Supplementary Budget Guidance and Spending Priorities for 2004



There are three parts to this document.

·        Budget Guidance – this is additional technical information that supplements the advice received from the Ministry of Finance on 24 July 2003.

·        Budget Spending Allocation – this outlines how much funding each ministry can expect to receive in the 2004 Budget. Ministries will be expected to frame their spending priorities around this amount, but there is no guarantee that these funds will be allocated to that ministry.

·        Outline of the key dates in the 2004 Budget process – this includes a description of the operation of Expenditure Review hearings.

Additional Budget Guidance



The upcoming Budget and expenditure review process will concentrate on funding allocations for 2004. However, Ministries must also provide spending and revenue estimates for 2005 and 2006.

Submissions should be completed using traditional Iraqi expenditure categories, with the following columns:

Full year 2002

2003 Budget (half year)

Proposed savings

2004 Spending

Total expenditures requested


Submissions should include actual expenses incurred in 2002. 

Budget Submissions should be expressed in Iraqi dinar when submitted to the Ministry of Finance.  An exchange rate of 1500ID to $1US should be used in preparing budget estimates. Submissions should be prepared on the basis of zero inflation.

It is also important for ministries to be able to produce measurable characteristics of the programs they intend to fund. For example, “this spending will result in a 10% increase in the number of people receiving potable drinking water” – this will be important in helping in the prioritization process.

Ministries will assume responsibility for all salary payments in 2004.  The ‘four tier’ salary system will be terminated on 31 December 2003.

Ministries should also prepare a list of savings measures (eg, low priority programs) and options for revenue raising – in particular, user charges for services provided by the Ministry.

Regional Allocation of Funds

Ministries must be able to provide information on where in the country the budget funds will be spent, to get an overall sense of how the Budget will be allocated regionally (at least at the governate level).  Ministries are expected to seek input from their offices in the Governorates, to develop regional spending priorities for the country.

As in 2003, the Kurdish regions of Iraq should not be incorporated into budget submissions.

State Owned Enterprises (SOEs)

All SOEs should complete the company information questionnaire.

SOE budgets should be prepared on the basis that the salaries of employees of SOEs will not be funded from 1 January 2004.

State companies will be able to seek loans to provide them working capital. However, this does not mean that some companies will not be subsidised.

Where subsidies are proposed for an SOE, they should be treated as an expense for the Ministry in the 2004 Budget. If they are not identified, they will not be funded. Where subsidies are requested, they need to be thoroughly quantified, and justified in detail, including an explanation of why a loan on commercial terms would not be an adequate substitute.

The 2004 Budget will identify all subsidies to companies, both direct (eg payments from the Ministry to the company) and indirect (eg where the company receives goods or services cheaper than their market price or received a preferential exchange rate).

As a starting point, Ministries - in consultation with their SOEs - should identify all of the subsidy arrangements made to their SOEs in 2003. Identify all goods or services that the company received at no cost, at a discount (eg goods, rents), or received cheaper because a lower exchange rate was used.

Companies should also provide information on all of those goods they sell at a discount, or using a lower exchange rate than the official rate.

Companies may trade off all cost categories, but must identify to the Ministry of Finance when restructuring results in a change of more than 5 per cent of the number of employees.

Operating Expenses

The 2004 Budget aims to maintain funding to Ministries for their core operations. In this regard, 2002 and 2003 will provide the basis for allocating spending in 2004 to 2006. Where proposed spending deviates significantly from 2002, Ministries will need to explain why this is the case.

Most capital projects will also have ongoing costs associated with them – for example the cost of additional workers, or ongoing maintenance. These effects on operating expenses must be identified and quantified.

Ministries will not be allowed to reallocate funds between operating expenditure categories without written approval from the Ministry of Finance. It is therefore very important that each expenditure category is considered separately, and adequately funded.

The Budget allocation process will again use the familiar categories from previous Budgets. Guidance on specific issues within these categories is provided below.

Salaries and Employment estimates - provide estimates of the total number of employees employed (by grade) by the Ministry in 2004 (not including SOEs), and how this has changed from 2003 and the total salary cost. Do not include those Iraqis that are employed in the State Owned Companies (see above).

Capital – Priority must be given to repairing existing equipment rather than seeking new capital items.  Ministries should use what they have wherever possible.

Goods – In particular, provide estimates of the quantity of gasoline and the quantity of electricity that is expected to be consumed in 2004, using 2002 as a base.

Capital Budget

Capital spending will continue the priorities established in the 2003 Budget: security, oil industry production, infrastructure and the social safety net. 

Projects should be identified as either continuing from 2003, new, or reconstruction, and should be identified in priority order. This should be irrespective of where funding might be sourced from (eg Budget, USAID funding, donor funds). Ministries should also advise on donor interest in the project.

Ministries must clearly articulate why a project should be undertaken, and why it is a high priority compared to other projects.  Ministries should therefore estimate how many Iraqis the project will employ, and for what duration – and Ministries should consider whether the proposed investment can be done labour intensively.

Ministries should break capital projects into discrete sections where possible. This will enable parts of a project to be commenced, where there is not sufficient funding to complete the project entirely.

It is important that Ministry consider known World Bank/UN Needs assessment data.

The entire cost of projects should be identified - even spending required beyond 2006. Project completion dates are also required, including key project milestones.

Ministries should also identify any revenues that may be generated by the investment.

Budget Process and Timelines


Expenditure Review Hearings will be held with individual Ministries, the Ministry of Finance and the Ministry of Planning.

At these hearings the Interim Iraqi Minister for that Ministry (with officials) will argue their Submission to the Interim Iraqi Ministers for Finance and Planning (and their officials). Also attending will be CPA Senior Advisers.

More than one hearing may be required for each Ministry, as required.

The following are key dates in the 2004 Budget process.

Key Date


31 July

Budget guidance to ministries, including indicative spending envelope

31 July to 14 August

Ministries prepare budget submissions

No later than 15 August

Draft budget Submissions provided to Ministry of Finance.

15 Aug – 5 Sept

Expenditure review hearings with Ministries

(UN/World Bank Budget officials in Baghdad 20 Aug to 30 Aug)

Early September

UN/WB/IMF needs assessment delivered

22 September to 29 September

Deliberations and final decision making including the Governing Council

1 October

Budget delivered

15 October

Donor’s conference


A simpler version of this page for printingPrinter-friendly Version

Home | Official Documents | Budget and Finance | Transcripts | Press Releases
Requests for Proposals/Solicitations | Business Center | Webmaster
Privacy and Security Notice

Volunteers For Prosperity First Gov USA Freedom Corps White House Foreign Aid in the National Interest