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MADRID, October 2, 2003 – The Core Group on Iraq -- the United Arab Emirates, the United States, the European Union and Japan-- in cooperation with the UN, World Bank and IMF has discussed a Joint Iraq Needs Assessment, which was initiated in Iraq soon after major combat ended. The Assessment was undertaken by the United Nations Development Group (UNDG) and the World Bank Group with assistance from the IMF.
The purpose of the assessment is to inform the Donor Conference in Madrid on October 23-24, 2003. This conference will seek funding from the donor community to address priority reconstruction and rehabilitation needs, focusing on both urgent and medium-term needs for supporting sustainable development.
The assessment covers fourteen priority sectors and three cross-cutting themes, as agreed among the international community at the Technical Reconstruction Meeting in New York on June 24, 2003. In addition to Iraqi expertise, the work benefited from significant inputs from the Coalition Provisional Authority (CPA), several NGOs and a number of experts from the European Union, the European Commission, Japan, and Australia.
The assessment is based on the best possible data available at the time. Overall security and travel constraints, the tragic events and subsequent repercussions of the bombing of the UN Headquarters in Baghdad, the lack of primary sources and significant time constraints all made systematic data collection extremely difficult. Ongoing and planned consultations with Iraqi officials and civil society groups that are critical for ensuring Iraqi ownership of the assessment’s findings were also affected.
To adjust partially for this, Bank, IMF and UN staff held intensive discussions on the draft assessment, and in particular the investment and policy priorities it contains, with Iraqi representatives in Dubai during the Annual Meetings of the World Bank and IMF during the week of September 21, 2003. Those present included representatives of the Governing Council and other senior Iraqi officials along with several officials from the CPA. This report reflects the outcome of these consultations.
Reconstruction Needs Iraq’s overall reconstruction needs today are vast and are a result of nearly 20 years of neglect and degradation of the country’s infrastructure, environment and social services. Public resources were diverted to support the military and the ruling regime’s power; poor economic and policy decisions took a toll; and conflict and international sanctions all combined to erode the standard of living for ordinary Iraqis. Development priorities must include (i) strengthening institutions of sovereign, transparent and good government; (ii) restoring critical infrastructure and core human services destroyed and degraded by years of misrule and conflict; and (iii) supporting an economic and social transition that provides both growth and social protection.
The assessment estimates the overall stock of reconstruction needs over the period 2004-2007 in the fourteen priority sectors, to be on the order of US$36 billion. In addition, the CPA has separately estimated that there are some $20 billion needed in critical sectors not covered by the World Bank/UN assessment, including security and oil. While the figures in the assessment reflect the best estimates of the likely needs for the immediate and medium-term, the actual disbursement – that is, the expenditure – of funds is much harder to predict, because it depends on the security situation, the capacity of Iraqi institutions to plan and implement projects, and the state of infrastructure and energy services. Experience by the Bank in other post-conflict countries shows that constraints to reconstruction are often not due to a lack of funds, but rather to difficulties in developing and implementing time-bound investment programs according to established international procedures. Given the massive size and scope of the reconstruction needs in Iraq, it can be expected that initial disbursement rates will be low while local capacity is built, but will increase rapidly over time as institutions are developed and experience is gained.
In addition, the assessment notes that not all of the identified needs may require external financing. Already in 2004, about $1 billion of these needs are covered by ongoing contracts under the UN oil-for-food program. Beyond 2004, it is expected that more of the investments could be covered by Iraqi government oil and tax revenues or private sector financing, diminishing the need for external donor support. This is based on the assumption that, in a stable environment, oil productivity and output will increase with the investment that takes place, general economic recovery will result in increasing direct and indirect tax revenues, and an improved investment climate will result in significant financing from both domestic and international private investors.
Finally, the assessment notes that it is currently not possible to predict offsetting expenditures on principal and interest payments on Iraq’s very sizeable external debt.
These figures represent the estimate by the CPA of needs in sectors outside of the UN/World Bank Assessment.