Republic of Iraq: Technical Assistance Report on Government Finance Statistics Mission (December 5–19, 2021)
Author:
International Monetary Fund. Statistics Dept.
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Publication Date:
03 Feb 2023
eISBN:
9798400232763
Language:
English
Keywords:
COFOG table; budget department; accounting department; debt amortization; debt data
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This paper presents the Republic of Iraq’s Technical Assistance report on Government Finance Statistics (GFS) mission. The Ministry of Finance (MOF) has started the implementation of the national budget reform project which is one of the several reform projects prepared in the context of the broader economic reform strategy “the white paper” launched in October 2020. The mission’s objectives were to specifically support the Budget, Public Accounting and Debt Departments in implementing the tasks related to the strategic target on enhancing budget preparation and reporting in line with the Government Finance Statistics Manual 2014 framework and its integration in the Integrated Financial Management Information System. As a critical step to improve the budget classification, the mission supported the MoF in developing a first comprehensive mapping of outlays to Classification of the Functions of Government. The MoF needs to establish an inter-departmental taskforce in charge of GFS compilation. Furthermore, the MoF should initiate a phased approach for expanding institutional coverage of GFS beyond Budgetary Central Government.

Abstract

This paper presents the Republic of Iraq’s Technical Assistance report on Government Finance Statistics (GFS) mission. The Ministry of Finance (MOF) has started the implementation of the national budget reform project which is one of the several reform projects prepared in the context of the broader economic reform strategy “the white paper” launched in October 2020. The mission’s objectives were to specifically support the Budget, Public Accounting and Debt Departments in implementing the tasks related to the strategic target on enhancing budget preparation and reporting in line with the Government Finance Statistics Manual 2014 framework and its integration in the Integrated Financial Management Information System. As a critical step to improve the budget classification, the mission supported the MoF in developing a first comprehensive mapping of outlays to Classification of the Functions of Government. The MoF needs to establish an inter-departmental taskforce in charge of GFS compilation. Furthermore, the MoF should initiate a phased approach for expanding institutional coverage of GFS beyond Budgetary Central Government.

Summary of Mission Outcomes and Priority Recommendations

1. In response to a request from the Ministry of Finance (MOF) a Government Finance Statistics (GFS) Technical Assistance (TA) and Training mission took place remotely, during December 5–16, 2021 with the primary objective to support the authorities in the implementation of the national budget reform project. The mission led by Nadine Aboukhaled (STA) and comprised of Mr. Yousef Daqa (GFS expert) and Mr. Tareg Abdelgader (AMF) is part of the collaboration between STA and the Arab Monetary Fund (AMF) in the context the Arab Statistics Initiative “ArabStat”.

2. The mission would like to express appreciation to the staff of the Budget, Public Accounting and Debt Departments, for the open discussion and for sharing their knowledge. It is especially grateful to Ms. Taif Same, the Deputy Minister of Finance and Head of the Budget Directorate, for chairing the meetings, and Ms. Iktifaa Fleih for her support throughout the mission.

3. The MOF has started the implementation of the national budget reform project which is one of the several reform projects prepared in the context of the broader economic reform strategy “the white paper” launched in October 2020. The mission’s objectives were to specifically support the Budget, Public Accounting and Debt Departments in implementing the tasks related to the strategic target on enhancing budget preparation and reporting in line with the Government Finance Statistics Manual 2014 (GFSM 2014) framework and its integration in the Integrated Financial Management Information System (IFMIS).1

4. In that respect the mission’s activities focused on integrating the GFSM 2014 framework into the IFMIS and building capacity in the production and dissemination of fiscal statistics. The mission undertook the following tasks: (i) complete the mapping of the new chart of accounts (COA) with the Government Finance Statistics Manual 2014 (GFSM 2014) classifications; (ii) initiate the compilation of the expenditures data based on the Classification of Functions of Government (COFOG) and provide hands-on training on the compilation technique; (iii) review GFS for budgetary central government (BCG) for fiscal year (FY) 2020; and (iv) initiate steps for expanding the institutional coverage.

5. The mission completed the mapping of the new COA to the GFSM 2014 framework in a comprehensive manner for its integration in the IFMIS. In preparation for the IFMIS implementation, a new comprehensive COA has been developed based on the GFSM 2001/2014 classification to some extent. The current version of the COA is disaggregated into several accounts that includes a mix of revenue and expense accounts that could be easily mapped to the GFSM 2014, while other accounts related to the transactions in assets and liabilities are not based on the GFSM 2014 presentation. The complete list of the accounts at the item level (Table 1) has been mapped to the GFSM 2014 economic classification. It comprises of the accounts of the current budget (revenues and expenditures including special programs), the investment budget, and the transactions in financial assets and liabilities.

Table 1.

Priority Recommendations

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6. As a critical step to improve the budget classification, the mission supported the MoF in developing a first comprehensive mapping of outlays to COFOG. GFS uses the framework of the COFOG which is a detailed classification of the functions, or socio-economic objectives, that governments aim to achieve through various kinds of expenditures. In 2014, a first attempt was made to introduce COFOG as part of the budget classification with support from the IMF’s Middle East Technical Assistance Center (METAC). The mission reviewed the available source for expenditures data, from the current and investment budgets execution reports and provided a detailed mapping of the COFOG using a combination of administrative and economic classification.

7. The mission delivered a workshop on the compilation of COFOG data and completed the COFOG table for FY2020. The mission delivered a presentation on COFOG concepts, main uses, and common areas of challenges. It also presented examples of other countries’ experiences in compiling COFOG data and walked the workshop participants through the compilation technique and the production of Table 7 of the IMF’s annual GFS questionnaire for FY2020.

8. Public sector debt reporting in Iraq requires improvement and alignment with the Public Sector Debt Statistics Guide for Compilers and Users (PSDSG) 2011. Currently the MoF compiles debt reporting for internal dissemination and for surveillance. The mission reviewed and updated the public sector debt data for FY 2019 and FY 2020 for inclusion in reporting of annual GFS. Current internal debt reports are a mixture of holder and instrument with no reporting on maturities and no systematic integration of stocks and flows. It would be of utmost importance to improve the quality of debt reporting and start disseminating quarterly debt reports for greater transparency.

9. The MoF needs to establish an inter-departmental taskforce in charge of GFS compilation. Such a taskforce, would be in charge of coordinating among the different departments the sharing of the data sources, ensure proper recording in the excel based tool and the GFS submission. It should avoid delays and omissions of data that are gathered from outside the public accounting department.

10. Furthermore, the MoF should initiate a phased approach for expanding institutional coverage of GFS beyond BCG. Iraq has about 113 public corporations comprised of financial and nonfinancial public corporations. A thorough review of the list of public entities is needed to ensure they are properly classified as public corporations versus extrabudgetary government units in line with the GFSM 2014 guidelines. This review will represent a critical first step in a phased approach for expanding the coverage beyond BCG.

11. Further details on the priority recommendations and the related actions and milestones can be found in the action plan under Detailed Technical Assessment and Recommendations.

Detailed Technical Assessment and Recommendations

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A. Mapping of the New Chart of Accounts to the GFSM 2014

12. The Ministry of Finance (MOF) is preparing for the integration of the GFSM 2014 framework as part of the implementation of an Integrated Financial Management Information System (IFMIS) project that has been delayed for several reasons. In February 2021, the Council of Ministers approved a comprehensive reform plan called the White Paper that included, among other reforms, the implementation of an Integrated Financial Management Information System (IFMIS) by the MOF. In 2016, following previous failed attempt to implement an IFMIS project in Iraq, a new World Bank project4 that supports the modernization of Public Financial Management (PFM) systems covered among other things the design and the preparation of the terms of reference of the IFMIS project. However, following the request for proposal, no contract was awarded due to a failed bidding process, leading the authorities to review the scope of the project and prepare for the next round of bidding likely in 2022.

13. In preparation for the IFMIS implementation a new comprehensive COA has been developed based on the GFSM 2001/2014 classification to some extent. The current version of the COA is disaggregated into several accounts that includes a mix of revenue and expense accounts that could be easily mapped to the GFSM 2014, while other accounts related to the transactions in assets and liabilities are not based on the 2001/2014 presentation. For instance, the sale of fixed assets is reflected as part of the revenue accounts and the disposal of fixed assets as part of the expenditure accounts. Also, refunded revenues and refunded expenses are treated as revenues and expenditures respectively, rather than negative revenues and negative expenses as in GFSM 2014. Other specific accounts, such as the deficit financing, are assigned codes as budget line items, rather than derived from the above and below the line accounts, and debt amortization is accounted for as expenditure. Moreover, several accounts that are a legacy from old COA versions were reiterated in the current version, providing redundancy in the list of accounts. According to the authorities, these accounts were kept where the need to resort to using them again arise, while acknowledging that it has provided a layer of complexity when mapping it to the GFSM 2014 framework

14. The mission completed the mapping of the new COA to the GFSM 2014 framework in a comprehensive manner for its integration in the IFMIS. The complete list of the accounts at the item level (Table 2) has been mapped to the GFSM 2014 economic classification. It comprises of the accounts of the current budget (which includes revenues and expenditures including special programmes), the investment budget, and the transactions in financial assets and liabilities. The investment budget has a different classification (by sector and type) but allows for a GFS corresponding classification at the item level (table 2). The special programmes, which are a subset of the current budget, are classified according to the nature of the program and broken down by economic classification, and hence did not necessitate a special treatment in the mapping exercise. The mapping list includes the code and description of both the COA accounts and their corresponding GFS classification (Appendix 1).

Table 2.

National Economic Classification- Coding Structure

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Source: Authorities

15. The mapping of the COA to the GFSM 2014 should be used for preparing comprehensive budget execution reports for sound fiscal analysis. In the context of the national budget reform project, the MOF will use going forward the mapping of the COA to the GFSM 2014 to implement the strategic target5 for improving and regularly publishing budget execution reports based on the GFSM 2014 classification. The GFSM 2014 presentation should be considered for the purpose of fiscal policy analysis and medium-term projections and should be used as the main analytical tool during the budget preparation.

Recommended Actions:

  • - Maintain the mapping of the chart of account as a living document to be updated as the new COA and the public accounting guide is being rolled out.

  • - The mapping of the chart of account to the GFSM 2014 is used to the compile budget execution reports as well as budget preparation reports. This should improve financial analysis as well as the preparation of medium-term forecast during the budget preparation cycle

  • - Produce and disseminate on a regular basis comprehensive budget execution reports based on the GFSM 2014 classification.

  • - Apply the functional, economic and administrative classification as well as the program classification and a harmonized data methodology during budget preparation stage for both current and investment budgets

B. Introducing the Classification of the Functions of the Government (COFOG)

16. The MoF is keen to introduce the functional classification of expenditures as a critical step to improve the budget classification. GFS uses the framework of the Functions of Government (COFOG) from the UN, which is a detailed classification of the functions, or socio-economic objectives, that governments aim to achieve through various kinds of expenditures. In 2014, a first attempt was made to introduce COFOG as part of the budget classification with support from the IMF’s Metac. Since then, no progress was made. As per the GFSM 2014 standards, the ideal practice for COFOG is to classify each transaction on its own. However, countries’ experiences have shown that the administrative classification represent a starting point if provided with details at the department or agency levels. In the case of program budgets, (such as in the UAE) functional classification is derived at the programmes level.

17. To this end, the mission completed an initial comprehensive mapping for the COFOG derived from a mix of economic, programme and administrative classifications. The mission reviewed the available source for expenditures data, from the current and investment budgets execution reports. The administrative classification (table 3) is divided by ministry, department, and divisions. When cross tabulated with the economic classification, it includes a breakdown of the special programs by nature. In order to derive the COFOG the mission undertook the mapping of: (i) all organizational units; (ii) all special programmes assigned to organizational units; (iii) cross tabulation of economic classification and organizational units; (iv) the investment expenditures divided by the sector and item/project refer to table 2. The detailed mapping was necessary to align with COFOG especially for the classification of public sector debt transactions given the current treatment of debt principal repayments as expenses rather than financing (refer to section A).

18. The mission delivered a workshop on the compilation of COFOG data and completed the COFOG table for FY 2020. The mission delivered a presentation on COFOG, concepts, main uses, and common problematic areas. It also presented example of countries’ experiences in compiling COFOG and walked the participants through the compilation technique and the production of Table 7 of annual GFS for FY2020.

19. The mission used the latest budget execution reports provided by the authorities to produce the COFOG data for FY 2020. Further updates to the GFS expenditure data for FY 2020 were made to align with the latest expenditures figure derived from COFOG.

Figure 1.
Figure 1.

Iraq COFOG Data FY 2020

Citation: IMF Staff Country Reports 2023, 072; 10.5089/9798400232763.002.A001

Source: The mission team.

Recommended Actions:

  • - Include the functional classification (COFOG) as part of the budget document presentation.

  • - Include COFOG table in reporting of annual GFS for FY2020, and produce and disseminate COFOG table for FY2017–2019

  • - Build the capacity of MOF staff in COFOG in a more detailed focus

C. Improving GFS Compilation and Dissemination

20. The mission discussed with the staff of the public accounting department the high increase in account payable (Table 3) in FY 2020. The increase in account payables is caused by the recording in the guarantee accounts (treated as liabilities (3318), accounts) of around 8 trillion IQD in November 2020, reflecting a series of infra-annual investment expenditure committed by various ministries to third parties. Due to delays in the finalization of the closure of accounts, these were not yet offset by the recording of investment expenditures. For instance, the ministry of defense has around 1.2 IQD trillion of committed investment expenditures not yet regularized. It is expected that these are regularized during the year. In addition, the mission reviewed and adjusted some misclassification issues.

Table 3.

National Administrative Classification – Coding Structure

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Source: Authorities

21. The MoF has so far reported only annual data to the IMF’s annual GFS database. The data are produced using an Excel-based tool that compiles monthly, quarterly and annual GFS data. With minimal efforts, the MoF could start disseminating high frequency data through the IFS database and publish on the national website monthly statement of operations for BCG in line with the GFSM 2014 template. The mission encourages the MoF to improve their dissemination practices for greater transparency.

22. Public sector debt data for FY 2019 and FY 2020 were reviewed by the mission for inclusion in the reporting of annual GFS year, and recommendations were provided to reduce statistical discrepancies. The source debt data sheet used for the GFS data submission has been updated with the information provided by the authorities. During FY 2020, several domestic debt transactions took place that are to be reflected in the data sheet. The T-bills (or transfer for deficit financing) held by banks and oil companies were converted into long term loans, after being discounted by the central banks of Iraq (CBI). By the end of December 2020, the total gross domestic debt reached IQD 65.5 trillion of which CBI holds IQD 42 trillion worth of discounted T-bills, and the outstanding domestic loans amounted to IQD 18 trillion. External Debt data were updated by information on new loans that were not previously included. External debt amounted to IQD 28.3 trillion as of end December 2020 (Appendix IV). The inclusion of the public sector debt data in the GFS annual data FY 2019 was behind the correction of previous mistakes in the calculation of the change in financial assets accounts namely “the currency and deposits” (in the FY 2017–2020 time series) also reducing the statistical discrepancies in the statement of operations (table 3). For FY 2020, the mission adjusted the statistical discrepancies by reflecting the issuance of T-bills (worth of IQD 12 trillion) occurring in the last quarter of FY 2020, which were not adequately captured in the authorities’ classification assistant. A further review and integration of liabilities’ stocks and flows data in the “classification Assistant file” should take place during the next mission.

23. To avoid submitting incomplete GFS data, the MoF should establish an inter-departmental taskforce in charge of GFS compilation. Such a taskforce, would be in charge of coordinating among the different departments the sharing of the data sources, ensure proper recording in the excel based tool and the GFS submissions. It should avoid delays and omissions of data that are gathered from outside the public accounting department.

24. Public sector debt reporting in Iraq needs improvement and alignment with the PSDSG 2011. Currently the MoF compiles debt reporting for internal dissemination and for surveillance. Source data although produced on a monthly basis, is not automated and can be lengthy to produce, notably for domestic debt. Also, not all information related to debt is readily available. Current internal debt reports are a mixture of holder and instrument with no reporting on maturities. It would be of utmost importance to improve the quality of debt reporting and start disseminating quarterly debt reports for greater transparency. Indeed, no public sector debt statistics report is being currently published in Iraq, with the last quarterly debt report published on the website date back to 2016.

25. As a start, the mission highly recommends that staff of the Budget, Public accounting and Debt departments attend the upcoming course on PSDS compilation. The course is scheduled to take place in October 2022 at the IMF’s Middle East Center for Economic and Finance (CEF) and could highly benefit the compilers of domestic and external debt on the best practices in compiling and disseminating public sector debt data.

26. Another caveat of the current public sector debt data compilation is the lack of consistent and comprehensive coverage of arrears. Currently, arrears are not included in the GFS data nor in the debt tables. However, back in 2017 the authorities have made a first step towards filling some of the data gaps, by conducting surveys to collect information on arrears from all the spending units (SU). Arrears to contractors amounted to around IQD 6 trillion by end of 2017. Subsequently, they have tracked the payment of the accumulated arrears and monitored the commitments. These arrears were cleared over the past three years: (i) 40 percent were paid against T-bills (and are included in the domestic debt); (ii) 30 percent of the amount was paid in cash in 2018; and (iii) another 30 percent was paid in cash in FY 2019. Currently, the MoF plans to include in the 2021 budget an allocation for the clearance of cross-arrears for electricity bills payments. A more comprehensive and systematic approach should be followed by the GFS compilers for the recording of arrears (Box 1). They should collect information on arrears from their creation, that is, at the time when payment due are not made until they are extinguished, such as when arrears are paid, rescheduled, or forgiven by the creditor.

Recommended Actions:

  • - Enhance annual GFS for FY 2019–2020 by filling missing public sector debt data and reducing statistical discrepancies

  • - Build the capacity of MoF staff of the Budget, Public Accounting and Debt departments in the compilation of PSDS, by attending the PSDS course scheduled for October 2022 at the IMF Middle East Center for Economic and Finance (CEF) in Kuwait

  • - Compile and disseminate public sector debt statistics (PSDS) for the BCG on a regular basis in line with the PSDS guide should be the main objective of next mission

  • - Establish a GFS inter-departmental taskforce for improving coordination

  • - Disclose arrears in a transparent manner and record the accumulation and payment of these arrears transparently as claims on the government

  • - Submit high frequency data to the IFS database

D. The Institutional Coverage

27. Currently the GFS report covers budgetary central government. All activities that currently occur within the budget are reflected in the fiscal report. Gradually the independent entities can be added to the coverage so that the reports cover all central government spending reflecting the impact of the government’s activities on the economy. Eventually the coverage can be extended to include the accounts of subnational government to cover the whole of the general government.

28. In Iraq, the general government sector comprises several institutional units. These are the central government (comprising the presidency of the republic, the parliament, the prime minister office, the judiciary, ministries, departments and agencies operating at a central government level), and local governments that comprise of many municipalities (around 393 distributed in 19 governorate), (such as Saladin, Babil, Al Anbar, Kirkuk ….).

The central government of Iraq is divided into three sub-sectors:

  • Budgetary Central Government (BCG): include entities such as, presidency of the republic, the parliament, the prime minister office, the judiciary, 22 ministries and entities included in the Iraqi annual budget.

  • Extrabudgetary Units (EBUs): includes around 66 independent government’s units that perform their functions with primarily the financial support of the BCG budget and from their own generated revenue. As there is not enough information about their nature and activities, the mission initially classified the list of self-funded entities that include 180 entities to their prober sector (EBUs. SSFs, Public financial and non-financial corporations) (Appendix V)

  • Social Security Fund: The social security sub-sector comprises of the Social Security Fund which covers private and public employees and the Retirement Fund for government employees.

29. Iraq has about 113 public corporations comprised of financial and nonfinancial public corporations (Appendix V). These entities provide goods and services at economically significant prices, regulate the market to solely buy, hold, and sell goods and services at market prices, or regulate the financial sector. They also can incur large losses. For instance, large arrears incurred by energy companies for the supply of fuel for electricity doesn’t feature in GFS. A thorough review of the list of public entities is needed to ensure they are properly classified as public corporations versus EBUs in line with the GFSM 2014 guidelines. This review will represent a critical first step in a phased approach for expanding the coverage beyond the BCG.

Figure 2.
Figure 2.

The Composition of the Public Sector in the Republic of Iraq

Citation: IMF Staff Country Reports 2023, 072; 10.5089/9798400232763.002.A001

Source: The mission team.

Recommended Actions:

  • - Review and update the Institutional Table for the Sectorization of the public sector entities.

  • - Expand the coverage of the GFS annual data to include the Extra-Budgetary Units (EBUs), and the Social Security Funds.

E. Officials Met During the Mission

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Appendix I. The List of Excel Files Provided to the Authorities

The list of excel files provided to the authorities during the mission can be accessed on the following link:

https://intlmonetaryfund-my.sharepoint.com/:f:/r/personal/naboukhaledyazbeck_imf_org/Documents/Iraq%20GFS%20Missi on%20December%202021?csf=1&web=1&e=Zqt8TN

  • I- The mapping of the Chart of Account (COA) based on the GFSM 2014 Classification

  • II- The mapping of the functional classification compilation tool based on expenditure data for FY 2020

  • III- A bridge table between the administrative classification and the functional classification

Appendix II. COFOG Table 7 of the IMF’s Annual GFS Questionnaire (FY 2020)

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Appendix III. Public Sector Debt Data for Budgetary Central Government for FY 2019/2020

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Appendix IV. List of Public Entities – Preliminary Classification

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1

Source: Ministry of Finance: The National Budget Reform Project (NBR Project no1) strategic target (1–1) related to the development of systems and rules related to expenditures and investment projects focusing on the production and dissemination of comprehensive and regular budget reporting in line with the GFSM 2014.

2

Annual GFS data for FY 2019 and FY 2020 were revised and sent to the public accounting department for final approval and re-submission to the fund.

3

Annual GFS data for FY 2019 and FY 2020 were revised and sent to the public accounting department for final approval and re-submission to the fund

4

Modernization of PFM Systems project – Project # P151357 [effective date = Dec 28, 2016 – Closing date = Nov 30, 2021]

5

Source: Ministry of Finance: The National Budget Reform Project (NBR Project no1) strategic target (1–1) related to the development of systems and rules related to expenditures and investment projects focusing on the production and dissemination of comprehensive and regular budget reporting in line with the GFSM 2014.

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Cover IMF Staff Country Reports
Republic of Iraq: Technical Assistance Report on Government Finance Statistics (December 5-19, 2021)
Author:
International Monetary Fund. Statistics Dept.
Volume/Issue:
Volume 2023: Issue 072
Publisher:
International Monetary Fund
ISBN:
9798400232763
ISSN:
1934-7685
Pages:
29
DOI:
https://doi.org/10.5089/9798400232763.002
Figure 1.

Iraq COFOG Data FY 2020
Figure 2.

The Composition of the Public Sector in the Republic of Iraq