The actual result of the year's working was, however, as the next table (No. II) shows, a deficit of 183 lakhs.

This figure, it will be noted, includes capital expenditure on Railways and the Fort of 29.5 and 14 lakhs respectively, and for the purpose ci a true comparison with the Budget estimates the actual deficit should be shown as 183—(39.5 plus 14) equal to 129.5 lakhs.

TABLE II (A).

1920-21 ACTUALS.

RECEIPTS AND EXPENDITURE BY MAIN HEADS.

(Accounts under audit of D. A. G., (Civil).

TABLE II (B).

Receipts and Expenditure by Main Heads of Departments other than those under D.A.G. (Civil's) Audit.

1920-1921.

Scope of the
Ministry.

Economies

effected.

*These figures show an excess of expenditure over revenue of 188 lakhs. The accounts under the audit of the D.A.G. (Civil) however, show a surplus of 5 lakhs. The net deficit, therefore is 183 lakhs.

This unhappy state of things was due almost entirely to the disturbances. The destruction of crops and other property and the weakening of administrative control in some areas, produced a deficiency of 61 lakhs in revenue from agricultural sources. Further the great damage done to the Railway and the almost complete stoppage of commercial traffic led to a loss on Railway Revenue Account of almost 55 lakhs. These two items, which total 116 lakhs, contribute nearly the whole of the deficit on revenue account. The situation, therefore, at the outset of the new Government, with these serious losses, and with the new burden of increased military expenditure impending, made it necessary for them at once to retrench in every possible direction until they were able to discover fresh sources of revenue.

The position was difficult and might have become critical; the reforming enthusiasm of the new regime tended in directions which, but for the judicious application of a little cold water by the Finance Ministry, might have proved very embarrassing. It was fortunate that the person selected for this important Ministry possessed qualities which more than any others were needed at this juncture for the restraint of exuberant politicians. His Excellency Sasun Effendi is, by common consent, the best Finance Minister the country can produce; he has the respect and confidence of all; he is experienced and highly educated; his knowledge of the financial systems of different countries is extensive, and he unites with it an intimate practical acquaintance with the highly polished system of the Turkish Empire. His grasp of financial principles is complete; but perhaps it is his unswerving adherence to them that makes him so invaluable in the constant ebb and flow of political parties.

It was not immediately, of course, that these qualities came into play. The early days of office were no doubt somewhat tedious. The Department was busy trying to disentangle the transactions of the provisional civil administration from those of the temporary military regime. On these mysteries the Minister did not intrude. A more important fact was that financial administration was at this time incomplete in its scope. The Department dealt with budgets, resource operations and accounts, and intervened in questions of expenditure. But the administration of revenue had, during the previous regime, been controlled by the Revenue Secretary to the Civil Commissioner in respect of land revenue and excise, and by the Commerce Secretary in regard to Customs. The latter, on the abolition of the Commerce Secretaryship at the end of August 1920, passed under the control of the Finance Secretary; but it was not until the following year, riz., March 1921, that Excise was taken over by the Finance Ministry from the Interior, (which had succeeded to the functions of the Revenue Secretary in matters of revenue), while land revenue and its concomitants were not transferred to the Finance Ministry until October 1921.

The Financial stringency with which the new Government was faced demanded immediate measures of economy.

The previous administration had frequently had charges of extravagance levelled at it, and a laudable zeal was evinced in discovering and terminating superfluous expenditure. It is not certain that the results obtained were commensurate with the zeal displayed. Great hopes were entertained that the costly foreign establishment could be replaced at once by a local staff with modest emoluments. In point of fact the actual expenditure under

R

the heads (according to the former classification) "Revenue" and "Political and General Administration" was 107 lakhs in 1920-21 as compared with estimates of 97 lakhs, and an actual expenditure in the preceding year of about 85 lakhs. It would perhaps be fairer to take the result of the following year, 1921-22, as an indication of the extent to which the general administration has been cheapened by the fuller employment of local personnel. But here the comparison is rendered difficult by the changed budget classification introduced last year, and is vitiated by the introduction of central institutions on a more elaborate scale than those of the provisional civil administration. Taking, however, the figures of expenditure on revenue and political administration outside Baghdad, we find that the estimate for 1921-22 was 55 lakhs, while the expenditure of the previous year was 60 lakhs. Some economy appears, therefore, to have been achieved.

A more substantial, if less interesting, saving was made under the head "Transport". This, as has already been indicated, was in 1920-21 conceived on a somewhat grand scale, to enhance the efficiency of executive administration. When the change in policy came, it was at once recognized that very rigorous steps must be taken to reduce this item in expenditure, and new regulations were introduced by which the Government defined within narrower limits its liability under this head. The change was not popular, but was imperative; and whereas the expenditure in 1920--21 on transport was 99 lakhs, in 1921-22 it did not amount to more than about 30 lakhs.

It has already been indicated that the new factor in expenditure with Provision for which the Government was confronted and on account of which it was neces- national defence. sary to make retrenchment elsewhere, was in connection with defence. The national Government must have a national army. The existing forces of law and order were the Levies, the Gendarmerie, the regular Police, and the District Police under the control of Political Officers. These forces in 192021 cost respectively 26, 11, 38.5 and 13 lakhs a total of 88.5 lakhs. It seemed to some that the obvious course to take in the formation of a new national army was to make the existing Levy organization the nucleus on which to build. There were, however, political and other objections to this course, and after considerable divergence of opinion had been displayed, the Levies were put under the Ministry of Interior as an adjunct to the other forces for the maintenance of internal order, and the new Ministry of Defence proceeded to lay the foundation of a new army. Very meagre funds were available during the remainder of the financial year, and the activities of the Ministry were limited to the formation of a headquarters and recruiting staff. The prospect, however, of having to finance two military organizations, the new Army and the Levies, during the coming year caused much anxiety to the Finance Minister, and the provisional allotment of 55 lakhs which he made for the Ministry of Defence was determined rather by the limitation on available resources than by a considered programme of defence.

The various urgent political, financial and administrative questions to Cairo which some reference has been made above, called for a comprehensive Conference. policy, and a Conference was summoned by the Secretary of State at Cairo in March 1921. The absence of the Minister of Finance and the Adviser at the Conference made it out of the question to present the budget estimates before the beginning of the financial year, and there was no alternative but to carry on with the provisional allotments proposed by the Finance Ministry.

This concludes the survey of the period October 1920 to April 1921; and the Cairo Conference is a suitable landmark for the introduction of the new period 1921-22.

2.-APRIL 1921 to end of MARCH, 1922.

at Cairo.

The mission returned from Cairo with the following main decisions directly affecting 'Iraq finances. Firstly, all Military claims against the Decisions reached Civil Administration and vice versa were to be dropped, the total receipts (whether from Army Votes or Civil revenue) to the end of March 1921, being pooled and applied indiscriminately to Civil and Military expenditure, the deficit, if any, being made good by a supplementary vote to be obtained from Parliament.

Secondly, 'Iraq finances were thus to start with a clean sheet on 1st April, 1921, with nothing for or against.

Thirdly, the Iraq Budget was to provide not less than 55 lakhs for the National Army, and ordinarily her contribution to defence was not to fall below 15 per cent. of her revenues. The budget was also expected to show a small surplus.

Fourthly, the Levies were to be financed by His Majesty's Government and administered by the High Commissioner on their behalf.

Work accordingly went forward on these lines. But the first resolution was not so simple as it looks. It was adopted with the object of terminating the labours of the Military and Civil accounts departments as early as possible. Expectations were perhaps a little sanguine and have not been altogether justified by results. In point of fact, the scrutiny of local claims continued, because the Military authorities had no instructions to the contrary. Eventually this scrutiny was limited to claims arising in 1920-21, and the disputes were settled by a compromise. To this extent the first resolution above referred to was modified in practice. It was, in fact, impossible to dispense with the task of bringing all expenditure and receipts to account; and the decision not to press claims between the Civil and Military sides could at best have saved only the actual presentation and acceptance of claims and the transfer of credits. It has been seen that claims were in fact mutually examined for part of the period in question. while the transfer of credits was made en bloc instead of piecemeal. Opinions probably differ as to the propriety of merging Civil and Military finances during the period of the occupation. Until the Cairo Conference it had apparently been generally considered that a distinction should be made: many attempts had been made by the Government of India to define the limits of each, and the view had recently been put forward in a White Paper published in 1920 (and therefore presumably accepted by the authorities) that revenue collections in excess of expenditure regarded as properly debitable to civil estimates were really held in trust for the use of the future civil Government. The decisions taken at Cairo were not in accord with this doctrine, and were no doubt much influenced by considerations of practical convenience; but the final settlement of assets and liabilities has not yet been made, and it is premature at this stage to discuss this matter further.

The budget estimates for 1921-22 (of which a summary is given in table III below) show how effect was given to the other resolutions affecting 'Iraq finances.

A small surplus of 8.75 lakhs is shown as a reserve in the budget of the Finance Ministry. Unfortunately, the estimates of revenue have not been realized. Under Chapter I, indeed (Taxes on natural produce) the first revised estimates (based on 5 months actuals) showed an improvement of 17 lakhs on the original estimates, owing to the fact that credit had not been taken in the latter for the 1920 arrears. Later revised estimates however, indicate that the actual collection under this chapter will probably be some 37 lakhs less than the first revised estimates. This is explained partly by a somewhat liberal policy of granting remissions on quasi-political grounds which was pursued in the early part of the financial year, and partly by the general fall in prices below the fixed conversion rates, which has led to difficulties in collection and to an inevitable postponement of a part of the demand.

Another disappointment has been the heavy falling off in Customs receipts from 294 lakhs to 264 lakhs (including 47 lakhs transferred from the "transit suspense account'). This is due to two main causes the stagnation of trade owing to the political situation in Persia and the large local sales by the Disposals Board, and to the drop in prices. The sooner Customs and land revenue (which represent together some 80 per cent. of the total revenues) can be removed from a basis which at present is almost entirely ad valorem, the better it will be for the stability of the 'Iraq budget estimates.

The budget was not presented to the Council of State until September, Budget of 1.e.. half-way through the financial year to which it relates. Numerous 1921-22. political and administrative changes made it impossible to complete it before that date, but the majority of Departments had definite (though provisional) allotments on which to proceed. The actuals of receipts and expenditure which are complete up to the end of December 1921 (except in the case of the Irrigation Department and Port Directorate, the completed accounts of which have been brought to the end of November only) show a practical equilibrium, except for Railways, as to which see below. But the balance between revenue and expenditure can be maintained to the end of the year only if the full revised estimate of land revenue is realized, and it has already been pointed out that a deficit under this head is anticipated of some 37 lakhs. A slight increase in some of the other heads of revenue, and a saving of expenditure in some of the departments, appear likely to make good the remaining deficiency, riz., in Customs revenue; and the calculations made in February indicate that the year will close with a deficit of about 33 lakhs.

It will be realized that, in the present fluid conditions, accurate estimation is impossible, and it is unnecessary to enlarge on this point. Continuous efforts are made to prevent all unnecessary expenditure, and, the unsettled state of the administration has made the work of the Finance Ministry in this direction doubly hard.

The expenditure on Railways has been excluded from the above fore- Railway casts. Their accounts are, however, incorporated in those of the 'Iraq Expenditure. Government, owing to the accident that railway administration in 1920 was 'nominally taken over by the Civil authorities. In fact, as has already been stated, the Railways were used almost entirely for Military purposes, and the Iraq Government has protested against protested against the decision that the loss on their working (which stood at 44.5 lakhs at the end of December 1921) should be borne by 'Iraq Revenues. This matter is still under correspondence.

3.-MACHINERY OF THE FINANCE DEPARTMENT.

In this part it is proposed to give a brief description of the machinery of the Finance Department, including the Ministry and the Accounts and Audit Department, while the next and final part will contain a few notes on the administration of Land Revenue and Customs and Excise.

The Finance Ministry at first comprised a Minister, the Adviser, a Secretary and two Assistant Secretaries. One of the latter dealt mainly with the budget estimates, and the other with financial rules and regulations. Both, of course, had also a great variety of miscellaneous matters to attend to. Their work was co-ordinated by the Secretary who also handled direct some of the larger questions. A good deal of the Adviser's time was taken up with questions which did not directly concern the 'Iraq Government as then constituted, but he saw every case of importance arising in the Ministry. In the spring of 1921 an additional officer was brought into the Ministry to deal mainly with Customs and Excise matters. During the summer the absence of the Secretary on leave threw a very heavy burden of work on those who remained, and it is difficult to speak too highly of the assistance which they rendered to the Minister and the Adviser. Later in the year an additional Secretaryship was created to deal with questions relating to Customs and Excise revenue which required the orders of Government, and about the same time the administration of Land Revenue was transferred from the Ministry of the Interior, and two Secretaries, one British and one Arab, were appointed to deal with it. The scope of the Ministry was thus much enlarged since the early days of the new Government.

It is impossible to go in detail into the work of the Finance Ministry. Side by side with the close examination of the working and cost of each department, which was entailed by the preparation of the budget estimates, went a mass of detailed work in connection with foreign and local personnel, conditions of service, forms of contracts, general service regulations, grades, rates of pay, pension regulations and so forth. Much spade-work has been done, and the ground has now been prepared for a systematic and compre hensive body of regulations, which it is hoped will be ready for issue as soon as permanent service can be said to be in sight. It is proposed to form & Cadre Commission for the formulation of the regulations of such a service, based on the data already collected.