Summary

Iraq has an estimated 115 billion barrels of crude oil reserves--the third largest in the world. Oil export revenues are critical to Iraq's economy, accounting for over half of the country's gross domestic product and over 90 percent of revenues. This testimony discusses (1) Iraq's estimated revenues from 2005 through 2008, (2) Iraq's estimated expenditures from 2005 through 2008, (3) Iraq's financial deposits through 2007 and budget surpluses, and (4) U.S. cumulative expenditures on stabilization and reconstruction activities in Iraq since 2003. GAO analyzed relevant data and reviewed documents such as Central Bank of Iraq (CBI) export oil receipts data and the International Monetary Fund's (IMF) stand-by arrangement for Iraq. GAO worked with officials from the Department of Treasury and interviewed officials from the Departments of State, Defense, Energy's Energy Information Administration (EIA), and the IMF. GAO also reviewed translated copies of Iraqi documents, including budget and capital spending reports. Treasury agreed with GAO's findings and stated that Iraq has adequate funds to make and maintain capital investments that deliver service and foster economic growth.

From 2005 through 2007, the Iraqi government generated an estimated $96 billion in cumulative revenues, of which crude oil export sales accounted for about $90.2 billion or 94 percent. For 2008, Iraq could generate an estimated $73.5 billion to $86.2 billion in revenues, with oil exports accounting for $66.5 billion to $79.2 billion. Projected 2008 oil revenues could be more than twice the average annual amount Iraq generated from 2005 through 2007. From 2005 through 2007, the Iraqi government spent an estimated $67 billion on operating and investment activities. Ninety percent was spent on operating expenses, such as salaries and goods and services, and the remaining 10 percent on investments, such as structures and vehicles. The Iraqi government spent only 1 percent of total expenditures to maintain Iraq- and U.S.-funded investments, such as electricity installations and weapons. From 2005 through 2007, Iraq had an estimated cumulative budget surplus of about $29 billion. For 2008, we estimate that Iraq will have an additional surplus of between $38.2 billion to $50.3 billion, which could result in a cumulative budget surplus of $67 billion to $79 billion. Iraq's 2008 budget surplus could be reduced by expenditures from its $22.3 billion supplemental budget, which Iraq's Council of Representative passed in August 2008. However, based on Iraq's past expenditure performance, the government may not be able to spend all that it has budgeted for 2008. Since fiscal year 2003, the United States has appropriated about $48 billion for stabilization and reconstruction efforts in Iraq; it had obligated about $42 billion of that amount, as of June 2008. U.S. agencies spent about $23.2 billion on four critical sectors--security, oil, electricity, and water. As of June 2008, the United States had spent 70 percent of the amount it allocated for these four sectors from fiscal year 2003 through June 2008. Iraq spent 14 percent, or $4.3 billion, of the $30 billion it allocated for similar activities in these sectors from 2005 through June 2008. Iraq's large oil reserves coupled with higher oil prices offer the government of Iraq the potential to increase its contributions to the country's reconstruction efforts and thereby enhance essential services to the Iraqi people.