U.S. diplomat rejects criticism of Iraqi spending

By Missy Ryan

BAGHDAD, Aug 6 (Reuters) - Iraq is making strides in using oil revenues to rebuild its shattered infrastructure, a senior U.S. embassy official said on Wednesday, disputing a critical report from Washington.

The official said the new report from the U.S. Government Accountability Office (GAO), an independent watchdog, captured only part of the picture when it said Baghdad was failing to spend on reconstruction, leaving much of the task to Washington.

"The impression that somehow the Iraqis are sitting back on these huge growing balances doesn't really fit what's happening," the official in Baghdad said, speaking to reporters on condition of anonymity. The GAO found in its study that, five years after the U.S.-led invasion to topple Saddam Hussein, Iraq has been unable to spend much of the money it budgeted to provide basic services, modernise infrastructure and repair the wounds of war.

Slow expenditures are blamed on Iraq's unwieldy bureaucracy, a lack of experienced officials and ongoing violence.

In 2007, the country spent less than 30 percent of the $12 billion budgeted for investment and capital projects. Ministries including the electricity, water and housing agencies, spent an even smaller share of investment funds.

As soaring oil prices swell Iraqi revenues, the country's budget surplus is expected to grow to as much as $50 billion in 2008. That may shrink if the Iraqi government spends about $21 billion added to the 2008 budget, a measure approved by parliament on Wednesday.

The result of Iraq's stunted spending is felt every day by Iraqis, who even as violence drops to levels not seen since 2004 lack basic services like electricity and health care.

Difficulty in spending Iraq's vast oil wealth has angered a growing number of politicians in Washington. Through June of this year, the United States spent $32 billion on reconstruction and stabilisation in Iraq.