralization,
from central however,
government is intergovernmental
determined by fiscal relations &
transparent, rule- service delivery remain
based systems, highly centralized.
based on
population.
7.2 Timeliness of B Subnational D Indirectly comparable.
information on Governments’
transfers budget calendar is
consistent with the
applied national
one; Subnational
governments
receive
information on
their annual
transfers through
the regular budget
calendar.
PI-8 Performance D+
information for
service delivery
8.1 Performance plans D Performance New dimension in
for service delivery benchmarks are PEFA 2016.
developed in
sector strategies,
long term,
medium term and
annual action
plans; but are not
published
8.2 Performance D Publication of New dimension in
achieved for service performance PEFA 2016
delivery achieved for
service delivery is
not routinely done
in accordance
with set KPIs; that
said, MoE makes
public student
examination
results as well as
performance of
schools
8.3 Resources received D Over the last three D Subject matter
by service delivery completed fiscal unchanged, but rating
units years, no surveys & performance not
(PETS) has been comparable because
conducted. additional information
Further, there is on two large line
no mechanism to ministries is required
track resources
(both cash and
kind) received by
primary service
delivery units
8.4 Performance C Value for Money New dimension in
evaluation for (VFM) studies are PEFA 2016
service delivery performed by the
internal M&E
97
2016 2008 change
framework in each
line and limited
performance audit
by FBSA.
PI-9 Public access to D
key fiscal
information
9.1 Public access to D Only two of five D Scores are not directly
fiscal information basic elements comparable, although
are fully met. the subject matter
Nonetheless, two remains unchanged. In
other elements – 2016, elements are
1 basic & 1 split into ‘basic’ and
additional are ‘additional’ none of
partially met; the which were met in
main challenge is 2008; hence, there is a
the delay in marginal improvement
publication of in performance.
information
PI-10 Fiscal risk D
reporting
10.1 Monitoring of public D MoF is making D Comparable to 2008
corporations substantial efforts PI-9 (dim ii): oversight
to monitor public of aggregate fiscal risk
corporations: from other public sector
however, at time entities.
of assessment,
the majority of
public
corporations did
not submit their
financial
statements
10.2 Monitoring of D Performance is D Comparable to 2008
subnational less than required PI-9 (dim ii): oversight
governments for ‘C’ as financial of aggregate fiscal risk
reports are not from other public sector
published. entities.
10.3 Contingent liabilities D There is no New.
and other fiscal evidence
risks suggesting
monitoring and
reporting of
central
government
contingent
liabilities
PI-11 Public investment NU
management
11.1 Economic analysis New.
of investment
proposals
11.2 Investment project New.
selection
costing
monitoring
PI-12 Public asset C+
management
(i) Quality of central D There is no New.
government reliable data on
financial asset monitoring of
monitoring government
financial assets.
98
2016 2008 change
(ii) Quality of central B While GoI does New.
government non- not have a
financial asset consolidated fixed
monitoring asset register,
each budget entity
maintains a
register which is
audited by FBSA
(iii) Transparency in the B Rules and New.
sale of non-financial procedures for the
assets disposal of GoI
fixed assets are
established in the
Public
Procurement &
Lease Law - Law
32 of 1981.
Proceeds are
reported in AFS.
PI-13 Debt management D+
13.1 Recording and C Total public debt C Directly comparable:
reporting of debt records (foreign & score and performance
and guarantees domestic) are unchanged
reconciled &
updated annually
based on creditor
statements, with
minor
reconciliation
differences.
Monthly
reconciliation is
also done
between PDD and
Accounts
Department but
with major
reconciliation
differences
13.2 Approval of debt C The Minister of C Not directly
and guarantees Finance is the comparable, although
sole official the subject matter is
authorised by law unchanged from PI-17
to contract loans (III) in 2008.
and issue
guarantees on
behalf of GoI.
DMU responsible
for managing
government debt
portfolio. Loans
and guarantees
are approved by
the Council of
Representatives.
13.3 Debt management D A 3-year medium- New.
strategy term DMS has
been prepared for
2017-2019, which
outlines
composition of
external borrowing
but lacks detailed
analysis of risks.
No information on
domestic
99
2016 2008 change
borrowing for
forecast period, &
is not published.
PI-14 Macroeconomic C+
and fiscal
forecasting
14.1 Macroeconomic B Projections of New.
forecasts inflation, the Oil
price, loans and
other financing
items are made
but not published,
nor reviewed by
an independent
entity.
14.2 Fiscal forecasts B Revenue New.
forecasting is
formalized, driven
by assumptions
about oil prices.
14.3 Macrofiscal D The FBS does not New.
sensitivity analysis explicitly include
quantitative or
qualitative
assessments of
the impact of
alternative
macroeconomic
assumptions.
PI-15 Fiscal strategy C
15.1 Fiscal impact of C In the context of the New.
policy proposals recent reduction in
oil prices on the
world market and
the security situation
in the country GoI
(with IMF
assistance), has
adopted a number of
short & medium-
term measures to
deal with the crisis
(a deficit over 9% of
GDP).
15.2 Fiscal strategy C The strategy New.
adoption reflects a medium-
term vision to
strengthen the link
between budget
allocations & GoI
priorities for
utilizing available
resources for the
coming FY;
however, this is
not presented to
Parliament.
15.3 Reporting on fiscal C GoI does not New.
outcomes include an
assessment of
achievements
against stated
fiscal objectives
available as part
of the annual
budget
documentation
100
2016 2008 change
submitted to the
legislature.
PI-16 Medium-term B
perspective in
expenditure
budgeting
16.1 Medium-term B Estimates are C Related to former PI-12
expenditure presented for (i), but not comparable
estimates budget and
following 2 FYs
using
administrative &
economic
classifications.
16.2 Medium-term B Budget ceilings New dimension.
expenditure ceilings exist, and were
enforced in 2016.
16.3 Alignment of B MDAs do have D Related to former PI-12
strategic plans and medium-term (iii) & (iv), but not
medium-term plans linked to the comparable
budgets NDP
16.4 Consistency of C Adjustments New dimension.
budgets with caused by the
previous year fiscal crisis are
estimates explained.
PI-17 Budget B+
preparation
process
17.1 Budget calendar B A clear annual B No change, budget
budget calendar calendar is clear and
exists and is provides sufficient time
largely adhered for agencies to prepare
to. The calendar submissions and
allows budgetary majority of spending
units at least four units complies in
weeks from submitting their
receipt of the detailed estimates on
budget circular. time.
Most spending
units are able to
complete their
detailed estimates
on time.
17.2 Guidance on budget A The Budget call D Indirectly comparable
preparation circular of 2017 as the 2016 calibration
was a reissue of includes externally
the previous year, financed
but does provide projects/programs
totals and ceilings. which were excluded in
2008 assessment.
17.3 Budget submission B The executive B New dimension.
to the legislature submitted the
draft budget of
2017 to the
Parliament in
Sept, budget of
2016 was
submitted to the
CoR in Nov. 2016,
while budget of
2015 was
submitted in Dec
25, 2014.
PI-18 Legislative C+
scrutiny budgets
101
2016 2008 change
18.1 Scope of budget B Budget strategy is C No change.
scrutiny attached to
budget proposal
submitted to the
Parliament; which
includes fiscal
policies and
aggregates for the
coming years,
besides details of
revenue and
expenditures,
however: it does
not appear that
fiscal policies are
reviewed and
challenged.
18.2 Legislative C Finance Committee D No change.
procedures for lacks internal rules,
budget scrutiny but has adopted
informal procedures
to hold hearings with
Ministries etc.,
(especially MoF) &
has support from
e.g. UNDP and WB.
18.3 Timeliness of C The legislature A Rated B in 2008, based
budget proposal succeeded to on the time parliament
approval approve the spent debating the
budgets of FY16 budget rather than
and FY15 within a when it was approved.
month of the start
of FY
18.4 Rules for budget C Clear rules exist D The 2008 report*
adjustment by the and are adhered emphasized that in
executive to in some addition to GoI partially
instances: adhering to reallocation
however, rules, there was no
extensive proof of a
administrative supplementary budget
reallocations as being submitted. This
well as area witnessed some
expansions of improvement in the
total expenditure following years, with a
are allowed, Over supplementary budget
the past few years submitted to & rejected
approximately 10- by CoR in 2012.
20% of the budget
funds have been
reallocated.
PI-19 Revenue D Indirectly comparable.
administration
19.1 Rights and C Revenue B Dimension reformatted
obligations for collecting to include tax & non-tax
revenue measures agencies provide revenue arrears;
clear, performance not
comprehensive & comparable
simple information
on taxpayer
obligations. Also,
an administrative
and judicial
mechanism for
redress.
19.2 Revenue risk D Tax authorities do New dimension.
management not apply risk-
102
2016 2008 change
based processes
for managing risk
19.3 Revenue audit and D Both Customs and B, B, B Subject matter
investigation General maintained, but data
Commission of requirements revised;
Taxes do not not directly comparable
prepare tax audits
and fraud
investigations
annual plans; no
tax audit has been
done in the last
three years.
19.4 Revenue arrears D* There are no NR Dimension reformatted
monitoring records of the to include tax & non-tax
stock of revenue revenue arrears;
(tax and non-tax) performance not
arrears. Whereas comparable.
revenue officials
attest to the fact
there could
significant tax
arrears, poor and
inaccurate record
make it difficult to
track and record
tax revenue
arrears. No
information from
Ministry of Oil
about arrears on
sales of crude oil.
PI-20 Accounting for C+
revenue
20.1 Information on B MoF obtains New.
revenue collections monthly revenue
reports
disaggregated
into revenue types
from most
revenue collecting
agencies; these
are consolidated
and reported in
the in-year budget
execution reports
20.2 Transfer of revenue A Oil and gas B Not comparable.
collections revenues are
deposited directly
to State Treasury
Account (300600).
However,
transfers from
revenue collecting
agencies is
monthly from tax
authorities'
holding bank
accounts into
State Treasury
Account; that said,
daily sweeps are
made from tax
agencies' branch
account into
holding accounts
103
2016 2008 change
20.3 Revenue accounts C Complete and D Not comparable.
reconciliation comprehensive
revenue accounts
reconciliation is
not done; only
monthly
reconciliation is
between revenue
collections and
transfers to State
Treasury Account;
oil, gas and taxis
included
PI-21 Predictability of in- C+
year resource
allocation
21.1 Consolidation of C Most C Directly comparable: no
cash balances consolidation of change in performance.
government cash
balances takes
place each month.
21.2 Cash forecasting C Budget agencies C Directly comparable,
and monitoring submit annual and shows no change
cash flow plans to since 2008. However,
MoF for at that time there was
consolidation but no pressure on GoI
this is not updated revenues hence
regularly, either effective monitoring
monthly or was not required; this
quarterly. has changed in the last
three years.
21.3 Information on A MoF issues C improvement.
commitment ceilings annual Expenditure
expenditure commitment ceilings
commitment are set for three
ceilings: quarters of the year for
nonetheless cash all categories of
allocations are expenditure which was
monthly. not the case in 2008.
21.4 Significance of in- C In-year budget C Directly comparable,
year budget reallocations and shows no change
adjustments within and across since 2008.
votes may be
frequent but are
transparent.
PI-22 Expenditure D IMF Article IV and NR Not comparable:
arrears MoF data indicate scoring criteria have
that expenditure been tightened in 2016.
arrears represent NR in 2008 for lack of
11.28% and reliable data.
17.86% of total
expenditure for
FY2014 & FY2015
respectively. This
reflects an
increase of 6.58%
from 2014. No
available data on
arrears in
FY2013.
22.1 Stock of D There is no NR Scores not directly
expenditure arrears framework for comparable as criteria
generating and reformatted: however,
monitoring performance appears
expenditure unchanged.
payment arrears.
104
2016 2008 change
22.2 Expenditure arrears D D Directly comparable.
monitoring
PI-23 Payroll controls D+
23.1 Integration of payroll D Payroll and D Indirectly comparable.
and personnel personnel records
records are not integrated
to ensure data
consistency.
23.2 Management of D* There are D Indirectly comparable.
payroll changes considerable
delays in effecting
changes to the
payroll, but these
cannot be
quantified.
23.3 Internal control of D sufficient controls D Directly comparable.
payroll to ensure integrity
of the payroll data
do not exist.
23.4 Payroll audit C Partial audits are C Directly comparable.
conducted.
PI-24 Procurement C+ * indicator changed in
2011
24.1 Procurement C To address New.
monitoring weaknesses in
data collection,
MoP – DoGGC
now collects data
for all contracts
above 10 million
IQD.
24.2 Procurement B Data from MOP
methods had been
collected.
24.3 Public access to C Three of the
procurement elements of ‘key
information procurement
information’ are
public.
24.4 Procurement C .3 criteria out of 6
complaints were met
management including criteria #
1.
PI-25 Internal controls D+
on nonsalary
expenditure
25.1 Segregation of C Although New.
duties segregation of
duties for main
functions exist,
definitions and
roles are not
documented, and
not sufficiently
clear.
25.2 Effectiveness of D Controls are D Exceptional
expenditure linked to liquidity circumstances affecting
commitment availability due to effectiveness of
controls the economic and commitment controls.
financial situation
of the country.
25.3 Compliance with D* Material D Override of rules and
payment rules and exceptions procedures to
procedures regarding accommodate
advances ceiling
105
2016 2008 change
were taken place exceptional needs and
in the Ministry of circumstances.
Education
PI-26 Internal audit C+
26.1 Coverage of internal B Limited C IA units in each
audit independence for ministry are covering
IA, and IG. Most now most of budgeted
activities are expenditures and
compliance in revenues.
nature and not
adhere with the
international
standards on IA.
Nevertheless, IA
is present in each
ministry and
covers most of
budgeted
expenditures and
revenues.
26.2 Nature of audits and C Primarily focused New dimension.
standards applied on financial
compliance, with
non-alignment
with international
standards and
good practices.
26.3 Implementation of B Limited C Although non-standard
internal audits and documentation, reports are issued from
reporting non-standard IA units, they are done
reports, majority systematically.
of audits are
completed, as
evidenced by the
distribution of the
reports to
concerned parties,
etc.
26.4 Response to C Management D More partial responses
internal audits provides Partial are witnessed.
responses to
internal audit,
while there is
limited response
to IG
recommendations
with lack of
structured follow
up approach
PI-27 Financial data D
integrity
27.1 Bank account D Reconciliation of C Not directly
reconciliation all active central comparable; scoring
govt. bank requirements have
accounts does not been strengthened.
take place within 8
weeks after the
end of month or
quarter. Whereas
treasury managed
bank accounts are
reconciled within
two months, line
ministries
reconcile theirs
within three
106
2016 2008 change
months. There is
no reliable
information on
public
corporations’ bank
reconciliations.
27.2 Suspense accounts D As at end of D Not directly
FY2015, comparable, as subject
aggregate matter separated from
suspense and dimension 27.2.
advances stood at
IQ74.7trillion; this
is yet to be
reconciled and
acquitted.
27.3 Advance accounts D Advances to line D Not directly
ministries & staff comparable, as subject
for official duties matter separated from
continue dimension 27.2.
unabated. Whiles
some advances
are reconciled at
least annually
within two months,
significant un-
reconciled
balances are
brought forward.
27.4 Financial data D The Unification New.
integrity processes Division of MoF
verifies financial
transactions
received from line
ministries;
however, the unit
is constrained with
human capacity.
While there are
restrictions to data
usage in addition
to some level of
data storage, it is
rudimentary and
lacks
standardized data
protection and
storage
framework
PI-28 In-year budget D+
reports
28.1 Coverage and C In-year budget C The scores are not
comparability of execution reports directly comparable,
reports produced by MoF although data
allow for easy requirements are
comparison with unchanged. That said,
the original there appears to be no
approved budget improvement.
at aggregate
administrative and
economic main
headings only.
28.2 Timing of in-year D MoF produces D As above
reports consolidated
monthly budget
execution reports
within 12 weeks
107
2016 2008 change
following the end
of the previous
month. These
reports are
published on MoF
website as well as
the official
government
website
28.3 Accuracy of in-year C Expenditures are C The subject matter
budget reports reported only at remains unchanged but
the payment stage scoring criteria has
but not at the been reformatted to
commitment include budget
stage; further, analysis. Nonetheless,
there are data there appears to be no
accuracy change
concerns but
these are not
highlighted in the
reports.
PI-29 Annual financial D+
reports
29.1 Completeness of C Consolidated C Ratings not directly
annual financial annual financial comparable, as scoring
reports statements of requirements expanded
central to improve
government are transparency such as
prepared each disclosure of govt.
year; these are guarantees. That said,
comparable with there appears to be no
approved federal change
budget. The AFS
provide
information on
revenue,
expenditure,
financial assets,
liabilities but no
disclosure of
guarantees
29.2 Submission of D The 2013 financial C Ratings not directly
reports for external statements were comparable. Time
audit submitted to required for submission
FBSA 11 months of AFS to FBSA
after the end of shortened, & hence
the financial year more stringent. There
appears to be no
change
29.3 Accounting C Cash accounting D Ratings not directly
standards standards were comparable, as.
consistently used subject matter
over the last three expanded to require
completed more explanation of
financial years in accounting standards.
accordance with There appears to be no
the legal change.
framework
PI-30 External audit D+
30.1 Audit coverage and C The FBSA has an B The FBSA had a
standards extensive revised law No. 31 for
mandate that the Year 2011 that
includes auditing grants it an extensive
public finance, as mandate that includes
well as conducting auditing public finance,
value for money as well as conducting
108
2016 2008 change
(VFM) or performance audits.
performance Over the last 3 years,
audits, which are the FBSA has taken
conducted in concrete steps towards
compliance with adopting modern
international auditing approaches.
auditing Risk-based audit was
standards. The introduced in the 2016
final accounts audit plan, while audit
include revenues, of systems and
expenses, assets programs was
and liabilities. introduced in 2015
However, despite audit plan. A peer
the deteriorating review of its
political and performance audit
security function was completed
conditions, the by the Netherlands
FBSA was able to Court of Audit (NCA) in
complete the audit 2013 found that the
reports for all performance audit
audited bodies, function of the FBSA
except those meets most of the
governorates ISSAIs. Comparing
under ISIS rule. FBSA’s auditing activity
for 2013 and 2016,
there is a noticeable
shift towards
diversification of
activities. The FBSA
confirmed that they
audit all public
expenditure (with the
exception of the
Kurdistan region).
30.2 Submission of audit D The FBSA is D The final accounts for
reports to the required to submit the years 2005-2012
legislature an annual report were only submitted to
to the CoR within parliament at the
120 days of the beginning of 2015. The
end of the fiscal 2013 final accounts
year. It is also were only submitted in
mandated with January 2015, but not
auditing the discussed yet. The
governments Final FBSA is working with
Accounts. During the Ministry of Finance
the last 3 years, it on how to audit the
submitted 3 final accounts of 2014,
annual reports given that no budget
and 12 quarterly was passed that year.
reports to CoR.
However, it could
not submit the
final accounts
audit report to
government as
they were not
made available to
it.
30.3 External audit C The FBSA has a D The SFU also follows
follow-up specialized on recommendations
Scrutiny and with the Accounting
Follow up Unit and Oversight
(SFU) that is Standards Council. In
responsible for 2015, the Prime
following up on Minister’s Office formed
the a specialized
109
2016 2008 change
recommendations committee tasked with
issued by the following up with the
FBSA and the different ministries and
actions taken by providing official
the audited responses to the
bodies, which are FBSA’s questions and
documented in recommendations.
the FBSA’s
annual and
periodical reports.
30.4 SAI Independence B The FBSA is a New dimension: not
financially and possible.
administratively
independent body
with a judicial
personality, and is
attached to the CoR.
The President of the
FBSA is appointed
by the CoR to carry
its mandate the
FBSA law granted it
the authority to
access information
needed. However,
the FBSA continues
to face significant
obstacles in
accessing
information in a
timely manner.
PI-31 Legislative NA
scrutiny of audit
reports
31.1 Timing of audit NA The CoR was D At the beginning of
report scrutiny unable to 2015, the CoR received
scrutinize the the final accounts for
audit reports on the years 2005-2011.
annual financial The CoR adopted the
reports as they final accounts for the
had not been years 2005-2006 in
submitted to October 2015, and the
parliament on time accounts for 2007 in
during the past March 2016. The
three years. backlog of accounts will
require time for the
parliament to be able to
go through and
approve. The 2013 final
accounts that were
submitted to the CoR in
January of 2016 but
have still not been
discussed.
31.2 Hearings on audit NA The CoR D Despite the fact that
findings committees can the CoR has not
hold hearing received the audited
sessions for any reports from the
public official, as government, it does
well as members hold hearing sessions,
of the civil society for example in 2014 the
or private sector, economic committee
and it can held several hearings
question members for different
of the executive in government official
general assembly including the Minister of
sessions. But Commerce, the
since it has not Minister of Planning,
110
2016 2008 change
received the the Central Bank’s
reports in a timely Governor, the Ministry
manner, it did not of Industry on
hold hearing companies related to
sessions. ministry. On average
the CoR holds 3-6
hearing sessions a
year.
31.3 Recommendations NA The CoR did not D There is no systemic
on audit by the receive audited mechanism in place for
legislature reports in a timely follow up on the status
manner to discuss of implementation of
and issue CoR recommendations,
recommendations. however some of the
standing committees
have opted to form
subcommittees for this
purpose. For example,
the Finance committee
formed two
subcommittees in 2015
(on oil and non-oil
revenues, and on
licensing), and one in
2016 (on Iraqi money
smuggled outside Iraq).
31.4 Transparency of NA The CoR did not New dimension:
legislative scrutiny receive audited comparison of scores is
of audit reports reports in a timely not applicable. For the
manner to discuss overdue final accounts
them. reports that were
received, the
committee meetings
held to discuss these
reports are in camera,
and their reports are
currently not published
online on the CoR’s
website. The general
assembly sessions are
public and covered by
the media.
111
Annex 2. Summary of observations on the
internal control framework
“Information for this annex should be drawn from the PEFA assessment only. No new
information should be collected. Where there is no information to provide a summary of
findings, the table should include the words ‘No information available from the PEFA
assessment’”.
(PEFA SECRETARIAT GUIDANCE)
Internal control components Summary of observations

and elements
1. Control environment
1.1 The personal and professional integrity The Law for Financial Administration and Public Debt No.
and ethical values of management and 94 of 2004 includes definitions of monitoring of the
staff, including a supportive attitude execution of the budget, and requires the Minister to
toward internal control constantly ensure that there are sufficient arrangements in place for
throughout the organisation. financial management, internal supervision, accounting
procedures, and reports on the application and recording.
1.2. Commitment to competence The law expects personnel executing the budget to
assume responsibility for financial management and the
internal monitoring of transactions for revenues and
expenditures in their spending units.
1.3. The “tone at the top” (i.e. management’s No information available from the assessment.
philosophy and operating style)
1.4. Organisational structure No information available from the assessment.

1.5. Human resource policies and practices There is no specific code of ethics of conduct for financial
controllers, although all employees are aware of the “Public
Servants Discipline law #14 for year 1991” and the Public
Servants Code of Conduct.
2. Risk assessment
2.1 Risk identification No information available from the assessment.
2.2 Risk assessment (significance and Internal Audit is responsible for systematic evaluations of
likelihood) the efficiency and activation of the decision adoption
process followed by the ministries and the limitation of risks
and internal monitoring
2.3 Risk evaluation Reviewing the efficiency of the use of the provided services
and suggesting methods of providing said services
2.4 Risk appetite assessment No information available from the assessment.
2.5 Responses to risk (transfer, tolerance, No information available from the assessment.
treatment or termination)
3. Control activities
3.1 Authorization and approval procedures MoF Law No.92 of 1981 includes provisions for the
regulation, administration and controlling of public funds.
3.2 Segregation of duties (authorizing, Mechanisms of internal monitoring have been established
processing, recording, reviewing) within the MoF, and segregation of duties exists in practice
with regards to (i) authorization; (ii) recording; (iii) custody
of assets; and (iv) reconciliation and audit: however, roles
and responsibilities are not clearly spelled out.
3.3 Controls over access to resources and The different department within MoF have a responsibility
records to manage, control and monitor the execution of the
activities in addition to accounting, and internal financial
control activities.
3.4 Verifications No information available from the assessment.
3.5 Reconciliations No information available from the assessment.
3.6 Reviews of operating performance The accounting department performs a controlling role to
supervise cash flow in the public treasury, developing the
appropriate accounting system, accounting control on the
financial activities and the developing of internal monitoring
112
systems for the management of public funds, along with
investigating the financial violations.
3.7 Reviews of operations, processes and No information available from the assessment.
activities
3.8 Supervision (assigning, reviewing and No information available from the assessment.
approving, guidance and training)
4. Information and communication
MoF and line ministries prepare monthly and periodic
reporting from the accounting and financial records. The
financial departments maintain records and generate daily
statements. Reports are generated for the public revenues
and public expenditures.
5. Monitoring
5.1 Ongoing monitoring Two monitoring departments exist: (a) inspection general
and (b) internal auditing department. They are responsible
for the monitoring and execution of laws, regulations,
instructions, procedures, and means of work in addition to
conducting audits and following up with the reports of
FBSAA and monitoring the financial affairs. Nevertheless,
each has its own role that is complimentary to the other.
5.2 Evaluations Both the inspection general and the internal audit
departments monitor and conduct verification activities.
The related recommendations and reports are shared with
the Minster to whom they report since both the inspection
general and the internal audit deportment report to the line
Minister. The former performs three functions: 1) Ex-post
Internal Audit; (2) Inspection; and (3) limited ex-ante
review. The related report is submitted to the line Minister.
As for the internal audit departments, they perform
compliance reviews systematically with a predetermined
list of verification and monitoring activities detailed in their
bylaws. They have access to information for all
departments and have the authority to request the
necessary evidence for their auditing work.
5.3 Management responses The response to audit/ compliance reports are generally
not documented, but if they are, this is usually mentioned in
hand written remarks on the report by the auditee. In
general, the comments raised by the audit are taken in
consideration for immediate application.
The Inspectorate General follows up on audit findings and

recommendations and whether these were implemented or
not. Nevertheless, these follow ups are limited as there is
no structured approach carried out to monitor the progress
of recommendations and action plans implementation.
113
Annex 3: Sources of Information
114
3A: List of Stakeholders Interviewed
WB PEFA mission July 30 - Aug 8, 2016
# Name Inst’ Title E-mail Telephone

Dr. Salahuddin H.
1 MOF MOF PMT Leader [email protected] 790-1919082
Alhadeethi
2 Ms. Taif Sami MOF MOF DG Budget [email protected] 780-5439599
3 Ms. Snaa Jalal MOF Deputy DG Accounts 7901948095
Ms. Maysara abdulraheem_maysara@yah
4 MOF MOF Deputy PMT Leader 790-2517260
Abdulraheem oo.com
5 Ms. Layla Mohammed MOF Head of Internal Auditing Unit [email protected] 770-2523962
6 Mr. Waleed Kalid Alwan MOF MOF PMT
7 Ms. May Moaid Ibrahim MOF Administrative Directorate [email protected] 7706001500
8 Ms. Layla Shalal Musa MOF Head of Decentralization Unit 7901574213
Head finance Dep General
9 Dr. Ali Baiaty MOF [email protected] 7903396053
Commission of Customs
10 Ms. Najiha Ali MOF DG of Tax Commission [email protected] 7901708196
Ms. Rajaa Muhsen Head of Account Unification
11 MOF 7901919076
Abdulrasool Unit
Deputy Minister in charge of [email protected] ,
12 Dr. Maher Johan MOP 7813084606
Technical Affairs [email protected]
MOP DG Investment
13 Mr. Qassim E. Frez MOP [email protected] 790-2255051
Department
Ms. Nidhal Mohammed MOP expert and head of
14 MOP [email protected] 7902437981
Merza budget Dep.
Mr. MAHDI HASAN AL-
15 MOP Engineer [email protected] 7902975930
HUSSEINI
Dr. Alaa Aldeen Jaafar MOP DG Economic and
16 MOP [email protected] 7901763993
Alameri Financial Policies Dept.
17 Dr. Azhar Salih MOP DG of Procurement [email protected] 7901918877
18 Dr. Mohammed Al-Said MOP DG Governorates '[email protected]' 790-3504460
Ms. Siham Khadir
19 MOP Head of Dep. [email protected] 7812933803
Jabor
20 Ms. Aida N. Ato MOP Deputy DG Accounts [email protected] 7702702180
21 Ms. Asma Al Shukri MOP Engineer 7728610901
22 Mr. Mumtaz Musstafa MOCH (financial Dep.) 7902341407
Mr. Mohammed Saeed
23 MOCH deputy DG [email protected] 7902341404
Naji
24 Mr. Firas Mahdi Saheb MOCH head of planning Dep. [email protected] 7506050288
Mr. Abbas Adnan
25 MOCH head of Internal Audit Dep. 7904174719
Atwan
Ms. Amena Saheb
26 MOCH deputy DG of Financial Dep. [email protected] 7800068816
Khalaf
Ms. Zeena Nadhum
27 MOCH head of financial section [email protected] 7800101185
Boros
Dr. Salah Haimat
28 FBSA Acting Head of FBSA [email protected] 7901934638
Mohammed
Acting Head of FBSA
29 Dr. Alaa Taa FBSA [email protected] 7901947065
assistant
Dr. Basima Alwan Expert and deputy DG
30 MOE [email protected] 7901447075
Husain planning
Expert and Head of Inv.
31 Mr. Husam Mahmod MOE [email protected] 770 7129232
Section
32 Mr. Tariq M. Shakir MOE Expert [email protected] 7805905247
33 Mr. Namer W. Husain MOE Engineer [email protected] 7901512659
34 Mr. Ihsan Ali Haidar MOE Engineer [email protected] 7901728966
[email protected]
35 Ms. Sanaa Abdulhusain MOE DG assistant 7702124604
om
36 Mr. Saad Ibrahim MOE DG of Planning [email protected] 7901109105
Ms. Intesar Abdul
37 MOE Senior accounts manager 7702995375
Razaq
115
Director / Govt. and
38 Mr. Michael Nehrbas USAID [email protected] 7901112710
Economic Opportunity Office
Deputy Director/Govt. &
39 Mr. Geoffrey Minott USAID [email protected] 7901919814
Economic Opportunity Office
40 Mr. Yuho Hayakawa JICA Chief Representative [email protected] 7710041571
41 Mr. Yu Funakoshi JICA Representative [email protected] 7507601801
42 Ms. Charlotte Clapham DFID Deputy DFID Representative [email protected] 7809291441
116
3B: List of documents Consulted
Legal and regulatory framework

• Fuel Excise Tax/User Charge/Profit sharing: Law Number 9 of 1939, Revolutionary Command
Council Resolution No. 82 of 1996 and the Order No. 66 of 1999 issued by the Economic
Affairs Committee, CPA Orders No. 37 and 49 of 2004
• Customs Tax: Custom Law No (23) of 1984, Custom tariff law No (77) of 1955, CPA Order
Number 54 - Trade Liberalization Policy 2004, CPA Order Number 38 - Reconstruction Levy,
CPA Order Number 70 - Amendments to Reconstruction Levy, CPA Order Number 12
• Direct Tax: Income Tax Law No. 113 of 1982 (Corporate income tax, Wage Withholding tax,
Contracts Withholding Tax, Individual Income Tax), Instructions No. (1) of 2005 Concerning
Income Tax Deduction by Direct Deduction Method, The System of Depreciation and
Elimination for Private, Mixed and Cooperative Sectors Regulation No. 9 of 1994, CPA Orders
No. 37 and 49 of 2004
• Sales tax: Hotel Tax (Resolution No. 36) Republic of Iraq Revolutionary Command Council
5/4/1997, Resolution No. 36 of May 4th 1997 and Fiscal Instructions No. 7 of 1997, Car sale
fee in accordance with Resolution Number 80 of 1998, CPA Orders No. 37 and 49 of 2004
• The Law for Financial Administration
and Public Debt No. 94 of 2004
• The Law of Inspector General issued by virtue of Order No. 57 of 2004
• The Law of the Ministry of Finance No. 92 of 1981 and bylaws of the Ministry of Finance No. 1
of 1990.
• Iraq constitution of 2005;
• Law 130 (1963): Law of Municipality’s Revenues
• Iraq Financial Management Law of 2004
• Law 21, 2008 as amended in 2010 and 2013. As enacted, Law 21, 2008 16 (“The Law of
Governorates Note Incorporated into the Region”
• 2013 Amendments to Law 21: - Law 19, (Second Amendment of the Law of Governorates Not
Incorporated in a Region (Law 21 of 2008).
• Parliamentary by-laws
• FBSA law no 21 of 2011
Budget documents
• Budget laws of 2013, 2014, 2015, 2016, and 2017.
• Budget proposal for 2013, 2014, 2015, 2016, and 2017.
Auditor-General annual reports

• FBSA annual reports of 2013 & 2014
Accountant General Reports

• Final accounts of 2013, 2014, and 2015
• In year budget execution reports
Other official documents

• Iraq Debt Strategy 2017-2019
• Public Debt Reports 2015, 2016
• National Strategy for Education and Higher Education 2011-2020)
• Government strategic plan 2014-2018
• IMF Art IV - Iraq Report Aug 2015
• Tax Department Strategic Plan 2014-2016
117
3C: Data used for scoring PI-1 & PI-2 & PI-3
Table 1.2A - Analysis for PI-1: Fiscal Year 2013
Data for year = 2013

a
administrative or functional head budget actual d deviation absolute deviation percent
j
Ministry of Internal Affairs 9,929,494.00 10,872,364.61 2,327,394.6 2,327,394.6 27.2%
Ministry of Labor and Social Affairs 1,068,740.00 1,469,984.16 550,264.5 550,264.5 59.8%
Ministry of Health 6,750,431.00 6,272,867.32 463,686.1 463,686.1 8.0%
Ministry of Defense 9,206,856.00 5,683,287.27 -2,239,806.1 2,239,806.1 28.3%
Ministry of Justice 567,125.00 586,868.55 98,820.9 98,820.9 20.2%
Ministry of Education 8,811,060.00 8,057,252.31 474,766.9 474,766.9 6.3%
Ministry of Youth and Sports 533,478.00 612,325.69 153,233.5 153,233.5 33.4%
Ministry of Trade 6,362,886.00 6,341,535.00 865,861.2 865,861.2 15.8%
Ministry of Culture 390,235.00 220,208.64 -115,613.7 115,613.7 34.4%
Ministry of Transportation 1,474,043.00 658,016.21 -610,492.9 610,492.9 48.1%
Ministry of Public Works and Municipalities 2,705,930.00 2,102,540.38 -226,086.9 226,086.9 9.7%
Ministry of Housing and Construction 1,636,842.00 1,261,297.31 -147,310.8 147,310.8 10.5%
Ministry of Agriculture 1,057,847.00 922,611.42 12,265.9 12,265.9 1.3%
Ministry of Water Resources 1,336,748.00 1,196,971.17 46,613.3 46,613.3 4.1%
Ministry of Petroleum 21,509,513.00 15,456,384.33 -3,053,938.8 3,053,938.8 16.5%
Ministry of Planning and Development Cooperation 76,058.00 60,915.63 -4,537.2 4,537.2 6.9%
Ministry of Industry and Mining 1,064,323.00 654,255.68 -261,662.9 261,662.9 28.6%
Min. of Higher Education & Academic Research 3,606,061.00 2,930,763.45 -172,484.6 172,484.6 5.6%
Ministry of Electricity 7,946,498.00 8,225,432.10 1,386,958.1 1,386,958.1 20.3%
Ministry of Science and Technology 229,533.00 177,817.93 -19,710.0 19,710.0 10.0%
21 (= sum of rest) 52,160,906.81 45,359,603.19 471,778.9 471,778.9 1.1%
allocated expenditure 138,424,607.81 119,123,302.36 0.0 13,703,287.8
contingency 250,000.00 250,000.00
total expenditure 138,674,607.81 119,373,302.36
overall (PI-1) variance 13.92%
composition (PI-2) variance 11.5%
contingency share of budget 0.2%
Table 1.2B: Analysis for PI-1 Fiscal Year 2014

administrative or functional head budget actual a deviation absolute deviation percent
Ministry of Internal Affairs 0 18,752,369,443,478.70 #DIV/0! #DIV/0! #DIV/0!
Ministry of Labor and Social Affairs 0 16,498,942,756,495.90 #DIV/0! #DIV/0! #DIV/0!
Ministry of Health 0 14,213,271,259,170.50 #DIV/0! #DIV/0! #DIV/0!
Ministry of Defense 0 9,938,418,483,365.09 #DIV/0! #DIV/0! #DIV/0!
Ministry of Justice 0 7,839,898,947,332.64 #DIV/0! #DIV/0! #DIV/0!
Ministry of Education 0 7,376,495,724,901.28 #DIV/0! #DIV/0! #DIV/0!
Ministry of Youth and Sports 0 7,193,129,141,190.38 #DIV/0! #DIV/0! #DIV/0!
Ministry of Trade 0 6,637,173,028,044.35 #DIV/0! #DIV/0! #DIV/0!
Ministry of Culture 0 5,013,128,226,189.95 #DIV/0! #DIV/0! #DIV/0!
Ministry of Transportation 0 3,973,020,410,986.92 #DIV/0! #DIV/0! #DIV/0!
Ministry of Public Works and Municipalities 0 2,883,979,064,718.11 #DIV/0! #DIV/0! #DIV/0!
Ministry of Housing and Construction 0 2,280,785,917,448.00 #DIV/0! #DIV/0! #DIV/0!
Ministry of Agriculture 0 1,676,247,990,195.00 #DIV/0! #DIV/0! #DIV/0!
Ministry of Water Resources 0 1,278,111,236,049.38 #DIV/0! #DIV/0! #DIV/0!
Ministry of Petroleum 0 1,180,521,228,642.08 #DIV/0! #DIV/0! #DIV/0!
Ministry of Planning and Development Cooperation 0 1,034,229,944,277.61 #DIV/0! #DIV/0! #DIV/0!
Ministry of Industry and Mining 0 907,465,262,947.32 #DIV/0! #DIV/0! #DIV/0!
Min. of Higher Education & Academic Research 0 897,010,410,133.65 #DIV/0! #DIV/0! #DIV/0!
Ministry of Electricity 0 730,365,862,249.20 #DIV/0! #DIV/0! #DIV/0!
Ministry of Science and Technology 0 545,545,277,328.00 #DIV/0! #DIV/0! #DIV/0!
21 (= sum of rest) 0 2,623,407,845,318.51 #DIV/0! #DIV/0! #DIV/0!
allocated expenditure 0 113,473,517,460,463.00 #DIV/0! #DIV/0!
contingency 0 0
total expenditure 0 113,473,517,460,463.00
overall (PI-1) variance #DIV/0!
composition (PI-2) variance #DIV/0!
contingency share of budget #DIV/0!
118
Table 1.2C: Analysis for PI-1 Fiscal Year 2015
administrative or functional head budget actual a deviation absolute deviation percent
Ministry of Internal Affairs 13,052,558.94 9,895,348.08 913,111.5 913,111.5 10.2%
Ministry of Labor and Social Affairs 1,597,621.03 1,254,381.60 154,964.2 154,964.2 14.1%
Ministry of Health 5,417,292.30 4,147,379.14 419,420.4 419,420.4 11.3%
Ministry of Defense 10,780,537.03 7,697,884.51 279,160.4 279,160.4 3.8%
Ministry of Justice 489,113.12 473,813.39 137,225.8 137,225.8 40.8%
Ministry of Education 7,372,790.86 7,045,081.84 1,971,429.1 1,971,429.1 38.9%
Ministry of Youth and Sports 260,815.54 143,184.76 -36,297.8 36,297.8 20.2%
Ministry of Trade 4,322,023.78 1,562,323.73 -1,411,916.0 1,411,916.0 47.5%
Ministry of Culture 104,981.53 84,835.70 12,591.7 12,591.7 17.4%
Ministry of Transportation 532,116.17 354,301.38 -11,879.2 11,879.2 3.2%
Ministry of Public Works and Municipalities 1,129,769.14 612,722.45 -164,738.4 164,738.4 21.2%
Ministry of Housing and Construction 639,321.58 427,250.71 -12,704.2 12,704.2 2.9%
Ministry of Agriculture 888,788.20 809,333.04 197,705.4 197,705.4 32.3%
Ministry of Water Resources 532,308.05 439,715.06 73,402.5 73,402.5 20.0%
Ministry of Petroleum 14,999,593.20 20,754,137.91 10,432,032.1 10,432,032.1 101.1%
Ministry of Planning and Development Cooperation 56,223.96 49,138.32 10,447.3 10447.28891 27.0%
Ministry of Industry and Mining 156,927.72 282,466.02 174,474.8 174474.7896 161.6%
Min. of Higher Education & Academic Research 2,757,663.56 2,383,402.80 485,691.7 485691.6645 25.6%
Ministry of Electricity 4,910,116.61 839,133.20 -2,539,808.0 2539807.971 75.2%
Ministry of Science and Technology 152,455.42 142,285.62 37,372.0 37,372.0 35.6%
21 (= sum of rest) 49,309,411.83 22,811,032.60 -11,121,685.3 11,121,685.3 32.8%
allocated expenditure 119,462,429.55 82,209,151.9 0.0 30,598,057.9
contingency 125,000.00 124,211.89
total expenditure 119,587,429.55 82,333,363.75
overall (PI-1) variance 31.2%
composition (PI-2) variance 37.2%
contingency share of budget 0.1%
Table 3.2 D - Detailed Analysis of PI-2.2

absolute
Economic head budget actual deviation %
deviation
Compensation of
employees 33,830,281,000,000 42,797,811,320,717 13,684,672,722,162 13,684,672,722,162 47.0%
Use of goods
and services 14,075,193,000,000 13,674,882,110,666 1,562,270,790,340 1,562,270,790,340 12.9%
Consumption of
fixed capital 56,666,073,000,000 31,703,277,645,805 -17,061,532,705,158 17,061,532,705,158 35.0%
Interest,
subsidies &
grants 4,599,958,000,000 14,766,433,645,081 10,807,873,123,472 10,807,873,123,472 273.0%
Social benefits 15,790,865,810,000 6,744,198,109,276 -6,844,860,312,015 6,844,860,312,015 50.4%
Other expenses 13,462,237,000,000 9,436,699,532,483 -2,148,423,618,801 2,148,423,618,801 18.5%

Total
expenditure 138,424,607,810,000 119,123,302,364,030 0 52,109,633,271,950
overall variance 86.1%
composition
43.7%
variance
Table 3.2 E - Detailed Analysis of PI-2.2

absolute
deviation
Compensation of
employees 38,550,630,226,000 32,651,614,800,597 6,122,649,782,908 6,122,649,782,908 23.1%
Use of goods
and services 6,437,389,846,000 2,665,721,935,404 -1,764,226,136,224 1,764,226,136,224 39.8%
Consumption of
fixed capital 41,713,502,460,000 18,729,178,253,362 -9,976,345,911,591 9,976,345,911,591 34.8%
Interest,
subsidies &
grants 12,343,115,172,000 4,708,133,959,040 -3,785,892,433,982 3,785,892,433,982 44.6%
Social benefits 19,822,664,224,000 11,447,911,946,331 -2,193,233,805,968 2,193,233,805,968 16.1%
Other expenses 595,127,621,000 12,006,590,962,297 11,597,048,504,859 11,597,048,504,859 2831%

Total
expenditure 119,462,429,549,000 82,209,151,857,034 0.0 35,439,396,575,534
119
composition
43.1%
variance
Table 3.2A: Analysis of revenue outturn - PI-3

Economic head budget Actual deviation absolute deviation %
Taxes on income 2,743,806,180,000 2,518,683,251,627 -99,622,201,560 99,622,201,560 3.8%

Social security
contributions 136,000,000,000 100,571,556,301 -29,207,851,671 29,207,851,671 22.5%
Grants from foreign
governments 0.0 50,494,497,630 50,494,497,630 50,494,497,630 100.0%
Property income 53,051,870,000 62,386,812,367 11,761,516,187 11,761,516,187 23.2%
Oil and Minerals 116,363,805,046,000 111,107,939,689,217 66,574,039,414 66,574,039,414 0.1%
Total revenue 119,296,663,096,000 113,840,075,807,143 0.0 257,660,106,462

composition
0.2%
variance
Table 3.2B: Analysis of revenue outturn - PI-3

absolute
deviation
Taxes on income 0 1,402,093,751,257 #DIV/0! #DIV/0! 100.0%

Taxes on
goods and
productions 0 2,239,186,125,661 #DIV/0! #DIV/0! 100.0%
Social security
contributions 0 0 #DIV/0! #DIV/0! #DIV/0!
Other social
contributions 0 0 #DIV/0! #DIV/0! #DIV/0!
Grants from foreign
governments 0 0 #DIV/0! #DIV/0! #DIV/0!
Oil and Minerals 0 97,072,409,793,611 #DIV/0! #DIV/0! 100.0%
Sale of Assets 0 66,775,488,706 #DIV/0! #DIV/0! 100.0%
Fees 0 678,614,920,153 #DIV/0! #DIV/0! 100.0%

Transfers not
elsewhere
classified 0 1,497,143,331,216 #DIV/0! #DIV/0! 100.0%
Others 0 2,653,622,925,471 #DIV/0! #DIV/0! #DIV/0!
Total revenue 0 105,609,846,336,079 #DIV/0! #DIV/0!

overall variance #DIV/0!
composition
#DIV/0!
variance
Table 3.2C: Analysis of revenue outturn - PI-3

absolute
budget actual Deviation %
Economic head deviation
Taxes on income,
profit and capital
gains 1,941,903,859,000 1,618,651,955,367 246,178,963,302 246,178,963,302 17.9%
Taxes on goods
and production 3,475,073,000,000 2,549,644,308,601 93,578,414,375 93,578,414,375 3.8%
Social security
contributions 0 0 0.0 0.0 #DIV/0!
120
Other social
contributions 0 0 0.0 0.0 #DIV/0!
Grants from foreign
governments 0 0 0.0 0.0 #DIV/0!
Sale of Assets 86,420,360,000 83,046,130,165 21,967,097,074 21,967,097,074 36.0%
Oil and Minerals 78,649,032,000,000 51,312,620,950,181 -4,273,896,256,524 4,273,896,256,524 7.7%
Fees 823,474,822,000 607,959,807,692 25,955,221,006 25,955,221,006 4.5%

Transfers not
elsewhere
classified 2,081,450,383,000 1,045,339,746,620 -425,760,082,422 425,760,082,422 28.9%
Others 6,991,009,715,000 9,252,989,544,847 4,311,976,643,187 4,311,976,643,187 87.3%
Total revenue 94,048,364,139,000 66,470,252,443,475 0.0 9,399,312,677,892

composition
variance 14.1%
121

IQ Oct17 PFMPR Public With PEFA Check

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IRAQ

FINAL REPORT: OCTOBER 2017

ACRONYMS AND ABBREVIATIONS ............................................................................. III

Public Expenditure and Financial Accountability (PEFA)

Performance Assessment Report, 2016 Framework

The quality assurance process followed in the production of this

Fiscal year: 1 January

Purpose and management of the assessment

The overall objective of this PEFA assessment is to prepare a comprehensive “PFM

Assessment coverage and timing

Impact of PFM Systems on the three main budgetary outcomes

Aggregate fiscal discipline

Strategic allocation of resources

Efficient use of resources for service delivery

Performance changes since last assessment

• Integrated Financial Management Information System (IFMIS): The IFMIS design

• Public Investment Management (PIM): A comprehensive program of technical

• Decentralization: Iraq has achieved a significant level of political decentralization

• Transparency, Accountability, and Regulatory Framework: Under the “Public

i. Ministry of Finance (MOF) on-line Information and Transparency: The MoF

1.1 Rationale and purpose

The Public Expenditure and Financial Accountability (PEFA) program provides a

1.2 Assessment management and quality assurance

Box 1-1 Assessment management and quality assurance arrangements

PEFA Assessment Management Organization, undertaken by World Bank

Review of the Assessment Report

1.3 Assessment Methodology

Coverage of the assessment

When performance is assessed

Other methodological issues for the preparation of the report

An important consideration in the assessment is an appreciation of the quality,

2.1 Country economic situation

2.1.1 Country context

2.1.2 Key aspects of the government's economic and fiscal reforms

• Maintaining the security and stability of Iraq.

2.1.3 Key economic indicators

Table 2.1: Selected Economic and Financial Indicators, 2013–16

2013 2014 2015 2016

2.2 Fiscal and budgetary trends

2.2.1 Fiscal performance

Table 2.2: Aggregate Fiscal Data (IQD B)

Table 2.3: Aggregate Data as % of GDP

2.2.2 Allocation of resources

Table 2.5 Actual budgetary allocations by economic classification (in IQD)

The legislative branch: comprises two houses: 1) the Council of Representatives

Federal Board of Supreme Audit

Law on Public Procurement

Table 2.6: Other PFM Legislation

Main Tax and customs

Control and Audit

2.4 Institutional arrangements for PFM

Table 2.8: Financial structure of government – budget estimates (B)

2.5 Other important features of PFM and its operating environment

Pillar I. Budget reliability

PI-1 Aggregate expenditure outturn

1.1 Aggregate expenditure outturn

Table 3.1: Comparison of Budget estimates to Actual (primary expenditure, B)

PI-1 Dimension Score Score Justification for Performance

Ongoing reforms: No major reforms

2.1 Expenditure composition outturn by function

2.2 Expenditure composition outturn by economic type

Table 3.2: Consolidated Fund expenditure composition variance (%)