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US$1.2 billion to Support Iraq Amid Challenging Economic Situation

The World Bank’s support for the current reform momentum in Iraq is very important at this critical time as the country grapples with long standing challenges....

A US$1.2 billion loan will support Iraq in strengthening fiscal stabilization and improving efficiency in the energy sector to help counter the effects of the drop in oil prices and rising security costs.

The World Bank Group’s Board of Directors acknowledged the Government of Iraq’s engagement in a rigorous reform program and approved the Emergency Fiscal Stabilization, Energy Sustainability and State-Owned Enterprise Transparency Development Policy Financing. The operation is aligned with the Government’s recovery blueprint for 2015-2018, that committs to reforms to achieve inclusive growth, efficient service delivery and improved social protection.

“The World Bank’s support for the current reform momentum in Iraq is very important at this critical time as the country grapples with long standing challenges in the financial sector, public financial management and energy efficiency and security,” said Ferid Belhaj, World Bank Director for the Mashreq Region.

The proposed operation will focus on reforms in three areas. Reforming the public wage system by reducing the highest salaries and increasing the lowest ones will improve expenditure allocation. There will also be reforms in public investment and debt management, and the pension scheme. Reducing gas flaring, expanding gas-to-power generation and reducing electricity subsidies will help support more  sustainable energy supply. A third area of reform focuses on addressing the lack of transparency among financial and non-financial state-owned enterprises.

The support to Iraq is very much in line with the World Bank’s strategy for the Middle East and North Africa, which was launched in October. This strategy builds on four pillars: Renewing the social contract in fragile states in the region; Regional cooperation; Resilience to refugee shocks; and Reconstruction and Recovery where needed. And to achieve these goals, calculated risk taking in countries such as Iraq is required. 

“The Development Policy Framework is a critical part of the Bank’s efforts to help address fragility and increase stability in Iraq and the broader Middle East and North Africa region,” said Eric Le Borgne, the World Bank’s Lead Economist for Iraq. 

With the US$1.2 billion DPF, the World Bank’s present engagement in Iraq rises to nearly US$2 billion, including US$355 million for the Transport Corridors Projects to improve transport connectivity and road safety, and US$350 million for the Emergency Operation for Development, which supports the reconstruction and rehabilitation of municipalities that have suffered recent damages from the ongoing conflict.    

 

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