U.S. Appropriations Primarily Support Iraqi Reconstruction While Iraqi Funds Support Iraqi Government Operations

The United States is the primary contributor to rebuilding and stabilization  efforts in Iraq. These funds were used for activities that included  infrastructure repair of the electricity, oil, and water and sanitation sectors;  infrastructure repair, training, and equipping of the security and law  enforcement sector; and CPA and U.S. administrative expenses. 1). Some International Funds Have Been Provided for Reconstruction, but Pledges are Mostly Loans

International donors have provided about $2.7 billion in multilateral and  bilateral grants, of the pledged $13.6 billion, for reconstruction activities;  however, most of the pledged amount is in the form of loans that largely  have not been accessed by the Iraqis. According to Iraq’s National Development Strategy, the 2005 Iraqi budget  planned for nearly $28 billion in expenditure. In addition to subsidy expenditures, Iraq has  planned for capital investment levels of 21 percent from 2005 to 2007. However, Iraq may need more funding than currently available to  meet the needs and demands of the country. The condition of the  infrastructure was further exacerbated by post-2003 conflict looting and  sabotage. In addition, initial assessments assumed  reconstruction would take place in a peace-time environment and did not  include additional security costs. Security, Measurement, and Sustainability Challenges in Rebuilding and Stabilizing Iraq

The United States faces three key challenges in stabilizing and rebuilding  Iraq. First, the unstable security environment and the continuing strength  of the insurgency have made it difficult for the United States to transfer  security responsibilities to Iraqi forces and engage in rebuilding efforts. Second, inadequate performance data and measures make it difficult to  determine the overall progress and impact of U.S. reconstruction efforts. Third, the U.S. reconstruction program has encountered difficulties with  Iraq’s inability to sustain new and rehabilitated infrastructure projects and  to address maintenance needs in the water, sanitation, and electricity  sectors. Strength of the Insurgency Has Made It Difficult to Transfer Security Responsibilities to Iraqi Forces and Engage in Rebuilding Efforts

Over the past 2 years, significant increases in attacks against the coalition  and coalition partners have made it difficult to transfer security  responsibilities to Iraqi forces and engage in rebuilding efforts in Iraq. GAO’s forthcoming classified report on Iraq’s security situation will provide  further information and analysis on the challenges to developing Iraqi  security forces and the conditions for the phased draw down of U.S. and  other coalition forces. Security Situation Has Affected Rebuilding Efforts

The security situation in Iraq has affected the cost and schedule of  reconstruction efforts. Limited Performance Data and Measures and Inadequate Reporting Present Difficulties in Determining Progress and Impact of Rebuilding Effort

State has set broad goals for providing essential services, and the U.S.  program has undertaken many rebuilding activities in Iraq. As of June 2005, approximately $52 million of the $200 million in completed  large-scale water and sanitation projects either were not operating or were  operating at lower capacity due to looting of key equipment and shortages  of reliable power, trained Iraqi staff, and required chemicals and supplies. In September 2005, we recommended that the Secretary  of State address the issue of sustainability in the water and sanitation  sector. Finally, the United States must ensure that the billions of dollars it has  already invested in Iraq’s infrastructure are not wasted. We will continue to examine the challenges the United States faces in  rebuilding and stabilizing Iraq. This is a work of the U.S. government and is not subject to copyright protection in the  United States.
Why GAO Did This Study

The United States, along with coalition partners and various international organizations, has undertaken a challenging and costly effort to stabilize and rebuild Iraq following multiple wars and decades of neglect by the former regime. This enormous effort is taking place in an unstable security environment, concurrent with Iraqi efforts to complete a constitutional framework for establishing a permanent government. The United States' goal is to help the Iraqi government develop a democratic, stable, and prosperous country, at peace with itself and its neighbors, a partner in the war against terrorism, enjoying the benefits of a free society and a market economy. In this testimony, GAO discusses (1) the funding used to rebuild and stabilize Iraq and (2) the challenges that the United States faces in its rebuilding and stabilization efforts. This statement is based on several reports GAO has issued to the Congress over the past three months. In July, we issued two reports on (1) the status of funding and reconstruction efforts in Iraq and (2) the use of private security providers in Iraq. We issued two additional reports in September on (1) U.S. reconstruction efforts in the water and sanitation sector and (2) U.S. assistance for the January 2005 Iraqi elections. Finally, we expect to issue shortly a report on U.S. efforts to stabilize the security situation in Iraq (a classified report). This statement includes unclassified information only.

What GAO Found

The United States is the primary contributor to efforts to stabilize and rebuild Iraq. Since 2003, the United States has made available about $30 billion for activities that include the construction and repair of infrastructure, procurement of equipment, and training and equipping of Iraqi security forces. International donors have pledged $13.6 billion in reconstruction funds (from 2004 through 2007), of which about $2.7 billion was provided in multilateral and bilateral grants through August 2005. However, most of the pledged amount''about $10 billion--is in the form of loans on which the Iraqi government largely has not yet drawn. Iraqi funds have primarily supported the country's operating budget, with some focus on capital improvement projects. For 2005, Iraq planned for about $28 billion in expenditures--largely supported by oil proceeds--to fund salaries, pensions, ministry operations, and subsidies. It is likely that Iraq may need more funds than currently available due to the severely degraded infrastructure, post conflict looting and sabotage, and additional security costs. The United States faces three key challenges in stabilizing and rebuilding Iraq. First, the security environment and the continuing strength of the insurgency have made it difficult for the United States to transfer security responsibilities to Iraqi forces and to engage in rebuilding efforts. The security situation in Iraq has deteriorated since June 2003, with significant increases in attacks against the coalition and the coalition's partners. Second, inadequate performance data and measures make it difficult to determine the overall progress and impact of U.S. reconstruction efforts. The United States has set broad goals for providing essential services in Iraq, but limited performance measures present challenges in determining the overall progress and impact of U.S. projects. Third, the U.S. reconstruction program has encountered difficulties with Iraq's ability to maintain new and rehabilitated infrastructure projects and to address maintenance needs in the water, sanitation, and electricity sectors. For example, as of June 2005, U.S.-funded water and sanitation projects representing about $52 million of approximately $200 million spent on completed projects were inoperable or were operating at lower than normal capacity. The United States has made a significant investment in the rebuilding and stabilization of Iraq. To preserve that investment, the United States must address these critical challenges.