Background

Iraq’s national government was established after a constitutional  referendum in October 2005, followed by election of the first Council of  Representatives (Parliament) in December 2005, and the selection of the  first Prime Minister, Nuri Kamal al-Maliki, in May 2006. By mid-2006, the  cabinet was approved; the government now has 34 ministries responsible  for providing security and essential services—including electricity, water,  and education—for the Iraqi people. The Ministry of Finance is  responsible for tracking and reporting government expenditures. The Iraqi  government uses single-year budgeting, which generally requires that  funds be used by December 31, the end of Iraq’s fiscal year.
In March 2003, the United States—along with the United Kingdom,  Australia, and other members of the coalition—began combat operations  in Iraq. The original “coalition of the willing” consisted of 49 countries  (including the United States) that publicly committed to the war effort and  also provided a variety of support, such as direct military participation,  logistical and intelligence support, over-flight rights, or humanitarian and  reconstruction aid. Many nations and various international organizations  are supporting the efforts to rebuild Iraq through multilateral or bilateral  assistance. U.N. Security Council Resolution 1511 of October 16, 2003,  urged member states and international and regional organizations to  support the Iraq reconstruction effort. On October 23-24, 2003, an  international donors conference was held in Madrid, with 76 countries, 20  international organizations, and 13 nongovernmental organizations  participating.

	Limited Progress Has Been Made in National Reconciliation

Since GAO last reported on the status of the 18 Iraqi benchmarks in  September 2007, the number of enemy attacks in Iraq has declined. While  political reconciliation will take time, Iraq has not yet advanced key  legislation on equitably sharing oil revenues and holding provincial  elections. In addition, sectarian influences within the Iraqi ministries  continue while militia influences divide the loyalties of Iraqi security  forces.
The January 2007 U.S. strategy, New Way Forward in Iraq, is designed to  support Iraqi efforts to quell sectarian violence and foster conditions for  national reconciliation by providing the Iraqi government with the time  and space needed to help address differences among the various segments  of Iraqi society. The number of enemy-initiated attacks on civilians, Iraqi  Security Forces, and coalition forces increased dramatically after the  February 2006 bombing of the Golden Mosque in Samarra. The increase in  the number of monthly attacks generally continued through June 2007. To  help quell the violence, the United States deployed about 30,000 additional  troops to Iraq during the spring of 2007, bringing the total number of U.S.  military personnel to about 164,700 as of September 2007.
As depicted in figure 1, enemy-initiated attacks declined from a total of  about 5,300 in June 2007 to about 3,000 in September 2007. However, the  recent decrease in monthly attacks was primarily due to a decrease in the  number of attacks against coalition forces. Attacks against Iraqi Security  Forces and civilians have declined less than attacks against coalition  forces.
According to the Defense Intelligence Agency (DIA), the incidents  captured in military reporting do not account for all violence throughout  Iraq. For example, they may underreport incidents of Shi’a militias fighting  each other and attacks against Iraqi security forces in southern Iraq and  other areas with few or no coalition forces.
In addition, according to a UN report released October 15, 2007, the Iraqi  people and government continue to confront major challenges resulting  from the devastating effects of violence. The UN reported that widespread  insecurity continues to make national dialogue challenging, and increasing  levels of displacement are adding to an alarming humanitarian crisis.
The Iraqi government continues to make limited progress in meeting eight  legislative benchmarks intended to promote national reconciliation. As of  October 25, 2007, the Iraqi government had met one legislative benchmark  and partially met another. Specifically, the rights of minority political  parties in the Iraqi legislature were protected through existing provisions  in the Iraqi Constitution and Council of Representatives’ by-laws. In  addition, the Iraqi government partially met the benchmark to enact and  implement legislation on the formation of regions; this law was enacted in  October 2006 but will not be implemented until April 2008.
The benchmark requiring a review of the Iraqi Constitution has not yet  been met. Fundamental issues remain unresolved as part of the  constitutional review process, such as expanded powers for the  presidency, the resolution of disputed areas (such as Kirkuk), and power  sharing between federal and regional governments over issues such as the  distribution of oil revenue. In addition, five other legislative benchmarks  requiring parliamentary action have not yet been met. Figure 2 highlights  the status of the benchmarks requiring legislative enactment and  implementation.
Although State and Multinational Force-Iraq report progress in promoting  reconciliation at local levels such as Anbar province, at the national level,  sectarian factions within the Iraqi government ministries continue to  undermine reconciliation efforts. For example, ministries within the Iraqi  government continued to be controlled by sectarian factions and are used  to maintain power and provide patronage to individuals and groups.  According to an August 2007 U.S. interagency report, the withdrawal of  members of the Iraqi cabinet ended the Shi’a-dominated coalition’s claim  to be a government of national unity and further undermined Iraq’s already  faltering program of national reconciliation. In late August 2007, Iraq’s  senior Shi’a and Sunni Arab and Kurdish political leaders signed a unity  accord signaling efforts to foster greater national reconciliation. The  accord covered draft legislation on de-Ba’athification reform and  provincial powers laws, and established a mechanism to release some  Sunni detainees being held without charges. However, these laws have not  been passed as of October 25, 2007.
The Iraqi government has made limited progress in developing effective  and non-sectarian forces. Since 2003, the United States has provided about  $19.2 billion to train and equip about 360,000 Iraqi soldiers and police  officers, in an effort to develop Iraqi security forces, transfer security  responsibilities to them and to the Iraqi government, and ultimately  withdraw U.S. troops from Iraq. Iraqi security forces have grown in size  and are increasingly leading counterinsurgency operations. However, only  about 10 of 140 Iraqi army, national police, and special operations forces  are operating independently as of September 2007.
Several factors have complicated the development of effective and loyal  Iraqi security forces. First, the Iraqi security forces are not a single unified  force with a primary mission of countering the insurgency in Iraq. Second,  high rates of absenteeism and poor ministry reporting result in an  overstatement of the number of Iraqi security forces present for duty.  Third, sectarian and militia influences have divided the loyalties of Iraqi  security forces. According to the Independent Commission on the Security  Forces of Iraq, the Iraqi National Police is not viable and should be  disbanded. Fourth, Iraqi units remain dependent upon the coalition for  their logistical, command and control, and intelligence capabilities.

	United States and Iraq Lack Clear Strategies for Key Efforts

Three GAO reports illustrate a recurring problem with U.S. efforts in  Iraq—the lack of strategies with clear purpose, scope, roles and  responsibilities, and performance measures. Our reports assessing (1) the  National Strategy for Victory in Iraq (NSVI), (2) U.S. efforts to develop  planning and budget capacity in Iraq’s ministries, and (3) U.S. and Iraqi  efforts to rebuild Iraq’s energy sector show that clear strategies are needed  to guide U.S. efforts, manage risk, and identify needed resources.

		Developing a National Strategy for Iraq

The National Strategy for Victory in Iraq was intended to clarify the  President’s strategy for achieving overall U.S. political, security, and  economic goals in Iraq. In our 2006 report, we found that the strategy was  incomplete.  First, it only partially identified the agencies responsible for  implementing key aspects of the strategy. Second, it did not fully address  how the United States would integrate its goals with those of the Iraqis  and the international community, and it did not detail Iraq’s anticipated  contribution to its future needs. Third, it only partially identified the  current and future costs of U.S. involvement in Iraq, including maintaining  U.S. military operations, building Iraqi government capacity, and  rebuilding critical infrastructure. Without a complete strategy, U.S. efforts  are less likely to be effective. We recommended that the National Security  Council (NSC), along with DOD and State, complete the strategy by  addressing all six characteristics of an effective national strategy,  including detailed information on costs and roles and responsibilities.  NSC, State, and DOD did not comment on GAO’s recommendations. In  commenting on the report, State asserted that GAO misrepresented the  NSVI’s purpose—to provide the public a broad overview of the U.S.  strategy in Iraq, not to set forth details readily available elsewhere.  However, without detailed information on costs and roles and  responsibilities, the strategy does not provide Congress with a clear road  map for achieving victory in Iraq.
In addition, we have provided the Congress classified reports and briefings  on the Joint U.S. Embassy – Multinational Force-Iraq’s classified campaign  plan for Iraq.

		Building Capacity in Iraq’s Ministries

The development of competent and loyal Iraqi ministries is critical to  stabilizing and rebuilding Iraq. To help Iraq develop the capability of its  ministries, the United States has provided about $300 million between  fiscal years 2005 to 2007. The Administration has requested an additional  $255 million for fiscal year 2008 to continue these efforts. However, U.S.  efforts lack an overall strategy, no lead agency provides overall direction,  and U.S. priorities have been subject to numerous changes. U.S. efforts  also face four challenges that pose risks to their success and long-term  sustainability. First, Iraqi government institutions have significant  shortages of personnel with the skills to perform the vital tasks necessary  to provide security and deliver essential services to the Iraqi people.  Second, Iraq’s government confronts significant challenges in staffing a  nonpartisan civil service and addressing militia infiltration of key  ministries. Third, widespread corruption undermines efforts to develop  the government’s capacity by robbing it of needed resources. Fourth,  violence in Iraq hinders U.S. advisors’ access to Iraqi ministries, increases  absenteeism among ministry employees, and contributes to the growing  number of professional Iraqis leaving the country.
Without a unified U.S. strategy that clearly articulates agency roles and  responsibilities and addresses the risks cited above, U.S. efforts are less  likely to succeed. We recommended that the State Department complete  an overall integrated strategy for U.S. capacity development efforts.  Congress should also consider conditioning future appropriations on the  completion of the strategy. State recognized the value of such a strategy  but expressed concern about conditioning further capacity development  investment on completion of such a strategy.

		Reconstructing Iraq’s Energy Sectors

The weaknesses in U.S. strategic planning are compounded by the Iraqis’  lack of strategic planning in its critical energy sector. As we reported in  May 2007, it is difficult to identify the most pressing future funding needs,  key rebuilding priorities, and existing vulnerabilities and risks given the  absence of an overarching strategic plan that comprehensively assesses  the requirements of the energy sector as a whole. While the Iraqi  government has crafted a multiyear strategic plan for Iraq’s electricity  sector, no such plan exists for the oil sector. Given the highly  interdependent nature of the oil and electricity sectors, such a plan would  help identify the most pressing needs for the entire energy sector and help  overcome the daunting challenges affecting future development prospects.  For fiscal years 2003 to 2006, the United States made available about $7.4  billion and spent about $5.1 billion to rebuild Iraq’s oil and electricity  sectors. However, production in both sectors has consistently fallen below  U.S. program goals of 3 million barrels per day and 6,000 megawatts of  electrical peak generation capacity.
Billions of dollars are still needed to rebuild, maintain, and secure Iraq’s  oil and electricity infrastructure, underscoring the need for sound strategic  planning. The Ministry of Electricity’s 2006-2015 Electricity Master Plan  estimates that $27 billion will be needed to reach its goal of providing  reliable electricity across Iraq by 2015. According to DOD, investment in  Iraq’s oil sector is “woefully short” of the absolute minimum required to  sustain current production, and additional foreign and private investment  is needed. Moreover, U.S. officials and industry experts estimate that Iraq  would need $20 billion to $30 billion over the next several years to reach  and sustain a crude oil production capacity of 5 million barrels per day.  We recommended that the Secretary of State, in conjunction with relevant  U.S. agencies and international donors, work with Iraqi ministries to  develop an integrated energy strategy. State commented that the Iraqi  government, not the U.S. government, is responsible for taking action on  GAO’s recommendations. We believe that the recommendations are still  valid given the billions made available for Iraq’s energy sector and the U.S.  government’s influence in overseeing Iraq’s rebuilding efforts.

	Iraqi and International Contributions Have Played a Limited Role in Rebuilding Iraq

From the onset of the reconstruction and stabilization effort, the U.S.  strategy assumed that the Iraqis and the international community would  help finance Iraq’s development needs. However, the Iraqi government has  a limited capacity to spend reconstruction funds, which hinders its ability  to assume a more prominent role in rebuilding Iraq’s crumbling  infrastructure. The international community has provided funds for Iraq’s  reconstruction, but most of the funding offered has been in the form of  loans that the Iraqis have not accessed.

		Iraqi Government Has Spent a Small Portion of Its Funds on Reconstruction

The government of Iraq allocated $10 billion of its 2007 revenues for  capital projects and reconstruction, including capital funds for the  provinces based on their populations. However, available data from the  government of Iraq and analysis from U.S. and coalition officials show  that, while 2007 spending has increased compared with 2006, a large  portion of Iraq’s $10 billion in capital projects and reconstruction budget  will likely go unspent through the end of this year. Iraq’s ministries, for  example, spent only 24 percent of their 2007 capital budgets through mid- July 2007.
U.S. government, coalition, and international agencies have identified a  number of factors that affect the Iraqi government’s ability to spend  capital budgets. In addition to the poor security environment and “brain  drain” issues, U.S. and foreign officials also noted that weaknesses in Iraqi  procurement and budgeting procedures impede completion of capital  projects. For example, according to the State Department, Iraq’s  Contracting Committee requires about a dozen signatures to approve  projects exceeding $10 million, which slows the process.
As a possible reflection of Iraq’s difficulty in spending its capital budgets,  Iraq’s proposed 2008 capital budget declines substantially (57 percent)  from 2007 (see table 1).
As a percentage of its overall budget, Iraq’s capital expenditures will  decline from 24 percent in 2007 to 12 percent in 2008. We are conducting a  review of U.S. efforts to help Iraq spend its budget and will issue a  separate report at a later date.

		International Donor Contributions

As of April 2007, international donors have pledged about $14.9 billion in  support of Iraq reconstruction. In addition, some countries exceeded their  pledges by providing an additional $744 million for a total of about $15.6  billion, according to the State Department. Of this amount, about $11  billion is in the form of loans. As of April 2007, Iraq had accessed about  $436 million in loans from the International Monetary Fund. The remaining  $4.6 billion is in the form of grants, to be provided multilaterally or  bilaterally; $3 billion of that amount has been disbursed to Iraq. See  appendix I for pledges made at Madrid and thereafter for Iraq  reconstruction. In addition, 16 of the 41 countries that pledged funding for  Iraq reconstruction also provided troops to the multinational force in Iraq.
In addition to funds, some countries also contribute troops to the U.S.-led  coalition. As of September 2007, 26 countries were contributing 12,300  troops to multinational forces in Iraq. Compared with the 164,700 forces  from the United States, other coalition countries represent about 7 percent  of Multinational Forces in Iraq. From December 2003 through September  2007, the number of non-U.S. coalition troops decreased from 24,000 to  12,300 and the number of coalition nations contributing troops to military  operations decreased from 33 to 26. See appendix II for a comparison of  U.S and coalition troops from December 2003 through September 2007.

	Conclusion

As this committee is called upon to provide more resources to help  stabilize and rebuild Iraq, continued oversight is needed of the key issues  highlighted in today’s testimony. While U.S. troops have performed  courageously under difficult and dangerous circumstances, the continued  violence and polarization of Iraqi society as well as the Iraqi government’s  continued difficulties in funding its reconstruction needs diminishes the  prospects for achieving current U.S. security, political, and economic goals  in Iraq.
Of particular concern is the lack of strategic plans to guide U.S. and Iraqi  efforts to rebuild and stabilize the country. Our assessment of the U.S.  strategy for Iraq and recent efforts to build central ministry capacity show  that U.S. planning efforts have been plagued by unclear goals and  objectives, changing priorities, inadequate risk assessments, and uncertain  costs. Weaknesses in U.S. strategic planning are compounded by the lack  of strategic planning in Iraq’s energy sector, the sector that provides the  most government revenues.
Madam Chair this concludes my statement. I would be pleased to answer  any questions that you or other Members may have.
For questions regarding this testimony, please contact me on (202) 512- 8979 or christoffj@gao.gov. Other key contributors to this statement were  Stephen Lord, David Bruno, Thomas Costa, Lynn Cothern, Mattias Fenton,  Muriel Forster, Lisa Helmer, Dorian Herring, Patrick Hickey, Bruce  Kutnicky, Tetsuo Miyabara, Judith McCloskey, and Mary Moutsos.

Appendix I: Donor Pledges for Iraq Reconstruction (in thousands)

Appendix II: U.S. and Coalition Troops in Iraq (in thousands)

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Summary:
Why GAO Did This Study

Since 2003, the Congress has obligated nearly $400 billion for U.S. efforts in Iraq, of which about $40 billion has supported reconstruction and stabilization efforts. Congressional oversight of this substantial investment is crucial as the Administration requests additional military and economic funds for Iraq. This testimony summarizes the results of recent GAO audit work and proposes three areas for which continued oversight is needed: (1) progress in improving security and national reconciliation, (2) efforts to develop clear U.S. strategies, and (3) Iraqi and international contributions to economic development. We reviewed U.S. agency documents and interviewed agency officials, including the departments of State, Defense, and Treasury; and the U.S. Agency for International Development; the UN; and the Iraqi government. We also made multiple trips to Iraq as part of this work.

What GAO Found

Since GAO last reported in September 2007, on the status of the 18 Iraqi benchmarks, the number of enemy attacks in Iraq has declined. While political reconciliation will take time, Iraq has not yet advanced key legislation on equitably sharing oil revenues and holding provincial elections. In addition, sectarian influences within Iraqi ministries continue while militia influences divide the loyalties of Iraqi security forces. U.S. efforts lack strategies with clear purpose, scope, roles, and performance measures. The U.S. strategy for victory in Iraq partially identifies the agencies responsible for implementing key aspects of the strategy and does not fully address how the United States would integrate its goals with those of the Iraqis and the international community. U.S. efforts to develop Iraqi ministry capability lack an overall strategy, no lead agency provides overall direction, and U.S. priorities have been subject to numerous changes. The weaknesses in U.S. strategic planning are compounded by the Iraqi government's lack of integrated strategic planning in its critical energy sector. The U.S. strategy assumed that the Iraqis and international community would help finance Iraq's reconstruction. However, the Iraqi government has limited capacity to spend reconstruction funds. For example, Iraq allocated $10 billion of its revenues for capital projects and reconstruction in 2007. However, a large portion of this amount is unlikely to be spent, as ministries had spent only 24 percent of their capital budgets through mid-July 2007. Iraq has proposed spending only $4 billion for capital projects in 2008, a significant reduction from 2007. The international community has pledged $15.6 billion for reconstruction efforts in Iraq, but about $11 billion of this is in the form of loans.