A New World Bank Strategy for Iraq's reconstruction and economic development

April 2009 – A main challenge for Iraq is to mobilize and effectively use its own vast resources to improve the welfare of the Iraqi people and to rebuild its infrastructure in a sustainable manner through market-based reforms.

A new Interim Strategy Note (ISN) has been released by the World Bank, which outlines the World Bank's support and approach to assist Iraq with its development program over the period of 2009-11.

Iraq’s Current Challenges

Iraq has made important progress towards political and economic stabilization and macroeconomic performance has also improved.  However, the situation remains fragile.

The Government has succeeded in sharply reducing inflation and containing recurrent spending, while increasing capital expenditures to accelerate the recovery process.

High oil prices and - to a lesser extent – an increase in production produced an estimated US$70 billion of revenues in 2008, but the global financial crisis impacted the country, causing a deterioration in Iraq’s fiscal balance due to the declining trend in oil prices.

Unemployment remains extremely high and access to basic services severely limited. Electricity supply is unreliable and is far exceeded by demand; access to clean water and sanitation is the lowest in the Region.

Recent improvements in access to education and health services have not yet translated into significant welfare gains for the people of Iraq.

The World Bank's support

The ISN focuses on the approach the World Bank Group will take during FY09-11. The objective of the ISN is to help the Iraqi Government use its own resources more effectively to support private sector-led growth and deliver basic services.

The Strategy's three themes are: (i) Continuing to support ongoing reconstruction and socio-economic recovery; (ii) Improving management of public resources, human, natural, and financial; and (iii) Supporting policies and institutions that promote broad-based, private-sector-led growth. IFC and MIGA will also provide support to the creation of a healthy business climate.

The Bank’s program currently consists of about US$1 billion supporting reconstruction and recovery activities in areas such as education, health, roads, water supply and sanitation, electricity, private sector development and capacity building. Projects in banking and public financial management are under preparation. Under the ISN, up to US$500 million of IBRD lending could supplement the current portfolio. 

The Bank also has a program of Analytical and Advisory Assistance including capacity building, policy advice and economic and sector work in areas related to economic reform and transition; poverty safety nets and social development; and public sector governance.

To deliver tangible results more quickly and effectively, close attention will be paid on how this ISN will be implemented. The Bank will engage in a number of actions in order to strengthen its effectiveness in Iraq. They include: (i) enhancing the effectiveness of institution building and analytical and advisory activities; (ii) strengthening the implementation of the current portfolio; (iii) introducing more flexibility in the Bank’s implementation arrangements, including through an Annual Business Planning exercise - to be conducted in close consultation with the Iraqi counterparts - to identify specific activities; and (iv) fostering donor coordination.

The ISN benefited from extensive consultations with the Government of Iraq, the donor community, and other stakeholders, including representatives from private sector and civil society organizations.