Violence stalls reconstruction

Iraq: Up to 50% of the funds allocated to Iraq for reconstruction are being lost in security costs, according to an economic review by the International Monetary Fund (IMF). Insurgent violence in the country is also delaying reforms and the start of many reconstruction projects.

“The lack of a secure environment has impeded the effectiveness of reconstruction spending, with contractors and donors reporting security and insurance outlays in the range of 30 to 50% of total costs,” the report said.

Grant—financed reconstruction in Iraq is falling a long way short of expectations. According to the IMF, only US$ 103 million of the US$ 1 billion deposited in the International Reconstruction Fund Facility for Iraq was disbursed in 2004.

Adam Bennett, the IMF's assistant director for the Middle East and Central Asia said, “This reflects the difficulty of implementing projects in the current circumstances in Iraq. This has considerably slowed up the ability to disburse related funds, and this obviously is connected to the slow pace of reconstruction.

“The other problem is that a higher proportion of these resources have to go into providing security to protect the implementation of these projects, leaving less resources for the actual projects themselves. We expect, again, if the security situation improves, that the pace of implementation of projects and the disbursement of grants will pick up.”

Despite these problems, the IMF estimates that Iraq's GDP grew +51% last year thanks to increased oil exports and the rise in oil prices. However, this growth is being offset by high inflation – put at +37% in the year to June 2005. Unemployment is also a problem, and is currently thought to be running at 37%.