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

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

The Storyline • The Economic Context • The World Bank in Iraq- Operational Context • Work to Date- The Iraq Reconstruction/Reform Agenda with the World Bank • How We Do Business • Some Lessons Learned • The Way Forward

Economic Context • Iraq has many resources- 3rd Largest Oil Reserves, 7 million labor force, abundant water • Successful transitions over the past year- • Interim Government and Transitional Administrative Law in June 04 • Elections for 275-member Transitional National Assembly in Jan 05 • Constitutional Referendum in October 05, Elections in end-05 • Several important measures since mid 03 • Donor Coordination and Iraqi Strategic Review Board • Central Bank Law, Trade Liberalization, Banking and Company Laws, etc. • WTO Observer Status, IMF Emergency Post-Conflict Assistance • National Development Strategy- Governance, PSD, Safety Nets • Recent Higher Committees on Economic Development, and Reconstruction

Economic Context • 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. • Reconstruction of infrastructure/basic services. • Security has affected reconstruction and diversification. Growth driven by oil. • GDP may increase by 7% in 05.GDP/capita will remain 25% of its level 25 years ago. • Oil is 70% of GDP and 98% of budget. • Oil production at 2 mbpd,exports of 1.5 mbpd. • Inflation down from %34 in 03 to 32% in 04. Still expected in double-digits.

Economic Context • Private 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/day • About 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) • 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 workers Bottom Line…Private Sector Will be the key driver for growth And employment

The Operational Context • Iraq is a founding member of the Bank • 6 Loans between 1950-1973, in arrears since 90’s • Return to Iraq in 2003, after 25 years- data collection and assessment of the economy • Joint UN-WB Needs Assessment • Madrid Conference (Oct 03)- WB promises $3-5 bn over coming years. First $500 mn in IDA credits • International Fund Facility for Iraq (IRFFI)- $1 bn of which $400 mn went to the WB window. • Trust Fund Operations guided by World Bank Interim Strategy for Iraq (January 04)

The Operational Context Context? Resolution 1483 and G7 requested international institution help International Community requested UN, WB to carry out Needs Assessment and set up TF WB-UN Needs Assessment Interim Strategy for WB Operations (Jan 04) Vehicle? ISRBIraqi Donor Coordination International Reconstruction Fund Facility for Iraq World Bank TF 9 Emergency Operations, Training of over 900 civil servants and policy support Outputs? Players? Iraqi Ministries World Bank Group UN and other Partners Intl and Local Private Sector

First WB Interim Strategy • Prepared end-January, based on Needs Assessment, and covers WB work until mid 05- a Second Strategy to follow • Uses Donor Funds until Bank accesses IDA/IBRD funds • In consultations with Iraqis, UN & donors • Focus on Iraqi implementation, with WB support and capacity building. • Three Pillars: • Emergency Operations (about $370 mn) • Build capacity for Recipient Execution • Policy support

Elements of First Interim Strategy Cross-Sectoral. 3 Pillars: • Emergency Operations • Build Iraqi Institutional Capacity to absorb external funding, and implement policy reforms • Lay Groundwork for Medium Term Reconstruction & Development

Pillar 1: Emergency Operations • Restore urgent infrastructure/services • Building sustainable capacity: Iraqi Implementation (Ministry PMTs) • Other donors to leverage • Jump-starting economic activity • IFC and SME TF • MIGA looking into FDI • Community-based employment generation

Emergency Operations • Each project tries to spread assistance to governorates, depending on the availability of donor funds. • In total, Emergency Operations covering all the 18 Governorates.

Emergency Operations • Nine Emergency Operations (most began implementation in early 05) • One project (First Capacity Building) is completed and another eight projects underway- US$367 mn in assistance • First Capacity Building Project (US$3.6 million) – (completed) 600 Iraqi officials trained (completed). • Emergency Textbook Provision Project (US$40 million) –since mid-May 2004, 69 million textbooks for 6 million students in primary and secondary schools in 18 governorates for the 2004/05 school year. • Emergency School Construction Rehabilitation Project (US$60 million) –since October 2004, finances construction of new buildings for 110 existing primary and secondary schools, and major rehabilitation of about US$140 schools. 84 rehabs by September 05.

Emergency Operations • Second Capacity Building Project (US$7 million)– a follow-up to the successful First Capacity Building Project, over 350 trained to date. • Emergency Baghdad Water and Sanitation Project (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 Baghdad. • Emergency Water Supply and Sanitation and Urban Development Project (US$90 million)– water supply/sanitation in nine governorates; and urban reconstruction (roads, sidewalks, community centers, etc.). • Emergency Health and Rehabilitation Project (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 medicines. • First Private Sector Development Project (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 promotion, SME reform; direct support to private firms to access finance and foreign markets. • Emergency Community Infrastructure Project (US$20 million) –labor-intensive water supply/sanitation, and irrigation rehab in rural areas throughout Iraq using community involvement.

Pillar 2: Institutional Capacity and Training • First Use of Donor Funds (EC) • Support/Training to Iraqis Ministries to implement reconstruction directly- PMT • Emphasis on procurement, Financial Management and environmental/social safeguards • Capacity building to the public and private sectors, NGOs, on policy issues: PSD, Education, Health, Telecom, infrastructure reform, gender, Iraqi women businessmen workshop and study tour, etc. • Training on Data Collection and Dissemination. • Sector Specific Training, Internships, Study Tours. • Training in Amman, Beirut, Canada, Washington, UK, Tunisia, Egypt, Ireland, and Baghdad through VCs

Theme 3: Policy SupportLaying the Basis for Medium-Term Development Three Cornerstones, one goal: Iraq back on the path of growth and wealth: • A Sustainable and Open Economy that Relies on Iraq’s Private Sector- Macro Stabilization & Transition to a Market Economy. • A Supporting & Transparent Public Sector that Encourages Private Sector Resources and Initiative to their Maximum, and Ensures Public Welfare- Public Sector Reform. • A System to Ensure that the Poor and Vulnerable do not Lose Out from the Reforms Above- Poverty, Social Protection & Social Development WB discussions on Policy Work with MOF, MOPDC, CBI, MMPW, MOH, MOED, MOLSA, etc.

Theme 3: Policy Support • 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 • 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:IFC and MIGA • International Finance Corporation (IFC) • Co-located with the WB Iraq Office, has begun investments in 1 Iraqi bank, in partnership with international banks. Others on the way* • Small Business Financing Facility, to finance micro and small businesses and TA to banks (a bank has been identified) • The Private Enterprise Partnership for the Middle East (PEP-MENA) has trained over 250 private bankers • Multilateral Investment Guarantee Association (MIGA) • Iraq is still not a member of MIGA, but talks have begun to join • Will provide investors with some insurance against non-commercial risks • Will provide TA to Govt on Investment Promotion • Can also provide on-line services on investment opportunities in Iraq * For additional IFC info/contacts: www.ifc.org or through WB website

How We Do Business • Iraqi institutions implement WB-financed projects in Iraq- Bank appraises and supervises only • Procurement for WB-financed projects through the Ministries • WB International and National Competitive Bidding Procedures • Learning by Doing • Ministry Project Management Teams PMT trained, before and on-the-job, in procurement, financial management • Same procedures for Trust Funds and Loans/Credits- consistency • Avoid overlap by getting ISRB approval of projects • TF Disbursements are copied to MOF to ensure budgeting. All future loans/credits reflected in budget • Coordination with donors directly, with heavy reliance on ISRB and Iraqi priorities

How We Do BusinessThe Project Cycle

How We Do BusinessMaking It Work • Reliance on local implementation by Iraqis (PMTs) • Interim Iraq Office in Amman • Core Iraqi senior staff and consultants in the field • Videoconference Facilities (International Zone, MOF, MOP, CBI, linked to other facilities in MMPW, MOE, etc.) • Simple project design…focusing on the basics • Coordination with UN, USAID, DFID, PCO, JBIC and other partners…leveraging each other

Some Lessons Learned • Simplicity- Focusing on the Basics • Sequence Training with Recipient Implementation- Reliance on Local Implementation • Innovation- use of local consultancies, Interim Office, local staff • Need for realism in project timelines and disbursements • Focus on practical implementation arrangements very early on • Balance between Speed and Sustainability- Focus on the WB’s experience in Institutional Development • Coordination with donors is key

The Storyline • The Economic Context • The World Bank in Iraq- Operational Context • Work to Date- The Iraq Reconstruction/Reform Agenda with the World Bank • How we do Business • The Way Forward

The Way Forward • Government cleared arrears to WB in December 04 • Request for $500 mn in World Bank IDA Credits • Concessionary loans: 20 years, .5% commitment fee, .75% service fee • MOF counterpart on IDA • WB in discussions with Government on use of Funds • Second Interim Strategy (for next 2 years) for discussion by Board of Directors in the summer • Guides all future WB work • Covers both $500 in IDA credits and additional Donor funds • Builds on experience in Iraq, focuses on simplicity/flexibility • 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 mechanisms, to increase absorption and leverage other donor funds

After All, the Remaining Needs Are Great…A few cases * Based on 2003 UN/WB Needs Assessment, US Supplemental figures, the WB Interim Strategy and UN plans for CY04.

Remaining Needs Are Great…(continued…)

Where to Go for Information… www.worldbank.orgwww.irffi.org

Thank You The World Bank

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