Country Partnership Strategy for Iraq

Transcription

1 Country Partnership Strategy for Iraq Since 2003, Iraq has shown that it can make significant development progress, but also that longstanding challenges continue to hold it back. Following peaceful elections in 2009, government formation was slow due to the need to reach agreement on a governing coalition. Between 2005 and 2008, the country was beset by a violent sectarian conflict which claimed the lives of thousands of Iraqis. The US troop withdrawal in December 2011 marked a turning point for Iraq. On the economic front, Iraq has been successful in reducing inflation and achieving economic growth but, at the same time, it failed to deal decisively with corruption, inequality, political disruption, and other vulnerabilities which hold the country s progress back. Iraq is now attempting to recover from the setbacks of the years of conflict and civil strife, but the principal goal of its government and its people job creation and adequate service delivery remains elusive. In addition, progress in achieving the MDGs is slow, and there have been reversals on some indicators. Governance also remains a key challenge, with Iraq scoring at the bottom ranks on rule of law and control of corruption. 2. In 2010, the Government prepared a long-term development strategy, the National Development Plan (NDP) , which aims to provide a framework for the sustainable development of Iraq. The strategy has an economic pillar that aims to achieve GDP growth of 9.38 percent per annum; to generate 3 to 4.5 million new jobs; to diversify the economy away from oil and into agriculture, industrial sectors, and tourism; to create a stronger role for the private sector, both in terms of investment and creating job opportunities; to reduce poverty rates by 30 percent from the 2007 levels by focusing on comprehensive rural development, job creation, and provision of basic services such as education and healthcare services, particularly for vulnerable groups such as youth and women; to focus on sustainable development that balances economic, social, and environmental considerations, thereby using available natural resources in a sustainable way; and to strengthen the role of local governments to take charge of local economic development and delivery of services to the their people. The Poverty Reduction Strategy (PRS), developed with the support of the World Bank and adopted in January 2009, complements the NDP in its focus on poverty. Both strategies share a common goal of reducing poverty by 30 percent, from 23 percent in 2009 to 16 percent in 2014, through higher incomes and better health, education, social protection and housing services for the poor. 3. The World Bank Group has been engaged in Iraq since 2004 through three Interim Strategy Notes. These Interim Strategies focused on supporting Iraq s reconstruction efforts, building the capacity of state institutions, and laying the foundation for long-term growth. The Bank s program has included significant analytic work, technical assistance and training, and investments across a range of sectors including infrastructure, health, education and social protection, as well as a Development Policy Loan supporting public financial management, pension reform, and financial sector reform. The project support was financed through about US$500 million from the multi-donor Iraq Trust Fund (ITF), and 1

2 US$500 million from a one time allocation from the International Development Association (IDA). 4. The Bank Group is shifting to a new modality of engagement with Iraq. The Bank s nearly US$1 billion portfolio in Iraq will come to an end during the CPS period. Yet Iraq s institutional development needs in terms of capacity for policy formulation, planning and implementation remain significant and challenging. In the face of considerable institutional capacity limitations, Iraq faces great difficulties in effectively using the vast revenues generated by increasing oil production and prices. Oil production is projected to continue increasing to reach about six million barrels per day by end of this decade. The development challenge for Iraq is to build up its capacity to properly use its own substantial resources to the benefit of current and future generations, and to diversify its economy away from its full reliance on oil which is subject to price volatility and the inherent risks that that poses to creating good jobs for its population. This will require the World Bank Group to bring knowledge and best practices to help find practical solutions to Iraqi problems, and to move from transactional project assistance to support for institutional development, selective IBRD investments, analytical and advisory assistance (AAA) and reimbursable technical assistance. The Bank program aims to help Iraq leverage its own vast public resources and build effective public and private institutions needed to create jobs and deliver services. 5. The proposed Country Partnership Strategy of the World Bank Group is guided by three principles: (i) Building trust: The World Bank Group will ensure strong communication and transparency on its current and potential assistance program, and work closely with all new political actors to build trust. It will involve proactive sharing and disseminating of information on the Bank s program with the Government as well as with a broad range of other stakeholders (ii) Consultations and outreach: World Bank Group staff have already started engaging with opinion leaders, political parties, and youth movements. Efforts are being made to reach a wide range of stakeholders, including private sector operators, parliamentarian, and civil society organizations. (iii) Flexibility and responsiveness: The World Bank Group will focus on interventions that address the country s immediate needs and present an indicative program that best represents current judgment of where the Bank s comparative advantage is in providing technical and financial support. The three pillars of proposed engagement are: (i) (ii) (iii) strengthening state institutions to improve the management of financial resources; supporting economic diversification and sustainable growth; and improving the delivery of basic services and social protection 2

3 Pillar 1: resources Strengthening state institutions to improve the management of financial Weak institutional capacity is one of the most binding constraints to development in Iraq. Strengthening budget management is critical to ensure fiscal discipline, reduce waste and unproductive expenditures, and accelerate the country s reconstruction efforts. Building on the ongoing engagement in management of public finances, the World Bank Group will aim at supporting improvements in institutional capacity and governance through technical assistance to improve Government-wide systems and practices, public financial management, transparency in oil revenue management, particularly through the continuation of the ongoing Extractive Industry Transparency Index (EITI) program, and focused attention on governance issues at the sector level. The World Bank Group will also work with the Government on institutional reforms and capacity building to strengthen the state s oversight and control capabilities. Pillar 2: Supporting economic diversification and sustainable growth The World Bank Group will aim at supporting government efforts at diversification of the economy to create inclusive growth and jobs. Iraqi youth unemployment is particularly high. Iraq has a very low employment rate (only 38 percent of adult Iraqis are employed), and women face particular challenges in terms of economic opportunities. The public sector employs 32 percent of all working Iraqi adults and the job creating capacity of the hydrocarbons sector is very limited. The female labor force participation rate is only about 11 percent. Female unemployment is at 20 percent versus male unemployment at 14 percent (2008). Young people, aged 18 30, are Iraq s largest demographic group, but they have few economic opportunities. Youth unemployment remains high for both women and men: 30 percent for women and men aged (2008), a significant increase from 1990 when youth unemployment was around 7 percent for both young men and women. Youth, particularly from rural areas of the country, are trapped within communities where the quality of public education is poor, organized recreational opportunities are non-existent, and the unemployment rate for year-olds exceeds 35 percent. Idleness and a lack of information and effective awareness campaigns for youth also add to their exclusion from political and economic opportunities. The World Bank has recently completed a key report on Oil Revenue Management for Economic Diversification which will form the basis for further work on diversification and private sector development. The Bank is administering a Trust Fund on Private Sector Development focused on SOE reform and Public Private Partnerships. Importantly, the Bank will continue supporting the Government on financial sector reform through the ongoing technical assistance project. The Government has requested IBRD funding on trade and transport facilitation, which will be complemented by customs technical assistance. Analytic work and policy discussions on the investment climate include recommendations to enhance trade and foreign direct investments in Iraq; and on improving the regulatory framework for energy, notably gas. 3

4 The IFC plans to continue to support initiatives in the financial sector and ramp up advisory services. IFC will try to increase its focus on addressing needs of underserved groups to promote more broad based and equitable growth by: (i) increasing access to finance, especially affordable housing and micro- and small and medium enterprise finance, targeting women and youth; (ii) scaling up private investments in infrastructure, health and education sectors particularly through private-public- partnership mechanisms; (iii) providing training for small and medium enterprise development; and (iv) continuing to improve the investment climate by making regulation more efficient and effective. Pillar 3: Improve delivery of basic services The World Bank Group will help Iraq to improve delivery of its core public services through a combination of existing infrastructure investments and institutional capacity building. The Bank will continue its oversight of the ongoing projects in the portfolio, and there are indications of government interest in new lending operations in energy, transport and water infrastructure. The Bank Group will seek to help Iraq prepare and implement strategic plans in the critical energy, transport, and water sectors, as well as building the necessary capacity to plan and implement its investments. Additional initiatives would focus on policy dialogue in the many service sectors. In energy, this includes support for the Iraq National Energy Strategy (INES), as well as analytic work and technical assistance in the policy, strategy, governance and institutional development in the power and gas sectors, including the upcoming Gas Master System study. In transport, the World Bank Group plans to respond to government request for help with institutional reform and capacity building for transport infrastructure management, particularly in terms of transport access in relation to trade facilitation, and customs modernization. A comprehensive transport sector master plan and strategy (all modes of transport: rail, road, air, urban, including institutional, capacity building and TA needs) with an investment plan for the short, medium and long term including private sector involvement is currently under preparation. In water, the World Bank Group would continue helping Government prepare the analytic base for sustainable delivery of water services across the country, including an institutional and regulatory framework for the water supply and wastewater sector. Under existing programs, the Bank will continue to implement its programs in supporting rehabilitation of municipal water supplies, including in Baghdad. Additionally, provision of basic services via a community driven development approach which involves local government is widely used in other countries. The Bank has been supporting such an approach in the KRG, and could support the expansion of this work over the CPS period. The poor in Iraq suffer from shortages of housing as well as basic services. It is expected that the Bank will provide targeted technical and policy advice on a fee for service 4

5 basis in support of Government s large public housing investment program. The IFC is well positioned to mobilize financing to a number of projects in these key sectors as well. IFC will support South-South investments, particularly those existing clients interested in expansion to Iraq (e.g. from GCC, Jordan, and Turkey). Mobilization of additional funding from financial institutions, similar to what was achieved for earlier successful efforts to finance Iraq telecommunications backbone, will remain a key feature of IFC s FY12-15 strategy. The Bank Group will seek to help Government strengthen its capacity to deliver efficient services in health, education and social protection, while also improving targeting mechanisms to deliver support to the most vulnerable. In education/capacity building, the World Bank Group s support could include: (a) capacity building for the implementation of the national education strategy by supporting the government in the development of a implementation plan and the design of priority programs. This could lead to additional work in supporting Iraq to enhance the employability of graduates and the relevance of the acquired knowledge and skills to the labor market. A policy note would lay the foundation for targeted support in the important area of skills development and students readiness for the labor market. (d) skills development and readiness for the labor market. In health, the Bank Group focus will be on improvements in management capacity, and efficiency in the sector. In social protection, the World Bank Group could deepen its engagement on labor markets, poverty reduction support, social safety nets, and pension reforms, building on the robust available data that is now to allow for a deeper evidence-based dialogue on social protection reforms. 5