World Bank Iraq Trust Fund External Review Prepared by Development Alternatives, Inc. March 31, 2006

2 International Reconstruction Fund Facility for Iraq (IRFFI) Model IRFFI was created in response to donor requests for a multi-donor, coordinated approach to financing rehabilitation and reconstruction projects in Iraq.

3 World Bank Strategy for Iraq The World Bank’s core objective is to help Iraq develop institutional frameworks and systems to promote the effective and transparent use of resources – to promote stability, good governance, and economic growth. The ITF allowed the Bank to participate in Iraq’s reconstruction, combining rehabilitation with medium- and long-term institution building, even before IDA loans could be provided to Iraq.

4 IRFFI’s Multi-Donor Trust Fund Model The IRFFI model was designed to: Mobilize resources rapidly; Create common governance structures; Coordinate rehabilitation activities; Reduce transaction costs; Promote information-sharing.

5 Rapid Resource Mobilization & Response Donors deposited funds promptly into the Iraq Trust Fund (ITF): Within the first 6 months, US$371 million (93% of donor pledges) were deposited into the ITF. Within the first year, US$392 million (99% of donor pledges) were deposited into the ITF. The speed of resource mobilization exceeded typical multi-donor trust fund experiences.

6 Rapid Resource Mobilization & Response ITF projects were designated for fast-track processing according to Bank procedures for emergency operations. Bank projects normally take 15 months to approve. Within 9 months of the trust fund activation, 9 emergency operations were approved, legally obligating about 93% of ITF resources to Iraq. ITF grant funding was provided to Iraq promptly.

7 Rapid Resource Mobilization & Response Pace of disbursements – payments made for goods, services, works delivered – has been affected by: Bank’s lack of recent involvement in Iraq; Iraq’s inexperience with international organizations; Iraqi-implementation of competitive bidding procedures; Portfolio characteristics (e.g. the majority of ITF grants finance civil works and goods for large reconstruction projects); Frequent changes in government and turnover of ministry staff; Volatile security situation.

8 Rapid Resource Mobilization & Response Overall, the pace of project implementation and disbursement has been expeditious under difficult circumstances.

9 Governance Structure & Coordination IRFFI created common governances structure to promote a coordinated response, including: Secretariat function, to be located in Baghdad, and serve as the single focal point for information. Donor Committee, to meet every 6 months, to endorse overall priorities and provide strategic guidance. Facility Coordination Committee, to meet monthly in Baghdad and review activities of the two trust funds. Iraqi Strategic Review Board (ISRB) is charged with reviewing project proposals to ensure projects are responsive to Iraq’s priorities and to avoid duplication of activities.

10 Governance Structure & Coordination Due to the continued volatile situation, the innovative organizational arrangements have not been adequately tested.

11 Governance Structure & Coordination Despite missed opportunities of joint governance structures, Joint UN/World Bank website provides comprehensive source of information; Effective coordination exists at the working level among project teams of World Bank and UN; While several donors may work in same areas, projects are complementary, varying in scope, geographical coverage, or implementation method.

12 Governance Structure & Coordination World Bank methods of operation are distinctly different from other donors. The World Bank preference for Iraqi project execution: Puts Iraqis “in the driver’s seat”; and Inherently builds capacity by providing hands-on experience managing resources and development projects.. Thus, even when donors work in same areas, different implementation methods have generated different results.

13 Governance Structure & Coordination Although IRFFI may not have clarified roles of UN and WB along lines of “comparative advantage”… … Perhaps in situations of vast needs the potential of all organizations should be exploited (and not constrained by comparative advantage).

14 Governance Structure & Coordination With political progress and improved security, the governance structures created for IRFFI could yet promote substantive cooperation and realize significant benefits.

15 Transaction Costs The multi-donor trust fund approach: Creates one window to access funding provided by many donors; Allows smaller donors and those without bilateral programs to participate in rebuilding efforts in Iraq; Provides one “platform” and set of procedures for project execution; Minimizes security costs, allowing a larger share of donor contributions to be directed to Iraq. The ITF reduces transaction costs for Iraq and for donors.

16 ITF Due Diligence Measures ITF portfolio is subject to risks, including: Frequent staff changes in ministries; Difficult security conditions, preventing on- site supervision visits; Capacity limitations of ministries and inexperience with modern project management procedures.

17 ITF Due Diligence Measures To mitigate risks, the World Bank: Employs local staff to support ministries and monitor project implementation; Trains PMTs intensely; Interacts daily with PMT staff; Undertakes full range of Bank project review and quality control procedures. The employment of the Fiduciary Monitoring Agent is crucial to determine the effectiveness of due diligence efforts.

18 Summary of Conclusions Although several aspects of the model could not be fully implemented, Iraq has benefited from the: Rapid mobilization of donor funds; Participation of donors unable to mount bilateral programs; Involvement of the World Bank early in the reconstruction program, and the creation of ministry “platforms” for effective resource management; Comprehensive website to provide information to donors, vendors, and the general public; Creation of a unified channel for Bank interaction with UN agencies.

Thank You