Monday, August 9, 2010

On Going Issues With Iraq’s Economy

On May 25, 2010 the Special Inspector General for Iraq Reconstruction met with officials from Iraq’s Central Bank. The two sides went over issues that currently face Iraq’s economy. The Inspector General came away with four key areas that needed to be addressed: the budget, public sector jobs, oil, and banking.

First, the government can’t track its own funds because of a lack of accounting and transparency within the bureaucracy. That means officials don’t know how much money is actually spent, what is wasted, and what goes unused.

Second, the government employed three million people, which was around 10% of the population. That was the highest amount ever. The number of public employees has doubled since 2005. Private sector jobs have increased in recent years as well, but are still low pay and insecure. Baghdad has talked about free market reforms for years, but has presented no specific plans on how to do so. Until then, private businesses face a difficult environment

Third, the Oil Ministry has ambitious plans to boost its production this year by 150,000 barrels a day with the help of foreign companies. The Central Bank and Inspector General questioned whether that was possible due to aging infrastructure and decreasing output from northern oil fields. The Central Bank also claimed that oil smuggling had decreased, but in a separate meeting the Oil Ministry’s Inspector General said that was not true.

Last, the private banking sector was still struggling. In March 2010 the Finance Ministry criticized them, claiming that they had not helped develop the country and needed stricter regulations. As a result, the Finance Ministry cut ties with them and refuses to take their checks. There are also legal and technological issues, which are disincentives for foreign banks to operate in Iraq. 

Iraq still has a state-run economy. That means the public sector continues to dominate everything from jobs to oil to banking. At the same time, that huge bureaucracy is inefficient, holds up development, and impedes the private sector. Iraq’s 2010 National Development Plan is supposed to address some of these issues, but still depends upon petroleum revenues and the government. Until there is a real commitment to economic reform in Iraq, it will continue to face these problems.

SOURCES

AK News, “Finance ministry rails against private banks in Iraq,” 3/28/10

Daood, Mayada, “what’s the plan? fears of renewed central control,” Niqash, 5/25/10

Department of Defense, “Measuring Stability and Security in Iraq,” 2/15/10

Hafidh, Hassan, “Iraq Seeks 150,000 Barrel A Day Rise In Oil Output By Year End,” Dow Jones, 7/26/10

Inter-Agency Information and Analysis Unit, “Iraq Labour Force Analysis 2003-2008,” United Nations Office for the Coordination of Humanitarian Affairs, January 2009

Special Inspector General for Iraq Reconstruction, “Quarterly and Semiannual Report to the United States Congress,” 7/30/10
- “Quarterly Report to the United States Congress,” 4/30/10

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