Iraq Reconstruction, Rehabilitation and Reform Program Progress and the Way Ahead The World Bank Amman, July 2005

Iraq Reconstruction, Rehabilitation andIraq Reconstruction, Rehabilitation andReform ProgramReform Program

Progress and the Way AheadProgress and the Way Ahead

The World BankAmman, July 2005

The StorylineThe Storyline

The Economic ContextThe Economic Context

The World Bank in Iraq- Operational ContextThe World Bank in Iraq- Operational Context

Work to Date- The Iraq Reconstruction/Reform Agenda with the Work to Date- The Iraq Reconstruction/Reform Agenda with the World BankWorld Bank

How We Do BusinessHow We Do Business

Some Lessons LearnedSome Lessons Learned

The Way Forward The Way Forward

Economic ContextEconomic Context Iraq has many resources- 3Iraq has many resources- 3 rdrd Largest Oil Reserves, 7 million labor force, abundant water Largest Oil Reserves, 7 million labor force, abundant water

Successful transitions over the past year- Successful transitions over the past year- Interim Government and Transitional Administrative Law in June 04Interim Government and Transitional Administrative Law in June 04

Elections for 275-member Transitional National Assembly in Jan 05Elections for 275-member Transitional National Assembly in Jan 05

Constitutional Referendum in October 05, Elections in end-05Constitutional Referendum in October 05, Elections in end-05

Several important measures since mid 03Several important measures since mid 03 Donor Coordination and Iraqi Strategic Review BoardDonor Coordination and Iraqi Strategic Review Board

Central Bank Law, Trade Liberalization, Banking and Company Laws, etc.Central Bank Law, Trade Liberalization, Banking and Company Laws, etc.

WTO Observer Status, IMF Emergency Post-Conflict AssistanceWTO Observer Status, IMF Emergency Post-Conflict Assistance

National Development Strategy- Governance, PSD, Safety NetsNational Development Strategy- Governance, PSD, Safety Nets

Recent Higher Committees on Economic Development, and ReconstructionRecent Higher Committees on Economic Development, and Reconstruction

Economic ContextEconomic Context Strong Recovery. GDP down to $12 billion in 03, recovered to $26 billion in 04. GDP per capita of around $940.Strong Recovery. GDP down to $12 billion in 03, recovered to $26 billion in 04. GDP per capita of around $940.

Schools opened, goods flowed, wages increased.Schools opened, goods flowed, wages increased.

Reconstruction of infrastructure/basic services.Reconstruction of infrastructure/basic services.

Security has affected reconstruction and diversification. Growth driven by oil.Security has affected reconstruction and diversification. Growth driven by oil.

GDP may increase by 7% in 05.GDP may increase by 7% in 05.GDP/capita will remain 25% of GDP/capita will remain 25% of its level 25 years ago.its level 25 years ago.

Oil is 70% of GDP and 98% of Oil is 70% of GDP and 98% of budget. budget.

Oil production at 2 mbpd,Oil production at 2 mbpd,exports of 1.5 mbpd.exports of 1.5 mbpd.

Inflation down from %34 in 03 Inflation down from %34 in 03 to 32% in 04. Still expected in to 32% in 04. Still expected in double-digits.double-digits.

0

5

10

15

20

25

30

1997 1998 1999 2000 2001 2002 2003 2004e 2005p

US$

bill

ion

GDP at market prices Oil Exports

Economic ContextEconomic Context Private non-oil activity up, and imports up, but insecurity/unemployment remain an issue for reconstruction and private sector growthPrivate non-oil activity up, and imports up, but insecurity/unemployment remain an issue for reconstruction and private sector growth

Maybe 10% live on under $1/dayMaybe 10% live on under $1/day

About 25% completely dependent on Food Distribution (WFP, 2004), which with other subsidies, eats two thirds of the budgetAbout 25% completely dependent on Food Distribution (WFP, 2004), which with other subsidies, eats two thirds of the budget

2 million unemployed, about 30% of workforce (ILO, 2004)2 million unemployed, about 30% of workforce (ILO, 2004)

Unemployed and underemployed closer to 50% (highest among young urban males, and women)Unemployed and underemployed closer to 50% (highest among young urban males, and women)

Many of SOEs (over 190) remain idle. They employ over 500,000 workersMany of SOEs (over 190) remain idle. They employ over 500,000 workers

- 5 10 15 20 25 30

Egypt

Lebanon

Syria

Yemen

Jordan

Morocco

Iraq

Algeria

percent of labor force

Bottom Line…Private SectorBottom Line…Private SectorWill be the key driver for growthWill be the key driver for growthAnd employmentAnd employment








The Operational ContextThe Operational Context

Iraq is a founding member of the BankIraq is a founding member of the Bank 6 Loans between 1950-1973, in arrears since 90’s6 Loans between 1950-1973, in arrears since 90’s Return to Iraq in 2003, after 25 years- data collection and Return to Iraq in 2003, after 25 years- data collection and

assessment of the economyassessment of the economy Joint UN-WB Needs AssessmentJoint UN-WB Needs Assessment Madrid Conference (Oct 03)- WB promises $3-5 bn over Madrid Conference (Oct 03)- WB promises $3-5 bn over

coming years. First $500 mn in IDA creditscoming years. First $500 mn in IDA credits International Fund Facility for Iraq (IRFFI)- $1 bn of which International Fund Facility for Iraq (IRFFI)- $1 bn of which

$400 mn went to the WB window.$400 mn went to the WB window. Trust Fund Operations guided by World Bank Interim Trust Fund Operations guided by World Bank Interim

Strategy for Iraq (January 04)Strategy for Iraq (January 04)

The Operational ContextThe Operational Context

Resolution 1483 and G7 requested international institution help

International Community requested UN, WB to carry out Needs Assessment and set up TF

International Reconstruction Fund Facility for Iraq

World Bank TF

Iraqi

Ministries

WB-UN Needs Assessment

Context?Context?

Vehicle?Vehicle?

Interim Strategy for WB Operations (Jan 04)

Players?Players? World Bank

Group

UN and

other Partners

Outputs?Outputs? 9 Emergency Operations, Training of over 900 civil servants and policy support

Intl and Local

Private Sector

ISRBIraqi Donor

Coordination




Work to Date- The Iraq Reconstruction/Reform Agenda with Work to Date- The Iraq Reconstruction/Reform Agenda with the World Bankthe World Bank




First WB Interim StrategyFirst WB Interim Strategy

Prepared end-January, based on Needs Assessment, and covers Prepared end-January, based on Needs Assessment, and covers WB work until mid 05- a Second Strategy to followWB work until mid 05- a Second Strategy to follow

Uses Donor Funds until Bank accesses IDA/IBRD fundsUses Donor Funds until Bank accesses IDA/IBRD funds In consultations with Iraqis, UN & donors In consultations with Iraqis, UN & donors Focus on Iraqi implementation, with WB support and capacity Focus on Iraqi implementation, with WB support and capacity

building.building. Three Pillars:Three Pillars:

Emergency Operations (about $370 mn)Emergency Operations (about $370 mn) Build capacity for Recipient Execution Build capacity for Recipient Execution Policy support Policy support

Elements of First Interim Elements of First Interim StrategyStrategy

Cross-Sectoral. 3 Pillars:Cross-Sectoral. 3 Pillars:

Emergency OperationsEmergency Operations Build Iraqi Institutional Capacity to absorb Build Iraqi Institutional Capacity to absorb

external funding, and implement policy external funding, and implement policy reformsreforms

Lay Groundwork for Medium Term Lay Groundwork for Medium Term Reconstruction & DevelopmentReconstruction & Development

Pillar 1: Emergency Pillar 1: Emergency OperationsOperations

Restore urgent infrastructure/servicesRestore urgent infrastructure/services Building sustainable capacity: Iraqi Implementation Building sustainable capacity: Iraqi Implementation

(Ministry PMTs)(Ministry PMTs) Other donors to leverageOther donors to leverage Jump-starting economic activityJump-starting economic activity

IFC and SME TFIFC and SME TF MIGA looking into FDIMIGA looking into FDI

Community-based employment generationCommunity-based employment generation

Emergency OperationsEmergency Operations Each project tries to spread assistance to governorates, depending Each project tries to spread assistance to governorates, depending

on the availability of donor funds.on the availability of donor funds. In total, Emergency Operations covering all the 18 Governorates.In total, Emergency Operations covering all the 18 Governorates.

Emergency OperationsEmergency Operations

Nine Emergency Operations (most began implementation in Nine Emergency Operations (most began implementation in early 05)early 05)

One project (First Capacity Building) is completed and another One project (First Capacity Building) is completed and another eight projects underway- US$367 mn in assistanceeight projects underway- US$367 mn in assistance First Capacity Building ProjectFirst Capacity Building Project (US$3.6 million) – (completed) 600 Iraqi (US$3.6 million) – (completed) 600 Iraqi

officials trained (completed).officials trained (completed). Emergency Textbook Provision ProjectEmergency Textbook Provision Project (US$40 million) –since mid-May (US$40 million) –since mid-May

2004, 69 million textbooks for 6 million students in primary and secondary 2004, 69 million textbooks for 6 million students in primary and secondary schools in 18 governorates for the 2004/05 school year. schools in 18 governorates for the 2004/05 school year.

Emergency School Construction Rehabilitation ProjectEmergency School Construction Rehabilitation Project (US$60 million) – (US$60 million) –since October 2004, finances construction of new buildings for 110 existing since October 2004, finances construction of new buildings for 110 existing primary and secondary schools, and major rehabilitation of about US$140 primary and secondary schools, and major rehabilitation of about US$140 schools. 84 rehabs by September 05.schools. 84 rehabs by September 05.

Emergency OperationsEmergency Operations Second Capacity Building ProjectSecond Capacity Building Project (US$7 million)– a follow-up to the successful First Capacity Building Project, (US$7 million)– a follow-up to the successful First Capacity Building Project,

over 350 trained to date.over 350 trained to date. Emergency Baghdad Water and Sanitation ProjectEmergency Baghdad Water and Sanitation Project (US$65 million)– water supply/sanitation in Baghdad, large (US$65 million)– water supply/sanitation in Baghdad, large

portion of sewerage system rehabilitation and extension in Sadr City, and a comprehensive city development plan for portion of sewerage system rehabilitation and extension in Sadr City, and a comprehensive city development plan for Baghdad. Baghdad.

Emergency Water Supply and Sanitation and Urban Development ProjectEmergency Water Supply and Sanitation and Urban Development Project (US$90 million)– water (US$90 million)– water supply/sanitation in nine governorates; and urban reconstruction (roads, sidewalks, community centers, etc.).supply/sanitation in nine governorates; and urban reconstruction (roads, sidewalks, community centers, etc.).

Emergency Health and Rehabilitation ProjectEmergency Health and Rehabilitation Project (US$25 million)– rehabilitation of emergency services, including (US$25 million)– rehabilitation of emergency services, including emergency obstetric care, in 12 hospitals; basic medical/laboratory equipment; 3-6 month supply of 37 emergency emergency obstetric care, in 12 hospitals; basic medical/laboratory equipment; 3-6 month supply of 37 emergency medicines. medicines.

First Private Sector Development ProjectFirst Private Sector Development Project (US$55 million)– finance part of telecom network (US$43 million) to (US$55 million)– finance part of telecom network (US$43 million) to connect parts of Central Bank’s payments/settlements system; institutional framework for investment/export connect parts of Central Bank’s payments/settlements system; institutional framework for investment/export promotion, SME reform; direct support to private firms to access finance and foreign markets.promotion, SME reform; direct support to private firms to access finance and foreign markets.

Emergency Community Infrastructure ProjectEmergency Community Infrastructure Project (US$20 million) –labor-intensive water supply/sanitation, and (US$20 million) –labor-intensive water supply/sanitation, and irrigation rehab in rural areas throughout Iraq using community involvement. irrigation rehab in rural areas throughout Iraq using community involvement.

Pillar 2: Institutional Capacity Pillar 2: Institutional Capacity and Trainingand Training

First Use of Donor Funds (EC)First Use of Donor Funds (EC) Support/Training to Iraqis Ministries to Support/Training to Iraqis Ministries to implement reconstruction implement reconstruction

directly- PMTdirectly- PMT Emphasis on procurement, Financial Management and Emphasis on procurement, Financial Management and

environmental/social safeguardsenvironmental/social safeguards Capacity building to the public and private sectors, NGOs, on Capacity building to the public and private sectors, NGOs, on

policy issues: PSD, Education, Health, Telecom, infrastructure policy issues: PSD, Education, Health, Telecom, infrastructure reform, gender, Iraqi women businessmen workshop and study reform, gender, Iraqi women businessmen workshop and study tour, etc.tour, etc.

Training on Data Collection and Dissemination.Training on Data Collection and Dissemination. Sector Specific Training, Internships, Study Tours.Sector Specific Training, Internships, Study Tours. Training in Amman, Beirut, Canada, Washington, UK, Tunisia, Training in Amman, Beirut, Canada, Washington, UK, Tunisia,

Egypt, Ireland, and Baghdad through VCsEgypt, Ireland, and Baghdad through VCs

Theme 3: Policy SupportTheme 3: Policy SupportLaying the Basis for Medium-Term DevelopmentLaying the Basis for Medium-Term Development

Three Cornerstones, one goal: Iraq back on the path of Three Cornerstones, one goal: Iraq back on the path of growth and wealth:growth and wealth:

A Sustainable and Open Economy that Relies on Iraq’s A Sustainable and Open Economy that Relies on Iraq’s Private Sector- Private Sector- Macro Stabilization & Transition to a Macro Stabilization & Transition to a Market Economy.Market Economy.

A Supporting & Transparent Public Sector that Encourages A Supporting & Transparent Public Sector that Encourages Private Sector Resources and Initiative to their Maximum, Private Sector Resources and Initiative to their Maximum, and Ensures Public Welfare- and Ensures Public Welfare- Public Sector Reform.Public Sector Reform.

A System to Ensure that the Poor and Vulnerable do not A System to Ensure that the Poor and Vulnerable do not Lose Out from the Reforms Above- Lose Out from the Reforms Above- Poverty, Social Poverty, Social Protection & Social DevelopmentProtection & Social Development

WB discussions on Policy Work with MOF, MOPDC, CBI, WB discussions on Policy Work with MOF, MOPDC, CBI, MMPW, MOH, MOED, MOLSA, etc.MMPW, MOH, MOED, MOLSA, etc.

Economic Reform and Transition Support to National Development Strategy, Incentive Framework, Trade,

Finance/PSD, SOE/Investment Climate, Transport Reform, Urban Mgmt, Water Utility Mgmt, Infrastructure Regulation-July, Payment Systems and Banking Supervision

Theme 3: Policy SupportTheme 3: Policy Support

Public Sector Reform Legal Reviews, Public Finance, Intergovernmental Finance, Civil Service

Reform, Health Policy and NHA, Education Policy and plan for Teacher Training, Utility Sector Policy, Judicial Reform, Assessment of Public Sector Procurement and FM

Poverty, Social Protection and Social Development Pension and Social Safety Nets, WFP Collaboration on Food Markets

and PDS

Other Parts of the Bank Group:Other Parts of the Bank Group:IFC and MIGAIFC and MIGA

International Finance Corporation (IFC) International Finance Corporation (IFC) Co-located with the WB Iraq Office, has begun investments in 1 Iraqi Co-located with the WB Iraq Office, has begun investments in 1 Iraqi

bank, in partnership with international banks. Others on the way*bank, in partnership with international banks. Others on the way* Small Business Financing Facility, to finance micro and small businesses Small Business Financing Facility, to finance micro and small businesses

and TA to banks (a bank has been identified)and TA to banks (a bank has been identified) The Private Enterprise Partnership for the Middle East (PEP-MENA) has The Private Enterprise Partnership for the Middle East (PEP-MENA) has

trained over 250 private bankerstrained over 250 private bankers

Multilateral Investment Guarantee Association (MIGA)Multilateral Investment Guarantee Association (MIGA) Iraq is still not a member of MIGA, but talks have begun to joinIraq is still not a member of MIGA, but talks have begun to join Will provide investors with some insurance against non-commercial risksWill provide investors with some insurance against non-commercial risks Will provide TA to Govt on Investment PromotionWill provide TA to Govt on Investment Promotion Can also provide on-line services on investment opportunities in IraqCan also provide on-line services on investment opportunities in Iraq

* For additional IFC info/contacts: * For additional IFC info/contacts: www.ifc.orgwww.ifc.org or through WB website or through WB website

http://www.ifc.org/








How We Do BusinessHow We Do Business Iraqi institutions implement WB-financed projects in Iraq- Bank appraises and supervises onlyIraqi institutions implement WB-financed projects in Iraq- Bank appraises and supervises only Procurement for WB-financed projects through the MinistriesProcurement for WB-financed projects through the Ministries

WB International and National Competitive Bidding ProceduresWB International and National Competitive Bidding Procedures

Learning by DoingLearning by Doing Ministry Project Management Teams PMT trained, before and on-the-job, in procurement, financial Ministry Project Management Teams PMT trained, before and on-the-job, in procurement, financial

managementmanagement

Same procedures for Trust Funds and Loans/Credits- consistencySame procedures for Trust Funds and Loans/Credits- consistency Avoid overlap by getting ISRB approval of projectsAvoid overlap by getting ISRB approval of projects TF Disbursements are copied to MOF to ensure budgeting. All future loans/credits reflected in TF Disbursements are copied to MOF to ensure budgeting. All future loans/credits reflected in

budgetbudget Coordination with donors directly, with heavy reliance on ISRB and Iraqi prioritiesCoordination with donors directly, with heavy reliance on ISRB and Iraqi priorities

How We Do BusinessHow We Do BusinessThe Project CycleThe Project Cycle

Negotiations&

Approval

Appraisal

Preparation

Identification

STARTSector

StrategyImplementationCompletion

&Evaluation

Implementation& Supervision

Recipient defines general project objectives

WB analyses soundness of objectives

Recipient is responsiblefor preparation

WB provides technical &financial assistance

Recipient/Borrower defines objectives, problems & constraints WB analyzes sector policy and strategy

WB reviews work conductedduring Identification & preparation

Recipient implementsWB supervises

Once WB reviews procurement workand determines that procurementguidelines have beenfollowed, funds will bedisbursed through direct payment to the contractor

Negotiations&

Approval

Appraisal

Preparation

Identification

STARTSector


&Evaluation








Negotiations&

Approval

Appraisal

Preparation

Identification

STARTSector


&Evaluation








Recipient implementsWB supervises

Once WB reviews procurement workand determines that procurementguidelines have beenfollowed, funds will bedisbursed through direct payment to the contractor

How We Do BusinessHow We Do BusinessMaking It WorkMaking It Work

Reliance on local implementation by Iraqis (PMTs)Reliance on local implementation by Iraqis (PMTs) Interim Iraq Office in AmmanInterim Iraq Office in Amman Core Iraqi senior staff and consultants in the fieldCore Iraqi senior staff and consultants in the field Videoconference Facilities (International Zone, MOF, MOP, CBI, Videoconference Facilities (International Zone, MOF, MOP, CBI,

linked to other facilities in MMPW, MOE, etc.)linked to other facilities in MMPW, MOE, etc.) Simple project design…focusing on the basicsSimple project design…focusing on the basics Coordination with UN, USAID, DFID, PCO, JBIC and other Coordination with UN, USAID, DFID, PCO, JBIC and other

partners…leveraging each otherpartners…leveraging each other




Work to Date- The Iraq Reconstruction/Reform Agenda with Work to Date- The Iraq Reconstruction/Reform Agenda with the World Bankthe World Bank



The Way ForwardThe Way Forward


Simplicity- Focusing on the BasicsSimplicity- Focusing on the Basics Sequence Training with Recipient Implementation- Reliance on Local Sequence Training with Recipient Implementation- Reliance on Local

Implementation Implementation Innovation- use of local consultancies, Interim Office, local staffInnovation- use of local consultancies, Interim Office, local staff Need for realism in project timelines and disbursementsNeed for realism in project timelines and disbursements Focus on practical implementation arrangements very early onFocus on practical implementation arrangements very early on Balance between Speed and Sustainability- Focus on the WB’s experience in Balance between Speed and Sustainability- Focus on the WB’s experience in

Institutional DevelopmentInstitutional Development Coordination with donors is keyCoordination with donors is key




Work to Date- The Iraq Reconstruction/Reform Agenda Work to Date- The Iraq Reconstruction/Reform Agenda with the World Bankwith the World Bank

How we do BusinessHow we do Business

The Way ForwardThe Way Forward

The Way ForwardThe Way Forward Government cleared arrears to WB in December 04Government cleared arrears to WB in December 04 Request for $500 mn in World Bank IDA CreditsRequest for $500 mn in World Bank IDA Credits

Concessionary loans: 20 years, .5% commitment fee, .75% service feeConcessionary loans: 20 years, .5% commitment fee, .75% service fee MOF counterpart on IDAMOF counterpart on IDA

WB in discussions with Government on use of FundsWB in discussions with Government on use of Funds Second Interim StrategySecond Interim Strategy (for next 2 years) for discussion by Board of Directors in the summer (for next 2 years) for discussion by Board of Directors in the summer

Guides all future WB workGuides all future WB work Covers both $500 in IDA credits and additional Donor fundsCovers both $500 in IDA credits and additional Donor funds Builds on experience in Iraq, focuses on simplicity/flexibilityBuilds on experience in Iraq, focuses on simplicity/flexibility Current sectors, plus some new ones (power, transport, etc.)Current sectors, plus some new ones (power, transport, etc.)

Our Approach: Money is only as good as its use…to put in place the procedures and local Our Approach: Money is only as good as its use…to put in place the procedures and local mechanisms, to increase absorption and leverage other donor fundsmechanisms, to increase absorption and leverage other donor funds

After All, the Remaining Needs Are Great…After All, the Remaining Needs Are Great…A few casesA few cases

Water Supply and Sanitation UN/WB NA=$6,842 mn

US Supplemental

World Bank Program inInterim Strategy (04)

UN Strategy (04)

Remaining Needs (UN W/BNeeds Assessment)

Transportation and TelecommunicationUN/WB NA=$3,409 mn

US Supplemental


UN Strategy (04)


ElectricityUN/WB NA=$12,122 mn

US Supplemental


UN Strategy (04)


Housing and Urban ManagementUN/WB NA=$1,831 mn

US Supplemental


UN Strategy (04)


* Based on 2003 UN/WB Needs Assessment, US Supplemental figures, the WB Interim Strategy and UN plans for CY04.

Remaining Needs Are Great…Remaining Needs Are Great…(continued…)(continued…)

EducationUN/WB NA=$4,805 mn

US Supplemental


UN Strategy (04)


HealthWB/UN NA=$1,600 mn

US Supplemental


UN Strategy (04)


Agriculture and Water ResourcesUN/WN NA=$3,027 mn

US Supplemental

World Bank Program in Interim Strategy(04)

UN Strategy (04)

Remaining Needs (UN W/B NeedsAssessment)

Where to Go for Information…Where to Go for Information…

www.worldbank.org www.irffi.org

http://www.worldbank.org/

http://www.irffi.org/

Thank YouThank You

The World Bank

Documents

Iraq Reconstruction, Rehabilitation and Reform Program Progress and the Way Ahead The World Bank Amman, July 2005