Dr. Lujain Mustafa Ismail/ Ministry of Planning.
The Iraqi economy reflects its heavy dependence on its oil sector over the course of many years, which has caused exacerbating problems, in addition to the many pressures that have been imposed on it as a result of the complex financial and economic crises, as a result of the drop in oil prices, and the devastating effects that the world has witnessed, and a sharp economic decline, during the total lockdown imposed globally due to the spread of the Corona pandemic; This resulted in a set of pressures that led to the urgent need to find radical reform solutions.
The White Paper seeks to put the economy and budget on a sustainable path, to set a road map on the right path for Iraq’s economy, with an average term of 3-5 years. That is the ongoing strategic goal, upon which governmental institutions and international organizations are working on preparing responses with frameworks that contribute to the implementation of the planned economic reforms.
International organizations participate in a developmental role that contributes to supporting the Iraqi White Paper, as the relief, humanitarian and development role is less subject to interactions and differences than the political and security role that often raises doubts and questions. It is working to mobilize financial resources and technical assistance in support of the efforts made by the Iraqi government to restore the confidence of its citizens by achieving economic stability and governance to support economic reforms and support the long-term pillars of the Iraqi economy.
Iraq’s economic state in light of complex crises:
Diagnosing the economic problem is the first and effective step, if the necessary solutions are to be developed to achieve financial reform, and improve the performance of financial institutions by developing a balanced economic reform program, as Iraq suffers from several pressures resulting from financial and economic crises as a result of the drop in oil prices, the devastating effects the world has witnessed and the sharp economic decline during the total lockdown imposed globally due to the spread of the “Corona” pandemic. Iraq is one of the countries most dependent on oil in the world in terms of financing its expenditures, and over the past decade, oil revenues accounted for more than 99% of its exports, 85% of its government budget, and 42% of its gross domestic product, and this would make the country In the constant face of macroeconomic fluctuations, and until January 2021, the unemployment rate in Iraq, with a population of 40.2 million people, was more than 10% higher than its level recorded before the outbreak of the pandemic, which amounted to 12.7%.
Iraq’s dependence on oil is at a much higher level than its peers in the MENA region constitutes a severe vulnerability to fluctuations in oil prices, as evidenced by the impact of a single dollar change in the oil price on revenues as a percentage of non-oil GDP as presented in the White Paper, and accordingly, in order to advance the reality of the Iraqi economy and develop its capabilities, the development of productive capacities in the agricultural, industrial, service and other sectors is the main factor for achieving economic growth, by mobilizing local resources to finance economic activity and not relying on foreign aid, and working to attract Foreign direct and indirect investments that can support the development process, and thus Iraq will be able to compete in international markets for goods and services that go beyond the scope of primary commodities, and that do not depend on the availability of special preferences with regard to access to markets.
However, the Iraqi economy is witnessing a gradual recovery from the shocks of the decline in oil prices and the outbreak of the “Corona” virus in 2020, in the first half of 2021, the gross domestic product achieved a growth of 0.9% (on an annual basis). The non-oil economy grew by more than 21% in the first half of 2021 (on an annual basis) thanks to the successful performance in the service sectors.
The transition from the current level of low productivity and income to a high level of productivity and income by addressing the factors that led to low labor productivity in Iraq, which in 2018 registered less than half of what it was in the 70’s due to the dominance of the unproductive public sector. In addition to the decline in the tradable goods sector, and the negative effects of the non-competitive exchange rate of the Iraqi dinar, especially against the exchange rates of the currencies of Iraq’s trading partners on the agricultural and industrial sectors in Iraq over the past decades. We must emphasize here what was stated in the (White Paper), that there is a similar need to focus on the nature of the private sector and the institutions in which private sector projects are organized, and from this perspective, Iraq suffers from a clear serious institutional weakness. The local financial systems have large liquidity reserves, as there is a financial surplus and cash balance for the reserves of the Central Bank of Iraq, but the level of credit provided to the private sector and projects is relatively low, and is unable to enhance the productive capabilities of the Iraqi economy.
The economic prospects for Iraq are tainted by significant negative risks that require accelerating the implementation of structural reforms, and these risks include: the possibility of lower oil prices, the exacerbation of the COVID-19 crisis due to the spread of new variants, the possibility of deteriorating security conditions, the intensification of climate change shocks, and the occurrence of more volatility in the overall economy. Avoiding or mitigating the impact of the risks of negative developments depends on the future policies of the government and the commitment to carry out comprehensive reforms in line with what was stated in the White Paper, which represents the government’s program to achieve economic reform in the country.