CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

PAPER

JANUARY 2004

Paying for

Iraq’s

Reconstruction

CBO

CBO

A

P A P E R

Paying for Iraq’s

Reconstruction

January 2004

The Congress of the United States O Congressional Budget Office
Note

Numbers in the text and tables of this paper may not add up to totals because of rounding.
Preface

Estimates of the cost of rebuilding Iraq after the overthrow of Saddam Hussein’s

regime range from $50 billion to $100 billion. In recent months, U.S. lawmakers have provided more than $18 billion in grants to assist in that reconstruction. Other countries and

organizations have pledged a similar amount, mostly in the form of loans. 

This Congressional Budget Office (CBO) paper—prepared in response to separate requests

from the Chairman of the Senate Budget Committee and the Ranking Member of the

House Budget Committee—examines the key resource issues related to Iraq’s recovery.

Those issues include the country’s reconstruction needs, its potential oil revenues and debt

burden, and what additional resources, if any, may be necessary for the reconstruction effort.

The analysis also considers three illustrative approaches to rebuilding Iraq that could require

different levels of international funding. In keeping with CBO’s mandate to provide

objective, impartial analysis, this paper makes no recommendations.

Eric J. Labs of CBO’s National Security Division wrote the paper under the supervision of 

J. Michael Gilmore. Robert Dennis, Richard Farmer, Heywood Fleisig, Doug Hamilton,

Arlene Holen, David Moore, Elizabeth Robinson, Joseph Whitehill, and Thomas

Woodward of CBO provided thoughtful comments on an earlier draft. Dan Byman of

Georgetown University, Michael O’Hanlon of the Brookings Institution, and Admiral

David Oliver (ret.) also provided helpful suggestions. (The assistance of such external

participants implies no responsibility for the final product, which rests solely with CBO.)

Christian Spoor edited the paper, and John Skeen proofread it. Maureen Costantino

designed the cover, Lenny Skutnik produced the printed copies, and Annette Kalicki

prepared the electronic versions for CBO’s Web site (www.cbo.gov).

Douglas Holtz-Eakin

Director

January 2004

Contents

Summary ix

Introduction 1

The Focus of CBO’s Analysis 1

Other Factors: Security Costs and the Unknown Potential of Private Capital 2

Various Agencies’ Assessments of the Costs of Reconstructing Iraq 3

How Much Funding Could Iraq Contribute to Reconstruction? 5

Iraq’s Budget Plans 5

The Role of the Oil Sector 6

Iraq’s International Obligations 10

Foreign Aid Pledged for Reconstruction 14

Three Approaches to Reconstructing Iraq 15

The Condition of Key Iraqi Sectors 17

Approach 1: Fully Fund the Needs Identified by the United Nations

and World Bank 18

Approach 2: Fund Only the 2004 Needs Identified by the United Nations 

and World Bank 23

Approach 3: Fund All Immediate Needs and Some Medium-Term Needs 24

The Cumulative Effect of the Oil and Debt Scenarios and the

Approaches to Iraq’s Reconstruction 25
vi PAYING FOR IRAQ’S RECONSTRUCTION

Tables

S-1. The Iraqi Government’s Budget Plans x

S-2. Range of Estimates for Iraqi Government Funds and Costs,

2004 to 2007 xi

S-3. The Costs of Three Approaches to Reconstructing Iraq,

2004 to 2007 xiii

1. Assessments of the Costs to Reconstruct Iraq, 2004 to 2007 4

2. The Iraqi Government’s Budget Plans 5

3. Capital Investment, by Sector, in the Iraqi Budget, 2004 to 2007 7

4. Effect of Oil Exports and Prices on Iraq’s Budget for Reconstruction

Under Various Scenarios, 2004 to 2007 9

5. Estimates of Iraq’s International Obligations 11

6. Effect of Debt Levels and Interest Rates on Iraq’s Budget for 

Reconstruction Under Various Scenarios, 2004 to 2007 13

7. Projected International Financial Assistance for Iraq, 2004 to 2007 14

8. The Costs of Three Approaches to Reconstructing Iraq,

2004 to 2007 16

9. How Iraq Compares with Other Countries in Some Key Indicators

of Development, 1990 and 2001 18

10. Summary of the Different Approaches to Reconstruction, by Sector

and Funding Provided in the Iraqi Budget 20

11. The Impact of Oil Prices and Debt on Iraq’s Reconstruction, 

2004 to 2007 26

Figure

1. Past Iraqi Oil Exports and Revenues, Compared with the

Government’s 2006 Goals 8
CONTENTS vii

Boxes

1. Terms for Renegotiating International Debt Obligations 14

2. The Cost of Reconstructing Iraq on the Basis of Analogies from

Bosnia and Kosovo 15

3. Generating Capacity and Electricity Consumption in Iraq 21

Summary

R ebuilding Iraq after 25 years of rule by Saddam

Hussein and the war that overthrew his government will

be one of the United States’ foreign policy priorities in

the coming years. By some estimates, the cost of reconstructing Iraq ranges from $50 billion to $100 billion.

However, substantial disagreement exists about that cost,

as well as about how much aid from the international

community may be needed to rebuild the country,

whether that aid should take the form of grants or loans,

how much the United States should contribute, and how

much Iraq can finance itself from its future sources of

revenue. 

To assess the scope of the reconstruction job, the Coalition Provisional Authority (CPA), the United Nations

and World Bank, and the Bechtel Corporation (under

contract to the U.S. Agency for International Development) carried out surveys of Iraq’s needs in 2003.1

The needs that they identified are mainly associated with

the deterioration of Iraqi infrastructure that has occurred

since Iraq invaded Iran in 1980. The surveys indicate

that although sanctions imposed during the 1990s and

damage from recent postwar looting have worsened the

condition of Iraq’s infrastructure, they are not the most

significant cause of its poor state.

This paper aims to help the Congress examine critical

issues dealing with Iraq’s reconstruction by reviewing

those surveys and analyzing the key resource issues related to Iraq’s recovery over the 2004-2007 period—

including its potential oil revenues, restructuring of its

international obligations (foreign debt and war reparations), reconstruction needs in major sectors, and the

role of international aid. In performing the analysis, the

Congressional Budget Office (CBO) relied on information from the CPA, the World Bank, the United Nations, the Iraqi government, and the U.S. government.

CBO did not conduct an independent assessment of

Iraq’s reconstruction needs or prepare independent cost

estimates of major construction projects that others have

identified as being necessary.

CBO’s analysis yields three main conclusions:

# The amount of oil exports and the price the Iraqi

government receives for them will play a critical role

in determining how reconstruction is financed. Although the Iraqi government should be able to pay

its day-to-day operating expenses from its oil revenues, those funds will probably not be sufficient to

cover all of the country’s capital investment needs,

at least in the short run.

# The financial plans produced by Iraqi officials do

not anticipate paying high levels of war reparations

or interest on foreign debt. Thus, if Iraq fails to

achieve substantial relief from its international obligations, it may have trouble funding any rebuilding

efforts.

# Iraq and its international partners could pursue various approaches to reconstruction over the next few

1. Those surveys were published in Coalition Provisional Authority,

Request to Rehabilitate and Reconstruct Iraq: Summary of the

Request (September 22, 2003); United Nations/World Bank Joint

Iraq Needs Assessment (October 2003); and Bechtel National,

Inc., Iraq Infrastructure Program: Assessment Report (June 2003).

Also see Office of Management and Budget, Quarterly Report on

Iraq (January 6, 2004). The CPA is the organization set up by

the coalition that overthrew the Hussein regime. It is responsible

for administering Iraq during the transition to a new government.

In doing that, the CPA works with Iraq’s Governing Council and

ministries.
x PAYING FOR IRAQ’S RECONSTRUCTION

years depending on such factors as their policy

goals and priorities and the amount of resources

available. This analysis examines three illustrative

approaches to reconstruction and their estimated

costs.

Besides the levels of oil revenues and international obligations, other factors could affect Iraq’s prospects for

funding its reconstruction needs. Two important factors

are beyond the scope of this analysis but merit attention:

security costs and the role of private investment. The

total costs of providing security and stability in the

country (except to the extent that such costs are included

in the Iraqi government’s budget planning) are unclear.

The continuing insurgency in Iraq makes it difficult to

estimate how much money will be needed to ensure

enough security for reconstruction to take place. The extent to which private capital can contribute to restoring

Iraq’s infrastructure is also unclear. However, this paper

briefly discusses the conditions needed to attract private

capital as the basis for a market economy.

The 2004 Iraqi Budget

On the basis of estimates included in Iraq’s 2004 budget, CBO assumed that the country would collect a total

of $69 billion in oil revenues between 2004 and 2007 as

well as $2.4 billion in other revenues (see Summary Table 1).

2

 Those resources would be more than enough to

cover the Iraqi government’s planned operating expenses

($51.3 billion) and debt and reparation payments ($4.1

billion), with $16.7 left over for reconstruction or capital investment.3

Summary Table 1.

The Iraqi Government’s Budget Plans

(Billions of dollars)

2004 2005 2006 2007

Total,

2004-

2007

Revenues

Oil exports 12.0 18.5 19.3 19.3 69.1

Other revenues 0.8 0.7 0.5 0.5 2.4

Total 12.8 19.2 19.8 19.8 71.5

Expenditures

Operating 

expensesa 12.1 13.0 13.1 13.1 51.3

International

obligationsb 0.6 1.1 1.2 1.2 4.1

Capital investment 0.7 5.1 5.4 5.4 16.7

Total 13.4 19.2 19.7 19.7 72.1

Surplus or Deficit (-) -0.6c

* * * -0.5

Source: Congressional Budget Office based on data from Republic

of Iraq, Minister of Finance and Minister of Planning,

2004 Budget (October 2003).

Notes: Figures for 2004 come from Iraq’s budget. Figures for

2005 and 2006 come from the fiscal guidance for those

years provided in the 2004 budget. Figures for 2007 are 

an extrapolation of those for 2006 (because there was no

fiscal guidance for 2007). 

* = between zero and $50 million.

a. Actual expenses could be higher, depending on the policies and

priorities of the Iraqi government. Additional security (other

than that already programmed into the budget) could cost

another $100 million to $300 million per year.

b. Represents payments on Iraq’s international debt and payments of claims stemming from Iraq’s 1990 invasion of Kuwait.

c. The government plans to make up that deficit using returned

funds from the U.N. Oil-for-Food Program.

To show how sensitive Iraq’s ability to pay such costs is

to projected oil revenues, CBO varied those revenues

using plausible scenarios of higher and lower oil exports

and prices. The high scenario would earn Iraq $89 billion in oil revenues between 2004 and 2007, potentially

providing an additional $20 billion for investment.

However, the low scenario would produce only $44 billion in oil revenues, cutting deeply into Iraq’s ability to

2. Iraq’s Ministry of Finance and Ministry of Planning have published a budget for 2004 and provided fiscal guidance for the

budgets of 2005 and 2006. For 2007, CBO extrapolated the

numbers in the fiscal guidance for 2006.

3. The CPA and the Iraqi government plan to expand Iraq’s security

services from 125,000 to 226,000 personnel, which could add

between $500 million and $1 billion to the government’s expenses over the 2004-2007 period, CBO estimates. At that cost,

the expansion plan would not pose a major financial burden

compared with the effects of oil exports, oil prices, and debt

repayment.
SUMMARY xi

fund even its day-to-day operations (see Summary Table

2).

4

Similarly, the amount and terms of Iraq’s international

obligations—foreign debt, contractual obligations, and

war-reparation claims—could have a significant effect on

the country’s ability to pay for reconstruction. Estimates

of Iraq’s debts range from $45 billion to almost $400

billion (half of that latter estimate consists of reparations

and compensation claims from the 1990-1991 Gulf

War). The international community seems to recognize

that Iraq would have difficulty paying all of those obligations. The U.N. Security Council passed resolution

1483 declaring a moratorium on Iraqi debt repayment

until the end of 2004.5

 In addition, former U.S. Secretary of State James Baker has apparently secured pledges

of debt reduction from some of Iraq’s creditors. Restructuring Iraq’s foreign debt will continue to be the subject

of negotiations, with the end result unclear. A substantial reduction combined with a longer moratorium could

effectively lower Iraq’s payments to zero for a few years.

Conversely, if negotiations failed, the country could still

be obligated for the full amount of its foreign obligations—although, as a practical matter, such a figure

would probably never be paid.

CBO examined three possible levels of total Iraqi foreign

debt and war reparations—$40 billion, $80 billion, and

$120 billion—at high and low interest rates to illustrate

their differing effects on Iraq’s financial recovery. The

most optimistic case would require about $4 billion in

payments to foreign creditors between 2004 and 2007,

which is consistent with the assumptions in Iraq’s budget planning. Under that scenario, Iraq would be able to

contribute about $16 billion to reconstruction during

that period. The most pessimistic case that CBO considered would require the country to pay $33 billion to foreign creditors during that period, making it impossible

for Iraq to cover even its planned operating expenses.

Summary Table 2.

Range of Estimates for Iraqi 

Government Funds and Costs, 

2004 to 2007 

(Billions of dollars)

Low

Estimate

High

Estimate

Funds Available to the Iraqi Government

Oil Revenues 44 89

Other Revenuesa 3 3

U.S. Aidb 18 18

Other Aidb 18 18

Total 83 128

Costs and Obligations

Reconstruction Costs 18 55

Iraqi Operating Costsc 72 72

International Obligations 4 33

Total 94 160

Source: Congressional Budget Office.

a. Represents the $2.4 billion in other revenues envisioned in the

Iraqi budget and $600 million in returned funds from the U.N.

Oil-for-Food Program.

b. The U.S. figure reflects amounts appropriated in the 2004

supplemental spending law enacted in November; it excludes

about $3 billion provided in 2003. The figure for other aid

represents the full amounts that had been pledged by other

countries and international institutions when this report went

to press. Although CBO used the same figures in its high and

low estimates, those numbers could vary depending on

whether donors provide the aid they have pledged or whether

the donor community decides to provide more assistance. U.S.

aid is in the form of grants, meaning the money does not have

to be repaid. Most of the other aid is in the form of loans.

c. The figure is from the 2004 Iraqi budget. It could vary depending on the priorities of a new sovereign Iraqi government.

4. The Iraqi budget anticipates exporting a total of 3.3 billion barrels of oil during the 2004-2007 period at an average price of 

$21 per barrel. CBO’s high case assumes that level of exports but

at an average price of $27 per barrel. CBO’s low case assumes

total exports of 2.3 billion barrels over that period at an average

price of $19 per barrel. If Iraq met the targets underlying its

budget, it would be exporting more oil and consistently earning

more oil revenue than at any time since the 1980s.

5. However, that resolution requires Iraq to continue setting aside 

5 percent of its revenues from oil exports (including in 2004) to

pay compensation for the 1990 invasion of Kuwait. 
xii PAYING FOR IRAQ’S RECONSTRUCTION

Foreign Assistance

To help Iraq with its rebuilding efforts, the international

donor community has pledged about $36 billion in aid.

Around half of that amount, $18.4 billion, will come

from the United States and take the form of grants.6

 The

rest will come from other countries and international

institutions, mainly in the form of loans. CBO assumes

that most or all of that money will ultimately be provided during the four-year period of this analysis. If so,

it will represent a large contribution to meeting Iraq’s

reconstruction needs.

Three Illustrative Approaches 

to Reconstruction

For the various reasons discussed above, the amount of

money that will ultimately be available to Iraq for reconstruction is uncertain. To illustrate how much could be

done with different funding levels, CBO examined three

alternative approaches to the task of rebuilding (see Summary Table 3):

# The first approach would fully pursue the objectives

for reconstruction outlined in the United Nations/

World Bank Joint Iraq Needs Assessment (referred to

here as the World Bank report). Generally, the goals

of that approach are to restore Iraqi infrastructure to

its pre-1991 state and set the country on the path to

representative government and a market-oriented

economy. According to the report, that approach

would cost a total of about $55 billion through

2007. 

# A second approach would focus only on meeting the

immediate (2004) needs outlined in that assessment.

It would essentially restore Iraq’s infrastructure to

the level that existed before the recent conflict began

in March 2003. Such an approach would cost about

$18 billion, mostly spent in 2004 and 2005.

# The third approach would pursue a middle path

between the first two, funding all of the immediate

needs in the World Bank report plus some major

medium-term (2005-2007) needs. That approach

would cost between $34 billion and $40 billion over

four years.

The reconstruction efforts in the second and third approaches would also improve living conditions in Iraq

but would not restore infrastructure to the same level as

that envisioned in the World Bank report. 

Implications of the Analysis

Iraq’s need for foreign aid beyond the $36 billion already pledged by international donors will depend

largely on its success in reinvigorating its oil industry

and the willingness of creditors to reduce its foreign

obligations (as well as the unknown potential of private

capital). If oil exports and prices meet or exceed the assumptions made by the Iraqi government, and if the

country’s debt is reduced sufficiently to permit a reasonable level of annual payments, further U.S. assistance

beyond the $18.4 billion already appropriated may not

be necessary. Iraq itself could fund a robust reconstruction effort. Conversely, lower oil exports or prices and

high levels of debt payment would most likely mean that

Iraq could not afford to pay for even modest reconstruction efforts. In that case, the country could be a candidate for billions in additional aid in the coming years.

6. That $18.4 billion was appropriated in the 2004 supplemental

spending law enacted in early November 2003. It is in addition

to about $3 billion appropriated for 2003 after the end of major

combat operations in Iraq.
SUMMARY xiii

Summary Table 3.

The Costs of Three Approaches to Reconstructing Iraq, 2004 to 2007 

(Millions of dollars)

Approach 1:

Fully Fund Immediate (2004)

and Medium-Term

(2005-2007) Needs

as Reported by the

World Bank and CPA

Approach 2:

Fund Only

Immediate Needs

as Reported by the

World Bank and CPA

Approach 3:

Fund Immediate Needs

and Some Medium-Term

Needs as Reported by the

World Bank and CPA

Sectors Assessed Directly by the 

United Nations and World Bank

Electricity 12,122 2,377 6,131 to 8,131

Water and sanitation 6,842 1,881 4,993 to 5,898

Education 4,805 1,005 2,165 to 2,921

Agriculture 3,027 1,230 1,979 to 2,791

Transportation 2,030 574 731 to 1,060

Housing and urban management 1,831 535 1,267 to 1,377

Health 1,600 500 900 to 1,600

Private-sector development and rapidemployment programs 1,562 551 684 to 1,184

Telecommunications 1,379 469 590 to 690

Local administration and civil society 387 99 152 to 175

Mine clearing 234 80 234

Subtotal 35,819a9,301b19,826 to 26,061b

Sectors Assessed by the CPA and Provided 

to the United Nations and World Bankc

Oil 8,000 2,000 8,000

Security, police, and justice 5,000 5,000 5,000

Environment 3,500 500 500

Culture 940 140 140

Human rights 800 200 200

Science and technology 400 100 100

Religious affairs 300 100 100

Youth and sport 300 100 100

Foreign affairs 200 100 100

Subtotal 19,440 8,240 14,240

Total Costs 55,259 17,541 34,066 to 40,301

Source: Congressional Budget Office based on data from United Nations/World Bank Joint Iraq Needs Assessment (October 2003).

Note: CPA = Coalition Provisional Authority.

a. Excludes $1.8 billion required for operation and maintenance of many of the facilities in these sectors between 2004 and 2007.

b. Excludes operation and maintenance spending.

c. The estimates for these sectors were provided to the World Bank by the Coalition Provisional Authority; the World Bank did not produce

an independent assessment. The estimate for culture is based on an assessment by the United Nations Educational, Scientific, and Cultural Organization.

Paying for Iraq’s

Reconstruction

Introduction

According to various estimates, the cost of reconstructing Iraq after the overthrow of Saddam Hussein’s regime

could range from $50 billion to $100 billion. As that

range indicates, there is considerable uncertainty about

the amount of funding that might be necessary to rebuild the country. Debate also continues about how

much international assistance Iraq will need, whether

that aid should come as grants or loans, what share the

United States should contribute, and how much reconstruction Iraq can pay for from its own future revenue

sources, principally oil. 

The Focus of CBO’s Analysis

To help lawmakers consider those questions, the Congressional Budget Office (CBO) has analyzed the major

resource issues related to Iraq’s recovery, including

potential oil revenues, possible restructuring of foreign

debt, the need for reconstruction in key sectors of the

economy, and the role of foreign assistance. The analysis

relies on surveys of Iraq’s reconstruction needs conducted by the United Nations and the World Bank, the

Coalition Provisional Authority (the U.S.-led entity set

up to administer Iraq during the transition to a new government), and the U.S. Agency for International Development (USAID) through a contract with the Bechtel

Corporation.1

Those surveys identify reconstruction needs associated

mostly with the neglect of Iraq’s infrastructure that has

occurred since the country invaded Iran in 1980. The

survey results indicate that although international sanctions imposed in the 1990s and damage done by the

recent postwar looting have worsened Iraq’s infrastructure, they are not the most significant reasons for its

poor state. CBO did not conduct its own assessment of

Iraq’s reconstruction needs or independently estimate

the costs of major construction projects that those surveys have identified as necessary.

Living conditions in Iraq have deteriorated sharply over

the years. In the 1970s, Iraq was considered an uppermiddle-income country by the World Bank, just slightly

below the industrialized countries and on par with such

nations as Brazil, Argentina, or prerevolutionary Iran.

Today, however, Iraq’s gross domestic product (GDP)

per capita places it among lower-middle-income countries, such as Egypt, Honduras, and the Dominican Republic. Moreover, its debt per capita makes it one of the

most heavily indebted nations in the world.2

This paper discusses the amount of funding that Iraq

could contribute to meeting the needs identified in those

surveys over the 2004-2007 period. By comparing the

Iraqi government’s budget plans with alternative scenarios, the analysis shows that oil and foreign debt are likely

to play critical roles in the country’s ability to pay for reconstruction efforts over the next few years. The paper

also discusses the international assistance pledged to Iraq

1. See United Nations/World Bank Joint Iraq Needs Assessment

(October 2003); Coalition Provisional Authority, Request to

Rehabilitate and Reconstruct Iraq: Summary of the Request (September 22, 2003); and Bechtel National, Inc., Iraq Infrastructure

Program: Assessment Report (June 2003).

2. World Bank, World Development Report, 1978 (Washington,

D.C.: World Bank, August 1978), p. 77, and World Development

Indicators, 2003 (Washington, D.C.: World Bank, April 2003).

Although data on Iraq’s per capita GDP are hard to come by and

somewhat unreliable, the World Bank’s annual reports suggest

that Iraq slipped from being an upper-middle-income country to

a lower-middle-income country around 1991. 
2 PAYING FOR IRAQ’S RECONSTRUCTION

so far. Finally, to illustrate what could be accomplished

with different levels of resources, the analysis looks in

detail at three alternative approaches to reconstruction.

All of the approaches would improve conditions in the

key sectors of electric-power generation, oil production,

water and sanitation, education, and health, but to differing degrees.

Other Factors: Security Costs 

and the Unknown Potential of Private Capital

Some other issues that could have a positive or negative

impact on Iraq’s ability to fund its reconstruction needs

are not included in this analysis. Two of those issues

stand out in particular—the costs of defeating the insurgency and restoring security to Iraq and the role of private investment in rebuilding the country’s infrastructure and economy. 

The total costs of providing security and stability (except

to the extent that those costs are included in the Iraqi

government’s budget plans) are unclear. CBO has no

way to determine how much money or how many security personnel, either from the international coalition or

Iraqi forces, will to be necessary to ensure a safe environment for reconstruction efforts, or for how long they

will be needed.3

 Current plans call for the Coalition Provisional Authority (CPA) and the Iraqi government to

increase Iraq’s security forces from about 160,000 personnel in December 2003 to 226,000 personnel in the

spring of 2004. The costs for 125,000 of those personnel

appear to be included in Iraq’s budget plans. Additional

security forces could add between $500 million and 

$1 billion to the government’s costs over the 2004-2007

period.4

 Although those sums are not insignificant, expansion of the security forces would not have as great an

impact on Iraq’s budget as oil exports, oil prices, and

debt repayment would.

CBO did not examine the extent to which private capital—whether from Iraq or abroad—can contribute to rebuilding the country’s infrastructure. In September, the

CPA and the Iraqi Governing Council announced a new

law allowing foreign investment and ownership in most

sectors of the economy, including, for example, infrastructure for telecommunications, generation and provision of electricity, and water and sanitation. (The law

specifically excludes the oil and mineral sectors.) The

CPA hopes that such a policy will encourage private

investment and contribute over the long run to Iraq’s

reconstruction, economic growth, and prosperity.5

Experience with economic reforms in other countries

(especially in Eastern Europe) suggests that a number of

critical factors would be necessary in Iraq for private investment to play a significant role. They include laws

that protect property rights and a judicial system capable

of preventing crime, enforcing contracts, and adjudicating disputes. Setting up regulatory and tax structures

suitable for long-term investment also appears to be necessary for attracting private capital. Since current plans

call for handing over sovereignty to a new Iraqi government in July 2004, much uncertainty exists about what

laws and systems will ultimately be developed and on

what schedule. On the basis of experience with other

countries, it appears that such changes would most likely

take several years, if not longer.

In the opinion of Iraqi businessmen who took part in a

World Bank meeting, the greatest obstacles to improving

the country’s investment climate are crime, macroeconomic instability, the financial system, and the telecommunications system. Close seconds are the transportation system, uncertainty about future regulatory policies,

and the limited availability of electricity. Conversely, the

Iraqi businessmen did not rank the legal system, cor3. For more information, see Congressional Budget Office, Letter to

the Honorable Robert Byrd regarding the U.S. military’s ability to

sustain an occupation in Iraq (September 2003). 

4. If the average cost (including hazardous-duty pay) of the additional 101,000 security personnel was $100 per month (about

the pay of a high-grade sergeant in the new Iraqi army), the extra

costs over four years would total about $500 million. If the average cost per person was $200 a month (the salary of a mid-grade

lieutenant colonel), the additional four-year cost would amount

to about $1 billion. 

5. Some people have argued, however, that the CPA’s policy may be

inconsistent with previous agreements about the governance of

occupied countries; see Daphne Eviatar, “Free-Market Iraq? Not

So Fast,” New York Times, January 10, 2004.
PAYING FOR IRAQ’S RECONSTRUCTION 3

ruption, or education levels as significant obstacles to

investment.6

CBO cannot quantitatively assess what impact private

investment may have on reconstruction. A successful

resolution of the security problem and appropriate reforms to many aspects of the country’s legal, regulatory,

financial, and institutional frameworks could permit

significant private investment in Iraq in coming years.

Various Agencies’ Assessments of the

Costs of Reconstructing Iraq

Since the fall of the Hussein regime in April 2003, three

organizations have conducted assessments of Iraq’s reconstruction needs. The first assessment, by the Bechtel

Corporation under contract to USAID, focused almost

exclusively on infrastructure (excluding the oil industry

and needs for security). It examined what facilities could

be fixed both in the short term (through 2004) and beyond that. The report identified a total of $15.9 billion

in infrastructure needs (see Table 1).

The second assessment is contained in the Coalition

Provisional Authority’s request for supplemental funding

for fiscal year 2004. The CPA asked for $20.3 billion in

reconstruction money, including $7.2 billion to improve

security and the oil industry. Some CPA officials have

also indicated that Iraq’s reconstruction needs could cost

tens of billions of dollars more. On November 6, 2003,

the President signed an appropriation law providing

about $18.6 billion for the Iraq Relief and Reconstruction Fund—the money that will be available to the CPA

for rebuilding activities. However, $210 million of that

amount was set aside for assistance to Jordan, Liberia,

and Sudan.7

 In a January 2004 report to the Congress,

the CPA indicated how it plans to spend the $18.4 billion available to it (see Table 1).

8

The third assessment—and the most comprehensive to

date—was conducted jointly by the United Nations and

the World Bank. (For simplicity, it is referred to in this

analysis as the World Bank report.) That survey independently identified $35.8 billion in reconstruction

costs and included another $19.4 billion in costs that

were assessed by the CPA, for a total of $55.3 billion.

Despite their common source, the $19.4 billion in needs

identified by the CPA differs substantially from the

CPA’s supplemental funding request of $20.3 billion.

For example, although both sets of numbers include $5

billion for security, the CPA’s contribution to the World

Bank report identifies $8 billion worth of spending

needed for the Iraqi oil sector, whereas the CPA’s request for supplemental funding in 2004 includes only

$2.1 billion for that sector.9

The estimates in the World Bank report are divided into

“immediate needs” for 2004 and “medium-term priorities” for 2005 through 2007. In general, the immediate

needs are aimed at restoring conditions and services to

the state they were in before March 2003, when the war

to overthrow the Hussein regime began.10 Those immediate needs make up an estimated $17.5 billion of the

$55.3 billion. The medium-term priorities represent investments to move the Iraqi economy to a market orientation, promote long-term economic growth, improve

living conditions, and restore institutions to a state more

reflective of the flourishing Iraqi society of the 1970s.

The costs for those activities total $37.7 billion. The report states that although its estimates represent the best

information available to U.N. and World Bank staff at

the time of the assessment, there were many constraints

6. Those findings come from a World Bank roundtable discussion

with the Iraqi Businessmen’s Association; see Iraq United Nations/World Bank Joint Needs Assessment: The Investment Climate,

Working Paper (October 2003), p. 2.

7. The Consolidated Appropriations Act, 2004 (H.R. 2673) allows

another $100 million of that amount to be used for assistance to

Turkey and $30 million for the Middle East Partnership Initiative.

8. See Office of Management and Budget, Quarterly Report on Iraq

(January 6, 2004), available at www.whitehouse.gov/omb/

legislative/index.html#iraq.

9. However, that $2.1 billion is consistent with the $2 billion in

immediate needs for the oil sector identified by the CPA in the

World Bank report. 

10. United Nations/World Bank Joint Iraq Needs Assessment, p. viii.
4 PAYING FOR IRAQ’S RECONSTRUCTION

Table 1.

Assessments of the Costs to Reconstruct Iraq, 2004 to 2007 

(Millions of dollars)

Sector

World Bank Report

(October 2003)a

Coalition Provisional Authority

Bechtel Report

(June 2003)

Request

(September 2003)

Allocation

(January 2004)

Electricity 12,122 5,675 5,560 6,045

Water and Sanitation 6,842 4,355 4,053 6,334

Education 4,805 0 90 300

Agriculture 3,027 130 279 109

Transportation 2,030 753 605 2,411

Housing and Urban Management 1,831 100 0 n.a.

Health 1,600 850 793 320

Private-Sector Development and 

Rapid-Employment Programs 1,562 353 214 n.a.

Telecommunications 1,379 322 135 45

Local Administration and Civil Society 387 413 743 283

Mine Clearing 234 61 61 n.a.

Subtotal 35,819b12,951 12,533 15,847

Oil 8,000 2,100 1,701c

n.a.

Security, Police, and Justice 5,000 5,075 4,190 n.a.

Environment 3,500 100 0 100

Culture 940 n.a. n.a. n.a.

Human Rights 800 15 15 n.a.

Science and Technology 400 n.a. n.a. n.a.

Religious Affairs 300 n.a. n.a. n.a.

Youth and Sport 300 2 0 n.a.

Foreign Affairs 200 n.a. n.a. n.a.

Subtotal 19,440 7,353 5,906 100

Total Costs 55,259 20,304 18,439d

15,947

Source: Congressional Budget Office based on data from United Nations/World Bank Joint Iraq Needs Assessment (October 2003); Coalition Provisional Authority, Request to Rehabilitate and Reconstruct Iraq: Summary of the Request (September 22, 2003); Office

of Management and Budget, Quarterly Report on Iraq (January 6, 2004), available at www.white-house.gov/omb/legislative/

index.html#iraq; and Bechtel National, Inc., Iraq Infrastructure Program: Assessment Report (June 2003).

Note: n.a. = not available.

a. The first set of sectors comprises those that the World Bank and United Nations assessed directly for their report. For the second set of

sectors, the World Bank and United Nations used estimates from the Coalition Provisional Authority rather than conducting an independent assessment. (The estimate for culture is based on an assessment by the United Nations Educational, Scientific, and Cultural

Organization.)

b. Excludes $1.8 billion required for operation and maintenance of many of the facilities in these sectors.

c. Includes $501 million for the purchase of emergency petroleum products, which is not a capital investment.

d. The Congress appropriated $18.6 billion for the Iraq Relief and Reconstruction Fund, but $210 million was set aside for assistance to

Jordan, Liberia, and Sudan. The Consolidated Appropriations Act, 2004 (H.R. 2673) allows another $100 million of that amount to be

used for assistance to Turkey and $30 million for the Middle East Partnership Initiative.
PAYING FOR IRAQ’S RECONSTRUCTION 5

and difficulties in making the estimates, so actual costs

in some sectors could be higher.

The reconstruction costs included in those three assessments should not be regarded as comprehensive. Little

agreement exists about how much money would be necessary to achieve the stated policy goals of creating a

democratic and free-market Iraq. Further, if the objective was to raise Iraq’s infrastructure to Western standards, costs could be much greater than those identified

in the World Bank report.

How Much Funding Could Iraq 

Contribute to Reconstruction?

One major policy question is how much of Iraq’s reconstruction funding should be provided by the country

itself. Budgets drawn up by Iraqi planners envision

spending about 72 percent of revenues on the government’s day-to-day operating expenses, 23 percent on

reconstruction, and about 6 percent on foreign obligations. Overall, the amount that the Iraqi government can

contribute to reconstruction will depend on how much

revenue it receives from oil exports and how much debt

and other foreign obligations it must pay.

Iraq’s Budget Plans

Iraq’s Ministry of Finance and Ministry of Planning

have published a budget for 2004 and provided fiscal

guidance for the budgets of 2005 and 2006 (see Table 2).

The budget envisions spending $13.4 billion in 2004,

mainly on government operations, and collecting revenues of $12.8 billion, mostly from oil.11 The resulting

deficit of about $600 million would be made up with

Table 2.

The Iraqi Government’s Budget Plans

(Billions of dollars)

2004 2005 2006 2007

Total,

2004-

2007

Revenues

Oil exports 12.0 18.5 19.3 19.3 69.1

Customs duties 0.3 0.4 0 0 0.7

Income taxes 0 0.1 0.2 0.2 0.4

Returns from stateowned entities 0.4 0.1 0.1 0.1 0.7

User fees and charges 0.1 0.1 0.1 0.1 0.4

Other taxes and income 0.1 0.1 0.1 0.1 0.3

Total 12.8 19.2 19.8 19.8 71.5

Expenditures

Operating expensesa 12.1 13.0 13.1 13.1 51.3

Kuwait war reparationsb 0.6 0.9 1.0 1.0 3.5

Interest on foreign debtc 0 0.2 0.2 0.2 0.6

Capital investment 0.7 5.1 5.4 5.4 16.7

Total 13.4 19.2 19.7 19.7 72.1

Surplus or Deficit (-) -0.6d * * * -0.5

Source: Congressional Budget Office based on data from Republic

of Iraq, Minister of Finance and Minister of Planning, 2004

Budget (October 2003).

Notes: Figures for 2004 come from Iraq’s budget. Figures for

2005 and 2006 come from the fiscal guidance for those

years provided in the 2004 budget. Figures for 2007 are 

an extrapolation of those for 2006 (because there was no

fiscal guidance for 2007). 

* = between zero and $50 million.

a. Actual expenses could be higher, depending on the policies and

priorities of the Iraqi government. Additional security (other

than that already programmed into the budget) could cost

another $100 million to $300 million per year.

b. U.N. Security Council resolution 1483 requires Iraq to pay 

5 percent of its gross revenues from oil exports to meet reparations claims from the 1990-1991 Gulf War.

c. U.N. Security Council resolution 1483 provides for a moratorium on interest and principal repayments of Iraq’s foreign

debt until the end of 2004. The actual amount of debt that Iraq

will be required to repay is unknown at this time.

d. The government plans to make up that deficit using returned

Oil-for-Food Program funds.

11. The budget is reported in new Iraqi dinars and assumes an exchange rate of 1,500 to one U.S. dollar. (The current rate as of

January 20, 2004, is 1,405 dinars to the dollar.) Differences

between the set exchange rate and the actual exchange rate when

the money is spent could affect the amount of funds available for

reconstruction.
6 PAYING FOR IRAQ’S RECONSTRUCTION

returned funds from the Oil-for-Food Program.12 Under

that budget plan, only $700 million would be available

to fund the $17 billion of immediate reconstruction

needs identified by the World Bank.

The budget picture changes in later years. Over the

2004-2007 period, Iraq would collect a total of $71.5

billion in revenues (97 percent from oil exports) and

spend $72.1 billion.13 But after 2004, annual government spending on capital investment (reconstruction)

would grow from $700 million to more than $5 billion—for a total of $16.7 billion over four years (see Table 3).

The Role of the Oil Sector

The major way for Iraq to finance capital investment is

to increase its oil exports and, thus, its oil revenues. Today, the country exports about 1.6 million barrels of oil

per day and receives an average price of about $28 per

barrel.14 (Total oil production is usually about 500,000

barrels per day higher than exports, with the difference

going for domestic use.) The Iraqi government hopes to

maintain exports at an average of 1.6 million barrels per

day throughout 2004 and raise them to 2.5 million barrels per day by 2006. That plan would result in total exports of 3.3 billion barrels over the 2004-2007 period.

However, the government anticipates that the average

price it receives will fall to $21 per barrel. If those targets

are met, the government will net $69.1 billion in oil revenues during that period.

The Coalition Provisional Authority places great emphasis on increasing Iraq’s oil production and exports, since

oil revenue is considered critical to the country’s ability

to provide for its own needs, including reconstruction.

Oil is the key sector of the economy that the CPA does

not propose to privatize. However, meeting the Iraqi

government’s goals for oil revenue could be challenging,

judging from the past. The government hopes to earn

almost $19 billion a year from oil by 2006 (or about $18

billion a year in 2002 dollars). That figure represents a

level of revenues not generally seen since before the

1990-1991 Gulf War (see Figure 1). Iraq has proven oil

reserves of 112 billion barrels, but reaching the level of

production that the Iraqi government envisions and sustaining it over time will depend on improving the security situation as well as investing in the oil fields and

infrastructure (elements of which were in poor condition

after the recent conflict).15

To illustrate the sensitivity of available reconstruction

funding to developments in Iraq’s oil sector, CBO

looked at five alternative scenarios for oil exports and

prices (see Table 4). One scenario assumes that the price

of oil is $21 per barrel, as in Iraq’d budget, but that exports do not rise above the projected 2004 level; in that

case, Iraq would export 2.3 billion barrels between 2004

and 2007 rather than the 3.3 billion assumed in the

budget. In two other scenarios, the price for Iraqi oil

would increase to $27 per barrel: in one case with oil

exports achieving the level assumed in the budget and in

the other with exports remaining at the projected 2004

12. The Oil-for-Food Program was set up in 1996 and run by the

United Nations. Under it, Iraq could sell oil through the United

Nations and have the revenue deposited in a U.N.-administered

account, which could then be used to purchase humanitarian

goods, such as food and medical supplies. (Later, the program was

expanded to allow Iraq to buy materials to improve its infrastructure, including the oil sector.) At the overthrow of the Hussein

regime, the account balance stood at about $3 billion. The program ended in November 2003 and the proceeds were refunded

to Iraq. Most of the money was used in 2003.

13. Iraq’s budget provides fiscal guidance only through 2006. To

ensure comparability with the World Bank report (which covers

the 2004-2007 period), CBO extrapolated the data for 2006 to

provide numbers for 2007.

14. Those numbers are weekly averages as of January 14, 2004.

15. For example, unless the northern oil pipeline through Turkey can

be opened and kept operating, Iraq’s maximum export capacity

will be about 2 million barrels per day. For two differing views on

the challenge that Iraq faces, see Helmut Merklein, “Who Needs

Big Oil in Iraq: The Case for Going It Alone,” and Sadek

Boussena, “Iraq’s Petroleum Sector: Future Prospects,” both in

Middle East Economic Survey, vol. 47, no. 2 (January 12, 2004).
PAYING FOR IRAQ’S RECONSTRUCTION 7

Table 3.

Capital Investment, by Sector, in the Iraqi Budget, 2004 to 2007 

(Millions of dollars)

Sector 2004 2005 2006 2007

Total,

2004-2007

Electricity 0 1,500 1,650 1,650 4,800

Water and Sanitation 128 500 500 500 1,628

Education 15 25 25 25 90

Agriculture 12 50 50 50 162

Transportation 62 500 500 500 1,562

Housing and Urban Management 133 300 300 300 1,033

Health 50 100 100 100 350

Private-Sector Development and 

Rapid-Employment Programs 0 0 0 0 0

Telecommunications 5 150 150 150 455

Local Administration and Civil Society 169 495 665 665 1,994

Mine Clearing 0 0 0 0 0

Subtotal 573 3,620 3,940 3,940 12,074

Oil 0 1,000 1,000 1,000 3,000

Security, Police, and Justice 42 200 200 200 642

Environment 1 20 40 40 101

Culture 1 15 15 15 46

Human Rights 1 5 10 10 26

Science and Technology 5 10 10 10 35

Religious Affairs 5 0 0 0 5

Youth and Sport 3 50 50 50 153

Foreign Affairs 6 10 10 10 36

Subtotal 65 1,310 1,335 1,335 4,045

Othera 107 161 161 161 590

Total 746 5,091 5,436 5,436 16,709

Source: Congressional Budget Office based on data from Republic of Iraq, Minister of Finance and Minister of Planning, 2004 Budget

(October 2003).

Notes: The categories used in this table correspond to the sectors listed in the World Bank report. Iraq’s budget allocates funding for

capital investment by ministry.

Figures for 2004 come from Iraq’s budget. Figures for 2005 and 2006 come from the fiscal guidance for those years provided in

the 2004 budget. Figures for 2007 are an extrapolation of those for 2006 (because there was no fiscal guidance for 2007). 

a. Includes categories that do not appear to match well with the sectors listed in the World Bank report, such as trade, planning, and

industry and minerals.
8 PAYING FOR IRAQ’S RECONSTRUCTION

Figure 1.

Past Iraqi Oil Exports and Revenues, Compared with the Government’s 

2006 Goals

Source: Congressional Budget Office based on data from the Organization of Petroleum Exporting Countries; the International Monetary

Fund; the Department of Energy, Energy Information Administration; and Iraq’s Ministry of Finance and Ministry of Planning.

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

0.0

0.5

1.0

1.5

2.0

2.5

3.0 Millions of barrels per day

Oil Exports

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

0

5

10

15

20

25

30

Billions of 2002 dollars

Oil Revenues

2006 Goal

2006 Goal

0
PAYING FOR IRAQ’S RECONSTRUCTION 9

Table 4.

Effect of Oil Exports and Prices on Iraq’s Budget for Reconstruction 

Under Various Scenarios, 2004 to 2007 

(Billions of dollars)

Scenario

Total

Oil Exports

(Billions of

barrels)

Average Price

per Barrel

(Dollars)a

Total

Oil Revenues

Other Revenues

Assumed in

Iraq’s Budgetb

Operating

Expenses and

Debt Payments

Assumed in the

Iraqi Budget

Funds Available

for Reconstruction

(Excluding

foreign aid)c

Under the Iraqi Budget

Targets and Assumptions 

in the Budget 3.3 21 69.1 3.0 55.4 16.7

Under Alternative Scenarios for Oil Exports and Prices

Exports Remain at Projected

2004 Level; Oil Price Equals

Target 2.3 21 49.1 3.0 55.4 -3.2 

Exports Reach Target Level;

Oil Prices Exceed Target 3.3 27 88.7 3.0 55.4 36.4

Exports Remain at Projected

2004 Level; Oil Prices Exceed

Target 2.3 27 63.1 3.0 55.4 10.8

Exports Reach Target Level;

Oil Prices Fall Below Target 3.3 19 62.4 3.0 55.4 10.1

Exports Remain at Projected

2004 Level; Oil Prices Fall

Below Target 2.3 19 44.4 3.0 55.4 -7.9

Memorandum:

Exports and Prices Remain 

at Current Levelsd 2.3 28 65.4 3.0 55.4 13.0

Source: Congressional Budget Office.

Note: Figures for 2004 come from Iraq’s budget. Figures for 2005 and 2006 come from the fiscal guidance for those years provided in the

2004 budget. Figures for 2007 are an extrapolation of those for 2006 (because there was no fiscal guidance for 2007). 

a. In these scenarios, the “high” price of $27 per barrel and the “low” price of $19 per barrel come from forecasts in Department of Energy, Energy Information Administration, Annual Energy Outlook 2003 with Projections to 2025 (January 2003), available

at www.eia.doe.gov/oiaf/archive/aeo03/index.html. Those forecasts are based on the average price of landed imports in the United

States. To estimate high and low prices, CBO used averages of the 2004-2007 period in those forecasts and subtracted $4 to reflect the

price that Iraqis actually receive for their oil.

b. The $2.4 billion in other revenues envisioned in the Iraqi budget and $600 million in returned funds from the Oil-for-Food Program.

c. This column represents the funds that the Iraqi government would have available for reconstruction after meeting its operating and

debt expenses. A negative number implies that the government would not be able to cover all of its projected operating expenses.

d. Current levels represent weekly averages as of January 14, 2004.
10 PAYING FOR IRAQ’S RECONSTRUCTION

figure. The last two scenarios assume those two export

levels but with a price of only $19 per barrel.16

CBO did not consider scenarios in which oil exports exceed 2.5 million barrels per day because the challenge in

generating those higher export levels would be much

greater than the already-considerable task the government faces in meeting the targets assumed in the budget.

Further, higher exports would require additional investment—$10 billion to $15 billion, by one estimate—

which is not accounted for in either the World Bank’s

report or the CPA’s request for funding.

The scenarios in Table 4 indicate that if Iraq did not receive its expected price for oil exports or if oil production did not meet the goals contained in the budget, the

amount of money available for reconstruction would be

$6 billion to $25 billion less than the budget anticipates.

In the worst-case scenarios that CBO examined, Iraq

would have insufficient funds to meet its operating expenses and no money available for investment. In CBO’s

best-case scenario (in which oil exports met the budgetary targets and oil prices exceeded them), Iraq could

have up to $20 billion more available for investment

than assumed in the budget.

Iraq’s International Obligations

Another key determinant of how much money the new

Iraqi government will be able to devote to reconstruction is the amount of international debt and other obligations from Saddam Hussein’s regime that it will be

expected to pay. Estimates of Iraq’s total debt and other

obligations range from $45 billion to nearly $400 billion.17

Iraq’s 2004 budget and subsequent fiscal guidance assume that only a relatively modest level of funding will

be necessary to meet the country’s international obligations. U.N. Security Council resolution 1483 set a moratorium on Iraq’s principal and interest payments of its

international debt until the end of 2004. At the same

time, it required Iraq to put 5 percent of its revenues

from oil exports into a U.N. fund to pay claims stemming from Iraq’s 1990 invasion of Kuwait. Consequently, the Iraqi budget reflects the 5 percent allocated

to war claims but sets aside only a small amount for

future principal and interest payments. Between 2004

and 2007, the amount budgeted for both reparations

and debt is only about $4.1 billion.

Pros and Cons of Forgiving Foreign Debt. Most observers agree that Iraq’s international obligations will have to

be renegotiated. For example, Horst Kohler, Managing

Director of the International Monetary Fund, has stated

that without “substantial debt relief, the country has no

prospect of restoring its creditworthiness and of regaining access to private capital to finance future growth.”18

Some observers argue that all of the debt accumulated

under the Hussein regime should be forgiven. They

maintain that it is unfair to saddle a free people with the

debt incurred by the previous, odious regime in which it

had no voice. Others believe that Iraq must pay its obligations in order to avoid serious consequences for other

nations and, possibly, for the international financial

system. In that view, if Iraq’s debt was forgiven, other 16. The price range of $19 to $27 comes from the long-range forecasts in Department of Energy, Energy Information Administration, Annual Energy Outlook 2003 with Projections to 2025 (January 9, 2003), available at www.eia.doe.gov/oiaf/archive/aeo03/

index.html. The prices in those forecasts, which are in 2001 dollars, reflect the average price that U.S. refiners would pay for oil

imports at U.S. terminals. The price that the government of Iraq

receives for oil exports is about $4 less than the average price paid

by U.S. refiners. To be consistent with Iraq’s budget and the

World Bank report, which are in nominal currencies, CBO

converted those oil-price forecasts into nominal dollars and then

subtracted $4. (The price of $21 assumed in Iraq’s budget is

consistent with the Energy Information Administration’s baseline

projection for oil prices, minus about $4.)

17. Hereafter, “international debt” or “foreign obligations” refers to

all of the money Iraq owes externally, which could include sovereign debt, reparations and compensation for the Gulf War, and

contractual obligations incurred by the Hussein government.

18. “The IMF Stands Ready to Help Iraq” (statement of Horst

Kohler, Managing Director of the International Monetary Fund,

to the International Donors’ Conference for the Reconstruction

of Iraq, October 24, 2003), available at http://imf.org/external/

np/dm/2003/102403.htm. 
PAYING FOR IRAQ’S RECONSTRUCTION 11

countries that were less than fully democratic might no

longer be able to attract financing from the capital markets for fear that the money would not be repaid if regimes changed. And if those countries could no longer

borrow funds, they would appear to have little incentive

to pay back what they already owed. 

Ample historical precedent exists for reducing the

amount that a country owes or the interest rate on its

debt after it experiences severe economic difficulties or a

regime change. For example, following the fall of the

Milosevic government in Serbia, the new government’s

debt was renegotiated and cut by 66 percent. A twothirds reduction in debt is considered a common standard.19

Uncertainty About Iraq’s Current Obligations. One difficulty with assessing the potential budgetary impact of

Iraq’s international obligations is that there appears to be

substantial uncertainty about the total amount it owes.

For example, Iraq’s trade minister recently stated that

the country’s foreign debt was $45 billion (a figure that

does not appear to include Gulf War compensation) and

argued that 65 percent of that amount should be forgiven.20 In 2001, the World Bank estimated Iraq’s debt

at $128 billion, including $47 billion in accrued interest.21 The recent World Bank needs assessment suggested

a figure of about $70 billion, including interest but exTable 5.

Estimates of Iraq’s International 

Obligations

Amount in

Billions of

Dollars

Gulf War Reparations and Compensation

Individuals and families 27

Kuwait 69

Saudi Arabia, Egypt, Syria, Turkey, Israel, 

and Jordan 36

Europe and the United States 24

Other governments 43

Subtotal 199

Foreign Debt

Gulf states and Kuwait 47

Other countries 34

Accumulated interest 47

Subtotal 128

Pending Contracts

Russia 52

Others 5

Subtotal 57

Total International Obligations 383

Source: Congressional Budget Office based on data from Center

for Strategic and International Studies, A Wiser Peace: 

An Action Strategy for a Post-Conflict Iraq (January 23,

2003).

cluding war reparations. A London-based brokerage estimates that Iraq owes $116 billion, including $42 billion

to members of the Paris Club and $46 billion to countries in the Middle East. Various press reports have also

stated that Iraq owes about $40 billion to members of

the Paris Club as well as $80 billion to other states (including interest but excluding reparations).

In January 2003, the Center for Strategic and International Studies (CSIS) published a comprehensive assessment of Iraq’s international obligations, which it estimated at $383 billion (see Table 5). That estimate includes items of considerable controversy, however. For

example, Iraq argues that money it received from the

19. See Alex Skorecki, “U.S. Investors Stay Shy of Iraqi Debt Trade,”

Financial Times, June 27, 2003; David Mulford and Michael

Monderer, “Iraqi Debt, Like War, Divides the West,” Financial

Times, June 22, 2003; Stan Crock, “Iraqi Debt: Fast-Track the

Restructuring,” Business Week Online, October 13, 2003; Susan

Lee, “Why Iraq’s Debt Needs a Good Haircut,” Wall Street

Journal, October 22, 2003; and Steven R. Weisman, “Baker to

Press Arab Lands to Forgive Huge Iraqi Debt,” New York Times,

January 5, 2004.

20. “German Government Will Consider Debt Moratorium,” USA

Today, October 28, 2003, p. 9A.

21. Although many discussions distinguish between principal and

interest, some observers would argue that such a distinction is

artificial because accumulated interest on a debt becomes part of

the obligation for that debt.
12 PAYING FOR IRAQ’S RECONSTRUCTION

Persian Gulf states and Kuwait during the 1980s, when

it was fighting Iran, was a grant; those countries claim

that the funding was a loan. Other contentious issues

include whether Iraq should be held responsible for the

$47 billion in accumulated interest included in that assessment, whether Gulf War reparations and compensation to Kuwait and other parties should be discarded in

light of the overthrow of the Hussein government, and

whether Iraq must honor the contracts that government

signed with Russia or other countries.22

To begin the process of resolving Iraq’s debt situation,

the Bush Administration asked former Secretary of State

James Baker to visit many of Iraq’s foreign creditors to

convince them to support debt relief. Although none of

the commitments that Secretary Baker has received thus

far appear to be binding, many creditors seem open to

the idea of debt reduction for Iraq. Russia offered to cut

the amount that Iraq owes it by 65 percent after Iraqi

officials signaled that Russian companies would most

likely be able to restart some prewar oil contracts. France

and Germany also offered debt relief but did not specify

an amount. Japan, Qatar, and the United Arab Emirates

offered to forgive most or all of their Iraqi debt. And

Saudi Arabia and Kuwait—Iraq’s largest creditors in the

Middle East—said they were ready to forgive debt but

would only deal with a new sovereign Iraqi government.

Effects of Various Scenarios for Iraqi Debt. To show

how sensitive Iraqi reconstruction funding is to the debt

issue, CBO constructed six scenarios of the country’s

future international obligations (see Table 6).

23 (In that

analysis, CBO takes no position on any of the issues

relating to Iraq’s foreign debt, contractual obligations, or

war reparations, nor does it attempt to analyze the rationales for the arguments on one side or another.) The

scenarios combine one of three different levels for Iraq’s

total international obligations ($40 billion, $80 billion,

or $120 billion) and one of two interest rates (3 percent

or 9 percent) to estimate how much funding from the

Iraqi budget would be available for reconstruction over

the 2004-2007 period, assuming that total revenues and

government operating expenses (minus foreign obligations) in that period equaled the numbers in the budget. 

The upper limit for debt and other obligations in the

scenarios, $120 billion, reflects a reduction of about

two-thirds from the CSIS total of $383 billion. The level

of $40 billion was chosen as the lower limit because it,

along with an interest rate of 3 percent, produces debtservice payments over the 2004-2007 period that are

equivalent to what the Iraqi government has budgeted

for Gulf War reparations and compensation and debt

service during that period. (To simplify the illustration,

CBO assumed that debt service would involve only interest payments. For information about possible options

for renegotiating the terms of Iraq’s debt, see Box 1.)

The interest rates in the scenarios reflect the government

bond yields published in the August 2003 issue of the

International Monetary Fund’s International Financial

Statistics. The lower bound, 3 percent, is the interest rate

paid by borrowing countries that are considered low

risk, such as Switzerland or the United States. The 9

percent rate represents the interest rate paid by countries

that are considered to be higher-risk borrowers. It is

comparable to what Mynamar or South Africa might

pay but is less than the rates paid by countries such as

Nambia or Samoa. (The highest rate in those statistics,

33 percent, was paid by Venezuela.)

The results of the scenarios indicate that the amount of

funding Iraq will be able to contribute for reconstruction spans a wide range, depending on the international

obligations it is required to pay and the terms for that

payment. CBO’s best-case scenario—total obligations of 

22. A further question is whether the international community would

provide loans to a nonsovereign Iraqi government. The issue may

be moot, however, since the U.N. moratorium on Iraqi debt repayment runs until the end of 2004, and the CPA plans to transfer sovereignty to a new Iraqi government by the summer of

2004. If that timetable was met, Iraq would not need new or

refinanced loans until its new sovereign government was in place.

23. Those scenarios are denominated in dollars. It should be noted

that dollar interest rates are currently at all-time lows, and increases in those interests rates could affect the scenarios.
PAYING FOR IRAQ’S RECONSTRUCTION 13

Table 6.

Effect of Debt Levels and Interest Rates on Iraq’s Budget for Reconstruction 

Under Various Scenarios, 2004 to 2007 

(Billions of dollars)

Total Level 

of Debt

Interest Rate

(Percent)a

Total Foreign

Debt Payments

 (Interest only)b

Total Operating

Expenses

Assumed in the

Iraqi Budget

Total Revenue

Assumed in the

Iraqi Budgetc

Funds Available

for Reconstruction

(Excluding

foreign aid)d

Under the Iraqi Budget

n.a. n.a. 4.1 51.3 72.1 16.7

Under Alternative Scenarios for Debt and Interest Rates

40 3 4.2 51.3 72.1 16.6

80 3 7.8 51.3 72.1 13.0

120 3 11.4 51.3 72.1 9.4

40 9 11.4 51.3 72.1 9.4

80 9 22.2 51.3 72.1 -1.4

120 9 33.0 51.3 72.1 -12.2

Source: Congressional Budget Office based on data from Republic of Iraq, Minister of Finance and Minister of Planning, 2004 Budget

(October 2003).

Notes: Foreign debt is defined to include all international obligations (war reparations as well as debt).Figures for 2004 come from Iraq’s

budget. Figures for 2005 and 2006 come from the fiscal guidance for those years provided in the 2004 budget. Figures for 2007

are an extrapolation of those for 2006 (because there was no fiscal guidance for 2007). 

n.a. = not available.

a. The “high” interest rate of 9 percent and the “low” interest rate of 3 percent represent the reasonable range of government bond yields

paid by higher-risk countries and lower-risk countries according to International Monetary Fund, International Financial Statistics

(August 2003). 

b. In the scenarios, debt service for 2004 is held constant at $600 million. Added to that number is the debt service for 2005 to 2007,

which is calculated by multiplying the interest rate and the debt level and then multiplying by three for the three-year period..

c. Includes $600 million in returned funds from the Oil-for-Food Program.

d. This column represents the funds that the Iraqi government would have available for reconstruction after meeting its operating and debt expenses. A

negative number implies that the government would not be able to cover all of its projected operating expenses.

$40 billion at 3 percent interest—leaves almost the same

amount available for capital investment from 2004 to

2007 ($17 billion) as assumed in the Iraqi budget. Increases in either the debt level or the interest rate reduce

that available funding in gradually increasing amounts.

The worst-case scenarios—total obligations of more than

$40 billion at 9 percent interest—leave no funds in the

Iraqi budget for capital investment and produce substantial shortfalls in the government’s ability to meet its dayto-day operating expenses (see Table 6).

A drawback of that analysis is that combining the debt

and war-reparations issues, as CBO does, may understate

the difficulty of resolving the reparations problem. Parties who have claims against Iraq related to the Gulf War

feel strongly that they should be paid, regardless of who

governs the country. If Iraq continues to be required to

set aside 5 percent of its oil revenue to cover such claims,

the amount of sovereign debt and the interest rate that it

must pay will have to be very low—for example, debt of

only $10 billion at 2 percent interest—to match the pay-
14 PAYING FOR IRAQ’S RECONSTRUCTION

ment assumptions in Iraq’s budget plans. (That example

assumes that the Iraqi government has no further responsibility for previously signed contracts.)

Foreign Aid Pledged 

for Reconstruction

Officials in the Bush Administration have argued that

giving Iraq substantial aid to help it make the transition

from a socialist, Ba’athist dictatorship to a constitutional

government and free-market economy is crucial—especially in 2004, when oil revenues could be relatively low.

When this report went to press, numerous countries and

international institutions had pledged to provide Iraq

with up to $36 billion in future financial assistance (see

Table 7). That figure is roughly equivalent to the

amount of foreign aid that Iraq might be expected to receive judging from the example of postwar reconstruction efforts in Bosnia and Kosovo (see Box 2).

Of that $36 billion, half ($18.4 billion) comes from the

United States. It was appropriated in the 2004 supplemental spending law enacted in November 2003. That

money is in addition to about $3 billion appropriated

for 2003 after the end of major combat operations in

Iraq (which is not included in the numbers in Table 7).

The U.S. aid takes the form of grants to the Iraqi government, meaning that the money will not have to be

repaid.

Table 7.

Projected International Financial 

Assistance for Iraq, 2004 to 2007 

(Billions of dollars)

Source Grants Loans Total

United Statesa 18.4 0 18.4

Japan 1.5 3.4 4.9

World Bank 0 3.0 to 5.0 3.0 to 5.0

International Monetary

Fund 0 2.6 to 4.3 2.6 to 4.3

European Union and

Associated States 0.7 0.8 1.5

Saudi Arabia and

 Kuwaitb 0.5 0.5 1.0

Othersc 0 to 1.0 0 to 1.0 1.0

Total 21.1 to 22.1 10.3 to 15.0 32.4 to 36.1

Source: Congressional Budget Office.

a. In November 2003, the Congress appropriated $18.6 billion for

the Iraq Relief and Reconstruction Fund, but $210 million was

set aside for assistance to Jordan, Liberia, and Sudan. The Consolidated Appropriations Act, 2004 (H.R. 2673) allows another

$100 million of that amount to be used for assistance to Turkey

and $30 million for the Middle East Partnership Initiative.

b. Press reports are unclear about the split between loans and

grants being offered by Saudi Arabia and Kuwait, but it appears

to be about 50/50.

c. The breakdown between grants and loans in that $1 billion is

unclear.

Box 1.

Terms for Renegotiating 

International Debt Obligations

The Paris Club, an informal group of governments to

whom most debt of developing countries is owed,

usually takes the lead in providing debt reduction

and rescheduling to countries that owe money to its

member governments. Terms are determined on a

case-by-case basis and can vary considerably—from

reducing debt or interest rates to lengthening the

term of the debt to offering long or short grace periods before payments are required, among other options. 

In general, poorer, more heavily indebted countries

tend to receive greater relief. Iraq would appear to

qualify for the club’s “Houston” terms, which are

designed for heavily indebted lower-middle-income

countries. Although the Paris Club is careful to note

that debt relief is always determined with an eye to

the individual country and its particular circumstances, the terms under that category may include

repayment periods of 15 to 20 years, a maximum 10-

year grace period on payments, new interest rates set

below the market rate, and debt swaps (such as selling

the debt to an investor who then trades it to the

debtor government for something of value, such as

equity or environmental preservation).
PAYING FOR IRAQ’S RECONSTRUCTION 15

In contrast, the World Bank and the International Monetary Fund (IMF) have pledged up to $8 billion for Iraq

in the form of loans, which will require repayment. The

terms under which those loans will be made available are

not yet clear. Unlike sovereign states, which can independently set the terms of their financial assistance, the

World Bank and IMF are multilateral institutions and

must follow certain rules in determining whether a

country is entitled to receive grants or loans at zero or

very low interest rates, or whether the country must pay

market rates to borrow funds. 

The remainder of the aid pledged to date, about $8 billion, comes from various individual countries—the largest donor being Japan—and from the European Union.

Most of that aid will probably also be loans, although

the terms are still unclear. At least $3.4 billion of Japan’s

pledge is in the form of loans.

The $36 billion pledged for Iraq exceeds the amount

needed to cover reconstruction needs for 2004, as identified in the World Bank report. U.S. aid alone appears

sufficient for those immediate costs. Thus, the additional funding offered by other countries and multilateral institutions could finance a number of the mediumterm needs discussed in that report. 

As with oil revenues and debt, however, uncertainties

surround those aid commitments. For example, the

IMF’s assistance will most likely depend on the fund’s

assessment of whether Iraq needs the loans to support its

balance of payments, whether the new government

adopts strong economic programs, and whether it is able

to implement them effectively.24 World Bank assistance

will also almost certainly involve some element of conditionality on what the bank considers sound economic

and fiscal policies, as has been the bank’s practice in

recent years. Furthermore, although U.S. aid will be

placed at the disposal of the CPA, most other aid will be

provided through the United Nations. Careful planning

and coordination may be necessary to ensure that the

different financing streams complement one another and

do not work at cross purposes. In an attempt to foster

such coordination, the CPA and other donors have 

organized a group to apportion the aid coming from all

sources.25

Three Approaches 

to Reconstructing Iraq

Uncertainty about the amount of money available to the

Iraqi government for reconstruction, the time it will take

to defeat the insurgency, and the role of private investment could cause the United States and the international

community to change its plans for rebuilding Iraq. The

rest of this analysis looks at three approaches to U.S. and

international involvement in Iraq’s reconstruction that

would require different levels of investment. The approaches all take as their starting point the needs assessment conducted by the United Nations and World 

24. See “The IMF Stands Ready to Help Iraq” (statement of Horst

Kohler, Managing Director of the International Monetary Fund,

to the International Donors’ Conference for the Reconstruction

of Iraq, October 24, 2003), available at http://imf.org/external/

np/dm/2003/102403.htm.

25. For a broader discussion of the effectiveness of aid in promoting

development and economic growth in developing countries under

various conditions, see Congressional Budget Office, The Role of

Foreign Aid in Development (May 1997).

Box 2.

The Cost of Reconstructing Iraq 

on the Basis of Analogies from

Bosnia and Kosovo

A simple top-down approach to estimating how

much foreign assistance Iraq may require is to examine the amount of aid per capita that Bosnia and

Kosovo received from the international community

after the conflicts there. To date, Bosnia has been

given a total of about $1,300 in foreign aid per person, the Congressional Budget Office estimates, and

Kosovo has received about $2,200 per person. Extrapolating those numbers to an estimated Iraqi population of 27.1 million produces a range of $35 billion

to $60 billion in foreign assistance.
16 PAYING FOR IRAQ’S RECONSTRUCTION

Table 8.

The Costs of Three Approaches to Reconstructing Iraq, 2004 to 2007 

(Millions of dollars)

Approach 1:

Fully Fund Immediate (2004)

and Medium-Term

(2005-2007) Needs

as Reported by the

World Bank and CPA

Approach 2:

Fund Only

Immediate Needs

as Reported by the

World Bank and CPA

Approach 3:

Fund Immediate Needs

and Some Medium-Term

Needs as Reported by the

World Bank and CPA

Sectors Assessed Directly by the 

United Nations and World Bank

Electricity 12,122 2,377 6,131 to 8,131

Water and sanitation 6,842 1,881 4,993 to 5,898

Education 4,805 1,005 2,165 to 2,921

Agriculture 3,027 1,230 1,979 to 2,791

Transportation 2,030 574 731 to 1,060

Housing and urban management 1,831 535 1,267 to 1,377

Health 1,600 500 900 to 1,600

Private-sector development and rapidemployment programs 1,562 551 684 to 1,184

Telecommunications 1,379 469 590 to 690

Local administration and civil society 387 99 152 to 175

Mine clearing 234 80 234

Subtotal 35,819a9,301b19,826 to 26,061b

Sectors Assessed by the CPA and Provided 

to the United Nations and World Bankc

Oil 8,000 2,000 8,000

Security, police, and justice 5,000 5,000 5,000

Environment 3,500 500 500

Culture 940 140 140

Human rights 800 200 200

Science and technology 400 100 100

Religious affairs 300 100 100

Youth and sport 300 100 100

Foreign affairs 200 100 100

Subtotal 19,440 8,240 14,240

Total Costs 55,259 17,541 34,066 to 40,301

Source: Congressional Budget Office based on data from United Nations/World Bank Joint Iraq Needs Assessment (October 2003).

Note: CPA = Coalition Provisional Authority.

a. Excludes $1.8 billion required for operation and maintenance of many of the facilities in these sectors between 2004 and 2007.

b. Excludes operation and maintenance spending.

c. The estimates for these sectors were provided to the World Bank by the Coalition Provisional Authority; the World Bank did not produce

an independent assessment. The estimate for culture is based on an assessment by the United Nations Educational, Scientific, and Cultural Organization.
PAYING FOR IRAQ’S RECONSTRUCTION 17

Bank; they differ in whether they would fund those

needs only in the short term (2004) or in the medium

term (through 2007) and, if the latter, how many of the

medium-term needs would be addressed (see Table 8).

# The first approach would fully fund Iraq’s reconstruction needs as identified in the World Bank

report, at a cost of $55 billion over the 2004-2007

period.

# The second approach posits that once conditions in

Iraq were restored to the level that existed before

March 2003, any further investment would be the

responsibility of Iraq’s new government. Thus, that

approach would fund only the “immediate,” or

2004, needs identified in the World Bank report, at

a cost of about $18 billion.

# The third approach takes a middle path between the

other two. Rather than fund all of the needs identified in the World Bank report, it would establish

priorities among them once immediate needs were

covered. The funding required under that approach

could range from $34 billion to $40 billion.

The Condition of Key Iraqi Sectors

The analysis that follows looks at reconstruction needs

for five major sectors of Iraq’s economy: electricity generation, oil production, water and sanitation, education,

and health. Those sectors include about 60 percent of

the $55 billion in reconstruction needs identified by the

World Bank. (The three next largest sectors—security,

the environment, and agriculture—represent another 21

percent of the World Bank’s proposed spending plan.

The remaining 19 percent consists of needs associated

with transportation, housing, telecommunications, governance, civil society, and economic reform.)26

As a rough guide to the conditions in some of those sectors, CBO compared Iraq with other countries in the

region and other major developing countries using five

indicators of development: consumption of electricity,

rate of illiteracy, share of the population with access to

improved sanitation or water, and rate of infant mortality (see Table 9). No group of indicators is fully reliable

in determining the level or quality of a country’s development, and the statistics that underlie such indicators

are often suspect. Nevertheless, those indicators may

offer some insight into how large a reconstruction effort

the United States or others might face in Iraq and how

priorities could be set.

In 2001 (the last year for which the World Bank has

compiled a reasonably comprehensive set of data), Iraq

compared favorably with other developing countries in

terms of electricity consumption and the urban population’s access to improved water and sanitation facilities.

With respect to infant mortality, however, Iraq fared far

worse than many countries, including those much

poorer than itself. In terms of adult illiteracy, figures

from the Iraqi government put the country roughly on a

par with other nations in the region, but figures from

various international organizations ranked Iraq much

worse than its neighbors (see Table 9).

Reliable data for Iraq today, after the war, are virtually

impossible to obtain. Presumably, the indicators mentioned above did not improve between 2001 and 2003

—and judging from data in the sector papers written to

support the World Bank report, they appear to have declined since the recent conflict. Nevertheless, those indicators suggest that restoring Iraq’s electric-power system

to the level that existed in 2001 would put it in far better

shape than many developing countries around the globe.

The same could be said of Iraq’s water and sanitation

systems. However, for the health sector to be on a par

with those of other countries in the region, it would

need enough investment to return it to pre-1990 levels

or better.

26. The smaller percentages do not imply that those latter categories

are less important, only that, according to the World Bank report, they represent a smaller financial requirement.
18 PAYING FOR IRAQ’S RECONSTRUCTION

Table 9.

How Iraq Compares with Other Countries in Some Key Indicators 

of Development, 1990 and 2001

Electricity

Consumption 

(Kwh per capita)

Percentage

of Adults

Who Are

Illiterate

Percentage of 

Urban Population

with Access to

Improved Sanitation

Percentage of

Population

with Access to

Improved Water

Infant 

Mortality Rate 

(Per 1000

live births)

1990 2001 1990 2001 1990 2000a 1990 2000a 1990 2001

Iraq 1,064 1,436 40 27b

n.a. 93 n.a. 85 65 107

Iran 902 1,735 46 23 n.a. 86 n.a. 92 88 35

Egypt 679 974 52 44 96 100 97 97 66 35

Jordan 981 1,339 20 10 100 100 99 96 51 27

Syria 836 1,291 36 25 n.a. 98 n.a. 80 43 23

India 305 488 52 42 44 61 88 84 92 67

Indonesia 230 391 23 13 66 69 92 78 61 33

Philippines 353 516 10 5 85 93 93 86 41 29

Middle East and

North Africac 1,291 1,775 47 36 n.a. 94 n.a. 88 79 44

Middle-Income

Countriesd 813 1,648 22 13 75 82 95 82 48 31

Source: Congressional Budget Office based on data from the World Bank’s World Development Indicators online database; Department of

Energy, Energy Information Administration; Department of Commerce, Bureau of the Census; and Iraq’s Central Statistical Organization.

Note: Kwh = kilowatt hour; n.a. = not available.

a. No data for 2001 were available.

b. The data for Iraq’s adult illiteracy are ambiguous. This figure comes from a 2000 survey of Iraq’s adult population conducted by the

Iraqi government. CBO chose to use the figure because it represents a primary source, although the method used is unclear. Statistical

databases of organizations such as the Central Intelligence Agency, the World Bank, and the United Nations Children Fund report Iraq’s

adult illiteracy rate at 40 percent to 60 percent for the same period.

c.

the United Arab Emirates.

d. Middle-income countries, as defined by the World Bank, are those with gross national income per capita of $746 to $9,205. (Lowermiddle income would be from $746 to $2,975 and upper-middle income would be from $2,975 to $9,205.)

Approach 1: Fully Fund the Needs Identified 

by the United Nations and World Bank

This approach would fund—using external sources—the

full reconstruction effort presented in the United Nations/World Bank Joint Iraq Needs Assessment report. That

approach is consistent with statements by Ambassador

Paul Bremer, civilian head of the Coalition Provisional

Authority, that Iraq will require $50 billion to $100 billion for reconstruction. 

The goals of the World Bank and the CPA are not

merely to rebuild damage caused by the recent conflict

but to reverse much of the neglect that Iraq’s infrastructure suffered during the Hussein regime; change the

country’s economy from a socialist system to a free-market, capitalist one; and remake Iraqi governance and

society, transforming it from a dictatorship into a pluralist, liberal democracy in which the rule of law prevails

and individual rights are respected. The CPA articulated

that vision in its supplemental funding request: the objective is “an Iraq government by and for the people of

Iraq, to serve as the model for democracy in the Middle

East and to help fight the global war on terrorism by

Algeria, Cyprus, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Qatar, Saudi Arabia, Syria, Tunisia, and
PAYING FOR IRAQ’S RECONSTRUCTION 19

providing an alternative framework for governance.”27

According to the World Bank report, the “development

priorities for Iraq include: (i) strengthening institutions

of sovereign, transparent, and good government; (ii)

restoring critical infrastructure and core human services

destroyed and degraded by years of misrule and conflict;

and (iii) supporting an economic and social transition

that provides both growth and social protection.”28

Advocates of this sort of extensive reconstruction effort

argue that Iraq will need substantial international help to

transform itself into a democratic, free-market system

that can serve as a model for other Middle Eastern countries—an outcome that many regard as being in the

United States’ national security interests. The immediate

aftermath of the war and decades of neglect and misrule

by the Hussein regime left Iraq incapable of providing

for its operating expenses in 2003, much less of financing its reconstruction in 2004. Eventually, as institutions

are reformed and infrastructure rebuilt, Iraq will be able

to manage and pay for its own long-term investment

needs, supporters maintain.

Opponents of this approach would argue that although

Iraq may need some modest, short-term help, a $55 billion program over four years is too expensive, risks depriving Iraq of being able to chart its own future path,

and probably cannot be executed efficiently or costeffectively. Indeed, the historical record on the effectiveness of aid provided by one government to another is

ambiguous at best.29 Further, critics would argue, since

most of Iraq’s needs were not caused by the recent conflict but by the way the Hussein regime governed the

country, the international community should not be

responsible for rebuilding Iraq. 

Electricity. In the opinion of the United Nations and

World Bank, restoring and improving electric-power

generation will require far more resources than any other

sector. Their report estimated $12.1 billion in immediate and medium-term needs for that sector, about 22

percent of the total (see Table 8 on page 16). Overall, the

World Bank’s approach would restore the Iraqi power

system to the level of efficiency and capability it had before 1991 but would not necessarily enhance the system

further. By comparison, the CPA’s supplemental funding request proposed investing $5.7 billion in the electricity sector immediately to help alleviate shortages, an

amount roughly consistent with Bechtel’s estimate of

$6.0 billion. (The CPA allocated $5.6 billion.)

The potential continuous demand for electricity in Iraq

is 6,500 to 7,000 megawatts (MW), whereas current

electricity generation averages about 3,700 megawatts,

with a peak capability of about 4,400 MW. (That peak

figure, which is similar to the prewar average, is up from

a low of 3,300 MW in the summer of 2003.) The

World Bank proposes a program of investment that

would increase generating capacity to 4,775 MW by

2004 and 8,760 MW by 2007, anticipating that recovery and economic growth would boost the demand for

electricity (see Table 10).30 That program would also improve the infrastructure for transmitting and distributing

electricity.

The CPA hopes to reach 6,000 MW of generating capacity by the summer of 2004, but the World Bank report

says that goal “will be difficult to achieve without the

addition of significant emergency generating plants.”31

The CPA does plan to install emergency plants, but it is

not clear from available data whether they, along with

other efforts, will be sufficient to meet the 6,000 MW 

27. Coalition Provisional Authority, Request to Rehabilitate and Reconstruct Iraq, p. 3.

28. United Nations/World Bank Joint Iraq Needs Assessment, p. vi.

29. See Congressional Budget Office, The Role of Foreign Aid in Development.

30. Although the June 2003 Bechtel report is now dated, as a point

of comparison, most of the money it proposed spending on the

electricity sector would be used to build new plants over five years

to provide an additional 6,000 MW of generating capacity. According to Bechtel, Iraq was producing only about 2,600 MW of

electricity at the time that report was published.

31. United Nations/World Bank Joint Iraq Needs Assessment, p. 30.
20 PAYING FOR IRAQ’S RECONSTRUCTION

Table 10.

Summary of the Different Approaches to Reconstruction, by Sector 

and Funding Provided in the Iraqi Budget

Approach 1:

Fully Fund Immediate (2004)

and Medium-Term

(2005-2007) Needs

as Reported by the

World Bank and CPA

Approach 2:

Fund Only

Immediate Needs

as Reported by the

World Bank and CPA

Approach 3:

Fund Immediate Needs

and Some Medium-Term

Needs as Reported by the

World Bank and CPA

Electricity Sector $12.1 billion to increase

electricity generation to

4,775 MW in 2004 and

8,760 MW by 2007

$2.4 billion to increase

electricity generation to

greater than pre-March 2003

capacity or to 4,775 MW

$6.1 billion to $8.1 billion to

increase electricity generation

to 4,775 MW in 2004 and

6,000 to 7,000 MW by 2006

Water and Sanitation Sector $6.8 billion to restore water

and sanitation to

pre-1991 levels and then 

expand access by 2007

$1.9 billion to repair existing

systems damaged after the

recent conflict and looting

and then expand access

$5.0 billion to $5.9 billion

to repair existing systems

and then expand access

in urban areas

Education Sector $4.8 billion to rehabilitate

or construct schools and

higher education systems

$1.0 billion to rehabilitate

existing schools and build new

schools to relieve extreme

congestion; very little funding

for higher education

$2.2 billion to $2.9 billion to

rehabilitate existing schools

and build new ones;

very little funding

for higher education 

Health Sector $1.6 billion to raise

per capita spending

on health care to $70

through 2007

$500 million to raise

per capita spending

on health care to $70

in 2004 only

$900 million to $1.6 billion

to raise per capita spending

on health care to $62 to $70

through 2007

Total Costs of Approach $55.3 billion $17.5 billion $34.1 billion to $40.3 billion

Total Costs Minus Funds for 

Reconstruction in Iraq’s Budget

for 2004 

$54.6 billion $16.8 billion $33.4 billion to $39.6 billion

Total Costs Minus Funds for 

Reconstruction in Iraq’s Budget Plans

for 2004 to 2007

$38.6 billion $0.8 billion $17.4 billion to $23.6 billion

Source: Congressional Budget Office.

Note: CPA = Coalition Provisional Authority; MW = megawatts.
PAYING FOR IRAQ’S RECONSTRUCTION 21

goal. (The emergency plants by themselves would not be

enough to reach that level.)

According to the World Bank, electricity consumption

in Iraq averaged about 700 kilowatt hours per person in

the summer of 2003, after the war. That marked a decline of more than half from 2001, when per capita consumption exceeded 1,400 kilowatt hours (see Table 9 on

page 18).32

about 1,300 kilowatt hours per capita, based on current

average generating capacity. (For an explanation of how

generating capacity in megawatts translates into consumption in kilowatt hours per capita, see Box 3.)

Oil. The oil sector, which is expected to become a major

source of revenue for Iraq, will require significant reconstruction funding.33 The World Bank did not assess

Iraq’s oil sector independently; it adopted a CPA estimate that $8 billion will be necessary between 2004 and

2007 to improve the oil industry. The CPA did not specify what that $8 billion would buy, and CBO found

little independent information about those expenditures

(which is why they are not included in Table 10). Presumably, that amount is associated with achieving and

sustaining the Iraqi government’s export goal of 2.5 mil32. The World Bank reported that same consumption for 2002 as

well as 2001.

33. For some useful background information on Iraq’s oil sector before the war, see Guiding Principles for U.S. Post-Conflict Policy in

Iraq, Report of an Independent Working Group Cosponsored by

the Council on Foreign Relations and the James A. Baker III

Institute for Public Policy of Rice University (New York: Council

on Foreign Relations, December 2002), available at www.cfr.org/

pdf/Post-War_Iraq.pdf. See also, Department of Energy, Energy

Information Agency, Iraq Country Analysis Brief (August 2003),

available at www.eia.doe.gov/emeu/cabs/iraq.html. 

Box 3

Generating Capacity and Electricity

Consumption in Iraq

A country’s total capacity to generate electricity is measured in megawatts (MW), or millions of watts, whereas

electricity consumption is often measured in kilowatt

(1,000-watt) hours per capita per year. Assuming that generating systems ran 24 hours a day, 365 days a year, and

that all of the electricity produced was consumed, a generating capacity of 4,000 MW in Iraq would equal consumption of about 1,300 kilowatt hours per capita. The formula

for conversion is straightforward: 

4,000,000,000 watts x 

365 days per year x 

24 hours per day 

 = 1,293 kilowatt hours

27,100,000 Iraqis per capita per year

Thus, the different capacity levels discussed by the Coalition Provisional Authority and the World Bank convert as

follows:

Generating Capacity

(MW)

Consumption 

(Kilowatt hours per capita)

3,200 1,034

4,000 1,293

4,400 1,422

4,775 1,543

6,000 1,939

6,500 2,101

7,000 2,262

8,760 2,831

Those calculations assume that capacity is fully used

around the clock, with no downtime for maintenance.

Incorporating downtime would reduce per capita consumption from the numbers shown above. However, the

CPA’s and World Bank’s goals for electricity consumption

appear to already factor in downtime for maintenance or

other purposes, which means that the numbers shown here

would represent actual consumption per capita.

 Today, consumption appears to have risen to
22 PAYING FOR IRAQ’S RECONSTRUCTION

lion barrels per day, compared with the current level of

1.6 million barrels per day.34

Water and Sanitation. According to the World Bank report, this sector needs the third-largest amount of money

for investment over the 2004-2007 period, $6.8 billion.

The report proposes a program that would restore Iraq’s

water and sanitation systems to pre-1991 levels and then

expand urban and rural access to improved water and

sanitation by 15 to 30 percentage points.35 By comparison, Bechtel’s report called for spending $6.3 billion on

water and sanitation—including more than $3 billion to

improve and expand sewer services in Baghdad and

Basra, which were the focus of the company’s initial

efforts.

As with electricity, the demand for safe water and sanitation exceeds the available supply. Little of Iraq’s water

and sanitation infrastructure was damaged in the recent

conflict; its problems result from the 1990-1991 Gulf

War, long-term neglect by the Hussein regime, and looting after the recent conflict.

Education. The World Bank report envisions an investment program for the education sector of about $4.8

billion over the next four years, with the goal of restoring Iraq’s education system to the level of the early

1980s. Of that amount, $2.2 billion would be spent on

rehabilitating or constructing elementary and secondary

schools, $1.9 billion on higher education, and almost

$800 million on education supplies, such as textbooks. 

Education levels in Iraq have declined dramatically over

the past 20 years. In the 1970s, the country had one of

the best education systems in the region, with nearly

universal enrollment, and in 1985, adult illiteracy stood

at only 12 percent. By the 1999-2000 period, primary

school enrollment had fallen to 93 percent, secondary

school enrollment was less than 40 percent, and actual

attendance was even lower.36 Adult illiteracy had risen to

27 percent (or far higher, in some estimates).

Health. The assessment in the World Bank report is that

Iraq’s health care sector will need up to $1.6 billion in

funding beyond that already expected from the Iraqi

budget and private sector. Lack of data prevented the

World Bank from trying to determine the needs of the

Iraqi health care system by assessing actual infrastructure

problems or shortages, as it did with other sectors. Instead, the World Bank assessment (in conjunction with

the World Health Organization, UNICEF, and the

CPA) looked at the level of per capita funding for health

care in countries of a similar socioeconomic status. It

determined that a spending level of $70 per person based

on a gross national product per capita of $1,000—the

projected amount for Iraq—was an appropriate funding

level for the health sector. Although that level is lower

than in most of the Gulf states, Iran, or Jordan, it is

higher than the amount spent by Egypt, Syria, Algeria,

or Yemen.37

34. Sustaining an export goal requires continuous investment as well

as funding for day-to-day operations. For example, maintaining

pressure in an oil field so it continues to produce usually requires

pumping in water to take the place of the oil that is being

pumped out. If such action is not taken when required, the productive capacity of the field will eventually decline. Iraq has many

fields that cannot produce or are producing poorly but that can

begin producing again if investments are made.

35. As an example of the unreliability of data on development indicators, three World Bank publications provide three different numbers for the percentage of the urban population in Iraq that had

access to improved water in 2000. The World Bank’s online

database puts that figure at 85 percent, whereas the World Bank

needs assessment gives the number as 92 percent. The World

Bank publication World Development Indicators uses the figure of

96 percent, which would suggest no real decline in the urban

population’s access to water since 1990.

36. Iraq United Nations/World Bank Joint Needs Assessment: Education

Sector, Working Paper (October 2003).

37. The health sector is another area in which data are unreliable.

Figures for per capita health spending in Middle Eastern countries in the World Bank report differ from those published by the

World Health Organization (WHO). Although the World Bank

report did not provide a number for such spending in Iraq in

2002, one report by WHO cites a figure for 2000 of $375 per

person (at current exchange rates). However, WHO’s country

profile for Iraq reports total health spending per capita of $44.
PAYING FOR IRAQ’S RECONSTRUCTION 23

According to the World Bank report, that $1.6 billion

from the international community would probably be

spent on improving Iraq’s health care infrastructure, not

on providing ordinary health care services. Other countries’ per capita spending is not being spent on improving infrastructure to the same degree because their health

care systems have not suffered the damage and neglect

that Iraq’s has.

Approach 2: Fund Only the 2004 Needs 

Identified by the United Nations and World Bank

An alternative approach to reconstruction would be for

the international community to fund only what the

World Bank identified as immediate needs (the funding

for 2004). Such an approach, which would cost about

$18 billion, would address only the most critical problems, with an emphasis on restoring services to the levels

that existed before March 2003. After those immediate

needs were met, Iraq would have to find—and fund—its

own path to reconstruction.

Supporters of that approach might argue that regardless

of how much aid was provided, transforming Iraq into a

market-oriented country with a democratic government

could prove difficult, if not impossible. It is not clear

that any amount of money could bring about such a

transformation. Therefore, since the United States

caused little actual damage in its military campaign to

overthrow Saddam Hussein, it or other countries should

not be responsible for rebuilding Iraq beyond the conditions that existed when the campaign began. (In that

view, most of Iraq’s reconstruction needs resulted either

from years of misrule by its former government or from

the actions of Iraqis themselves, particularly the looting

and vandalism that occurred after the Hussein regime

fell.) Other advocates of this approach could contend

that giving Iraq large amounts of aid over a relatively

short period risks having the funds used inefficiently or

ineffectively. Better, they would say, to meet only immediate needs and then let Iraqis figure out for themselves

the best means and timetable for future reconstruction.

Opponents of this more limited approach, by contrast,

could argue that providing only for immediate needs

would be insufficient to support Iraq’s change into a

stable, free-market-oriented, democratic country. Without large amounts of assistance, Iraq might be unable to

provide many basic services, such as electricity, water,

and sanitation. Such inability could provoke social discontent and thus make the transition to a peaceful, democratic state difficult—an outcome that some observers

believe could harm U.S. national security. Some critics

of this approach might also argue that although damage

from the recent conflict was relatively light, sanctions

imposed on Iraq by the United Nations throughout the

1990s, as well as postwar looting, did as much harm to

Iraq’s infrastructure and society as Saddam Hussein did.

Thus, they would say, the international community has

an obligation to assist as much as possible in Iraq’s reconstruction.

Electricity. The World Bank identified about $2.4 billion in immediate needs for the electricity sector. The

short-term objective for that funding would be to restore

generating capacity to 4,775 MW in 2004 as well as to

repair transmission and distribution systems (see Table

10 on page 20). That amount of generating capacity

would exceed the level of March 2003 but fall well short

of the demand (more than 6,500 MW) that is expected

to occur when the heat of the summer returns in 2004. 

Oil. The World Bank report (based on estimates provided by the CPA) stated that Iraq’s oil sector will require $2 billion of investment in 2004 alone. The CPA’s

supplemental funding request of September 2003 specified $2.1 billion in investment for the sector. Presumably, those two estimates reflect essentially the same requirements. The CPA’s request spelled out a variety of

activities to fund, including repairing damage from the

war and postwar looting, improving security, and restoring wells and other systems. Its goal is to return susThat number seems more consistent with available information tained oil production to the prewar level of about 2.5

on the condition of Iraq’s health care system.
24 PAYING FOR IRAQ’S RECONSTRUCTION

million barrels per day, which would translate into about

2 million barrels per day for export.

Water and Sanitation. In its assessment of this sector, the

World Bank identified about $1.9 billion in immediate

funding requirements for 2004 that could not be provided from the Iraqi budget. The emphasis of those immediate needs is to repair systems damaged by looting,

vandalism, or neglect after the recent conflict. That

amount of funding would increase the share of the population with access to clean water by 15 percentage

points in urban areas and 20 percentage points in rural

areas. It would also reduce the rate of water loss by 10

percentage points by fixing visible water leaks and would

raise the urban population’s access to sanitation by 10

percentage points. Rehabilitation or improvements beyond those levels would be left to the Iraqis to finance. 

Education. The World Bank’s immediate needs for the

education sector amount to about $1 billion. Most of

that money would go to rehabilitate and reconstruct

existing primary and secondary schools. Some could also

be spent to build new schools in particularly congested

situations. (For example, some schools are operating in

triple shifts and could be targeted first.) That funding

would also provide for an immediate infusion of textbooks and other school supplies. Few investment resources would be spent on higher education.

Health. According to the World Bank, the financing gap

for health care (the amount needed to reach a funding

level of $70 per person) is $500 million for 2004. This

approach would cover that gap in 2004 but not in subsequent years.

Approach 3: Fund All Immediate Needs 

and Some Medium-Term Needs

A third approach to reconstructing Iraq could take a

middle course between the previous two plans—the

international community could pay for all of the 2004

needs outlined in the World Bank report as well as some

medium-term priorities. In this illustrative example,

such an approach would cost $34 billion to $40 billion

over the 2004-2007 period.

Advocates of an intermediate approach would argue that

funding the full World Bank program might be more

ambitious than international donors’ resources or Iraq’s

absorptive capacities would allow. It might also be more

than one country deserved, especially since many other

countries around the world are in equally bad shape as

Iraq, or worse. However, they would argue, funding

only Iraq’s immediate needs would probably be insufficient to set the country on the path to recovery, given

the poor state of its infrastructure. Providing enough aid

to meet some longer-term needs as well would be more

likely to achieve a successful transition to a freer society—and thus avoid the serious long-term consequences

(including to U.S. national security) that could follow if

such a transition was unsuccessful.

Another argument in favor of an intermediate approach

is that given the uncertainty surrounding the total cost

of rebuilding Iraq, a middle path may be reasonable.

That total cost could far exceed the amount identified in

the World Bank report—in which case, Iraq would of

necessity have to fund a substantial fraction of the reconstruction effort itself.

Opponents of this intermediate path could cite the arguments for one or the other of the approaches described

above. On the one hand, they might say that the potentially large amounts required to pay for Iraq’s total reconstruction are a reason to fund nothing less than all of

the needs identified by the World Bank. On the other

hand, they could argue that financing more than Iraq’s

immediate needs could prove counterproductive if the

country was unable to absorb the funds efficiently or if

Iraqis did not feel they had control over rebuilding their

own country. Opponents on that side might also observe

that even with all of Iraq’s recent troubles, its development indicators and natural resources put it in a stronger

position than many other developing countries.
PAYING FOR IRAQ’S RECONSTRUCTION 25

Electricity. This approach would fully fund the 2004

needs of the electricity sector as well as efforts to rehabilitate and reconstruct existing electric power systems, at a

cost of $6.1 billion over four years. If donors desired,

they could invest a further $2 billion in new systems to

expand Iraq’s generating, transmission, and distribution

systems, for total aid to the electricity sector of $8.1 billion. That range of funding would bring total generating

capacity to about 6,000 to 7,000 MW by 2005 or

2006—enough to support electricity consumption of

1,900 to 2,300 kilowatt hours per person (see Table 10

on page 20).

Oil. Because of the lack of information about needs in

the oil sector, and because of the importance of raising

oil exports to generate additional revenue for reconstruction, CBO did not choose a middle path for this sector.

Instead, it adopted the full CPA assessment of requirements through 2007. Thus, this approach—like the first

one—would spend $8 billion on the oil industry during

the 2004-2007 period, with the goal of exporting 2.5

million barrels per day by 2006.

Water and Sanitation. Besides fully funding immediate

needs, this approach would restore Iraq’s water and sanitation infrastructure to pre-1991 levels. In addition,

funding could be provided to increase access to potable

water in urban areas by 15 percentage points, reduce

water loss by 20 percentage points, and raise sanitation

coverage in urban areas by 30 percentage points. Those

activities would require total funding of $5.0 billion to

$5.9 billion over four years. (Needs cited by the World

Bank that would not be funded in this approach include

expanding water and sanitation services in rural areas

and improving trash and other solid waste removal.)

Education. As with the electricity and water sectors, this

approach would fully fund Iraq’s immediate education

needs as identified by the World Bank report. In addition, it would finance the rehabilitation and rebuilding

of existing primary and secondary schools as well as

needed textbooks and supplies through 2007. This approach could also fund construction of new primary and

secondary schools as identified by the World Bank.

However, most funding for higher education—primarily

rehabilitation and reconstruction of technical institutes

and universities—would not be covered. The amount of

funding required under this approach could range from

$2.2 billion to $2.9 billion.

Health. In light of the World Bank’s method of assessing

the level of funding required for health care, providing

an intermediate approach is difficult. Most countries in

the region spend more than the World Bank’s goal of

$70 per person on health care per year (the average for

the Middle East and North Africa is $113). However,

one alternative approach would be to spend $62 per

capita on health care, which is the level of funding in

Algeria—a much larger country than Iraq with more

than twice its per capita GDP. Reaching that level of

spending would require $900 million through 2007,

compared with $1.6 billion to reach the World Bank’s

goal. Those two amounts are the range that CBO used

for the middle approach.

The Cumulative Effect of the Oil and

Debt Scenarios and the Approaches 

to Iraq’s Reconstruction

To illustrate how much reconstruction funding might be

available to pay for those approaches, CBO examined

the combined effects of the different scenarios for Iraqi

oil revenues and international obligations presented earlier and the amount of foreign aid pledged to date. The

six oil-revenue scenarios and six debt-service scenarios

produce 36 potential outcomes; eight are shown in Table

11, including the best- and worst-case scenarios and the

one that most closely matches the assumptions used in

the Iraqi budget. (All of the scenarios assume that the

Iraqi government’s operating expenses over the 2004-

2007 period total $51.3 billion; its nonoil revenues total

$3.0 billion, including $600 million in returned funds

from the Oil-for-Food Program; and international assistance equals $36 billion.)
26 PAYING FOR IRAQ’S RECONSTRUCTION

Table 11.

The Impact of Oil Prices and Debt on Iraq’s Reconstruction, 2004 to 2007 

(Billions of dollars)

Scenario Assumptions

Total Foreign

Debt Payments

(Interest only)

Total Oil

Revenues

Funds Available

for Reconstruction

from the Iraqi

Government

Total Funds Available

for Reconstruction

(Including $36 billion

in foreign aid)

1 3.3 billion barrels of oil exports

$27 per barrel

$40 billion in foreign debt

3 percent interest rate

4.2 88.7 36.2 72.2a

2 3.3 billion barrels of oil exports

$27 per barrel

$80 billion in foreign debt

9 percent interest rate

22.2 88.7 18.2 54.2

3 3.3 billion barrels of oil exports 4.2 69.1 16.6 52.6b

$21 per barrel

$40 billion in foreign debt

3 percent interest rate

4 3.3 billion barrels of oil exports 22.2 69.1 -1.4 34.6

$21 per barrel

$80 billion in foreign debt

9 percent interest rate

5 2.3 billion barrels of oil exports 11.4 49.1 -10.7 25.3

$21 per barrel

$40 billion in foreign debt

9 percent interest rate

6 3.3 billion barrels of oil exports 33.0 62.4 -18.9 17.1

$19 per barrel

$120 billion in foreign debt

9 percent interest rate

7 2.3 billion barrels of oil exports 22.2 44.4 -26.1 9.9

$19 per barrel

$80 billion in foreign debt

9 percent interest rate

8 2.3 billion barrels of oil exports 33.0 44.4 -36.9 -0.9c

$19 per barrel

$120 billion in foreign debt

9 percent interest rate

Source: Congressional Budget Office.

Note: This analysis assumes that, as projected, the Iraqi government’s operating expenses over the 2004-2007 period total $51.3 billion

and its other revenues total $3.0 billion (including $600 million in returned funds from the Oil-for-Food Program). The analysis also

assumes that international assistance equals $36 billion, the amount pledged to date.

a. This represents the best-case scenario that CBO explored.

b. The assumptions in this scenario conform most closely with those of the Iraqi budget.

c. This represents the worst-case scenario that CBO explored. 
PAYING FOR IRAQ’S RECONSTRUCTION 27

CBO has no basis for assessing the likelihood of the various results. Nevertheless, the analysis indicates that there

are many plausible outcomes in which substantially

greater or lesser amounts would be available to pay for

Iraq’s reconstruction. For example, Scenario 1, the best

case, would provide a total of $72.2 billion over four

years for reconstruction. That amount would be enough

to fully fund the $55.3 billion in needs assessed in the

World Bank report even if little foreign aid other than

that appropriated by the United States materialized (or

enough for a larger rebuilding effort if it did). Scenarios

2 and 3 would both permit a level of investment that

could pay for almost all of the recommendations in the

World Bank report (Approach 1). Scenario 4 would

provide enough funding to carry out the intermediate

approach to reconstruction described above (Approach

3). Scenarios 5 and 6 would only permit Iraq to cover

the most immediate needs identified in the World Bank

report (Approach 2). Scenarios 7 and 8 would essentially

represent disaster for Iraq’s reconstruction efforts: much

of the foreign assistance pledged to date would be

needed to cover the government’s operating expenses,

leaving little or no money for rebuilding.38

Those results show that if oil exports and prices meet or

exceed the goals set by the Iraqi government, and if the

country’s international obligations are reduced sufficiently to permit a reasonable level of debt service, further U.S. aid beyond the $18.4 billion already appropriated may not be necessary. However, lower oil exports or

oil prices and higher levels of debt service could mean

that Iraq would need billions in additional assistance in

the years to come.

38. Those last two scenarios may understate how difficult the situation would be, as international donors would be unlikely to provide aid just to support Iraq’s operating budget.