A WORLD BANK STUDY Public Disclosure Authorized Public Disclosure Authorized Republic of Iraq Public Expenditure Review TOWARD MORE EFFICIENT SPENDING FOR BETTER SERVICE DELIVERY Public Disclosure Authorized Public Disclosure Authorized Republic of Iraq Public Expenditure Review A WORLD BANK STUDY Republic of Iraq Public Expenditure Review Toward More Efficient Spending for Better Service Delivery © 2014 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 17 16 15 14 World Bank Studies are published to communicate the results of the Bank’s work to the development com- munity with the least possible delay. The manuscript of this paper therefore has not been prepared in accordance with the procedures appropriate to formally edited texts. This work is a product of the staff of The World Bank with external contributions. The findings, inter- pretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the follow- ing conditions: Attribution—Please cite the work as follows: World Bank. 2014. Republic of Iraq Public Expenditure Review: Toward More Efficient Spending for Better Service Delivery. World Bank Studies. Washington, DC: World Bank. doi:10.1596/978-1-4648-0294-2. License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Responsibility for the views and opinions expressed in the adaptation rests solely with the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a compo- nent of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not ­limited to, tables, figures, or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: [email protected]. ISBN (paper): 978-1-4648-0294-2 ISBN (electronic): 978-1-4648-0295-9 DOI: 10.1596/978-1-4648-0294-2 Cover design: Debra Naylor, Naylor Design, Inc. Library of Congress Cataloging-in-Publication Data has been requested. Republic of Iraq Public Expenditure Review • http://dx.doi.org/10.1596/978-1-4648-0294-2 Contents Acknowledgments xi Executive Summary xiii Abbreviations xviii Introduction 1 Chapter 1 Strategic Context 3 Introduction 3 Political Developments 3 The Macroeconomic Context 5 Poverty and Social Conditions 9 Prospects 12 Strategic Challenge 13 Notes 15 Chapter 2 Redirecting Government Expenditure 17 Introduction 17 The Size of the Government 18 Government Revenues and Main Revenue Management Issues 19 General Government Expenditure 23 Conclusions and Proposed Work 49 Notes 50 Chapter 3 From Strategy to Execution 53 Introduction 53 From Strategy to Resource Allocation 54 Commitment Devices 59 Public Investment Framework 63 The Case for Public Investment Management Framework in Iraq 68 Conclusions and Recommendations 71 Notes 71 Republic of Iraq Public Expenditure Review • http://dx.doi.org/10.1596/978-1-4648-0294-2 v vi Contents Chapter 4 Case Study #1: Electricity 73 Introduction 73 Sector Overview 73 Status of the Electricity Sector 76 Conclusions 89 Notes 90 Chapter 5 Case Study #2: Health 93 Introduction 93 An Overview of the Health Sector in Iraq: Health Outcomes, Service Coverage, and Resources 94 Health Policy in Iraq 96 Efficiency and Equity Issues in Public Expenditure on Health 96 Conclusions and Proposed Work 101 Notes 102 Appendix A Macroeconomic Outlook 103 Appendix B Recurrent and Capital Spending by Administrative Classification, 2005–11 105 Appendix C Compensation for Employees by Administrative Classification 109 Appendix D Employment by Ministries and Centrally Funded Departments, 2012 113 Appendix E The Iraqi Budget Process 117 Appendix F Iraq: Strategic Planning Process 119 Appendix G Investment Budget: Advances and Hard Commitments 121 Appendix H Total Costs and Annual Appropriations for Transport Projects 123 Appendix I Estimated Duration of Issuance, Payment, and Clearance of Letters of Credit 125 Appendix J Diagnostic Questions for Evaluating Public Investment Efficiency 127 Appendix K The Population Pyramids: 1990, 2020, and 2030 131 Republic of Iraq Public Expenditure Review • http://dx.doi.org/10.1596/978-1-4648-0294-2 Contents vii Appendix L Iraq Infant and Child Health Indicators 133 Appendix M Iraq Communicable and Noncommunicable Diseases 135 Appendix N Maternal, Child, and Reproductive Health Care Services 137 Appendix O Health Workforce and Resources 139 Appendix P Iraq Health Spending and Comparators 141 Appendix Q Terms of Reference for the Proposed Health Public Expenditure Review 143 Bibliography 147 Box 3.1 Fiscal Decentralization and Intergovernmental Fiscal Transfers in Iraq 56 Figures 1.1 Annual Documented Civilian Deaths from Violence, 2003–12 4 1.2 GDP Growth Rate, 1998–2012 6 1.3 Inflation Rate, 2005–12 6 1.4 Oil Production and Exports Recovery, 2006–12 7 1.5 Oil Prices Before and After Financial Crisis, 2006–12 7 1.6 Sources of Total Revenues, Average, 2005–12 8 1.7 Government Spending, 2005–12 9 1.8 Gross Public Debt, 2005–12 9 1.9 Current Account Balance, 2005–12 10 1.10 Poverty Incidence and Access to Social Services in Urban and Rural Areas, 2012 12 2.1 General Government Total Expenditure, 2005–12 18 2.2 Revenues and Expenditures, 2008–12 21 2.3 Managing Oil Revenues 22 2.4 Economic Composition of Public Expenditure, Average, 2005–10 24 2.5 High Oil Prices/Revenues Translate into High Wage Bill, 2005–10 25 2.6 Compensation of Employees, 2005–10 25 2.7 Plan for Phasing Out of Public Distribution System and Phasing in of Social Safety Net System, 2010–14 29 Republic of Iraq Public Expenditure Review • http://dx.doi.org/10.1596/978-1-4648-0294-2 viii Contents 2.8 Recurrent and Capital Budgets: Original Allocations and Actual Spending, 2005–12 36 2.9 Education Expenditure as a Percentage of GDP, 2005–09 44 2.10 Education Expenditure as a Share in Total Budget, 2005–09 45 2.11 Per Capita Education Expenditure, 2005–10 45 2.12 Education Sector Spending, 2005–14 46 2.13 Education Sector Staffing, 2005–11 46 2.14 Ministry of Education Staffing Growth in Level 4 and Below, 2005–11 47 3.1 Important Features of a PIM System 70 4.1 Billed Energy Breakdown, by Consumer Type 76 4.2 Demand and Supply Balance, 2006–20 77 4.3 Cost of Electricity, by Technology, 2010 79 4.4 T&D Network Growth, 2009 and 2020 82 4.5 Generation, Transmission, and Distribution Sector Productivity, 2009 85 4.6 Public Investment Budget and Oil versus Electricity Investment Spending, 2005–10 86 4.7 Investment Needs for Energy Sector, 2011–18 87 4.8 Recurrent and Investment Budget Execution in Electricity Sector, 2005–09 87 5.1 Iraq Adult Mortality Rate, 1990–2009 95 5.2 Private and Public Health Spending, 1996–2011 98 5.3 Health Expenditure as a Percentage of GDP, 2005–09 98 5.4 Per Capita Health Expenditure, 2005–09 99 5.5 Health Expenditure as a Share in Total Budget, 2005–09 100 5.6 External Resources on Health, 1996–2011 100 Tables 1.1 Poverty and Social Indicators, 2000, 2005, and Latest Data 11 2.1 Budget: Revenues, 2005–12 20 2.2 Budget: Subsidies, Social Benefits, and Pensions, 2005–12 28 2.3 Transfers to State-Owned Enterprises 30 2.4 Economic Composition of Government Expenditure, 2005–11 32 2.5 Public Investment Budget, 2005–10 34 2.6 Sector Allocations, by Activity in the 2011 Budget: Transport and Communications Sector 35 2.7 Functional Classification of Budget, by Recurrent and Capital Spending, 2005–11 37 2.8 Estimates of Students and Nontertiary Public Servants, 2005–11 47 Republic of Iraq Public Expenditure Review • http://dx.doi.org/10.1596/978-1-4648-0294-2