Wednesday, September 25, 2013

Iraq’s New 5-Year Development Plan Sets Nice Goals But Will Have Little Effect Upon Policy

Iraq just issued its new 5-year National Development Plan (NDP). Its main goal is to use the country’s vast oil wealth to diversify the economy towards agriculture, industry, and other sectors. It has the same basic goals as the previous plan. The problem is that the NDP is not a real path of action for Baghdad to follow rather it just sets broad goals for Iraq. More importantly, the government does not pay attention to it when passing legislation or making policy, which means it has no real affect upon the future of the country.

September 2013, Iraq’s latest National Development Plan (NDP) was announced. Its main focus is upon diversifying the economy away from oil dependence. Deputy Premier Hussein Shahristani said that the country would use its oil revenues to build up industry. The NDP also emphasizes developing building and services, agriculture, education, transportation and communication, and energy. In farming for example, it wants Iraq to reduce imports and move towards self-sufficiency. It calls for wheat production to be expanded to 6 million tons and barley to 1.2 million tons by 2017. By doing so, it hopes to alleviate some of the differences between rural and urban areas. These goals are to be achieved by $357 billion in investment over the next five years. That would be just over 50% of predicted oil revenues during that same time period. Since Iraq is the most oil dependent country in the world, developing other industries is a necessity. Other sectors of the economy have witnessed a drastic decline since 2003 due to some ill conceived policies implemented by the Americans and Iraqis. Dependence upon petroleum also has wide ranging effects upon politics and society such as breaking the social contract between the public and the government, decreasing the competiveness of other industries, and causing corruption. The NDP recognizes these negatives that derive from the natural resource curse, and advocates for an alternative path for the country to follow.

The problem for Iraq is if the new NDP suffers the same fate as the previous one. The old development plan set out the same broad goals to diversify the economy. The issue is that neither includes a real plan for the government to follow. Instead it just sets a possible direction for the country with some broad benchmarks to reach. More importantly, the government does not base its laws or policies upon the NDP. Each development plan therefore, is simply a recommendation for what Baghdad should do, not what it actually does. For example, the NDPs have called for a huge increase in public investment, yet each budget traditionally commits 60-70% of its funds to salaries and pensions. The 2013 budget only sets aside 38% of its money for investment. Another issue is that Iraq’s politicians only think short-term. They have control of a huge amount of money each year, and want to use it to expand their own base via large patronage networks. That means more government jobs and increasing the role of state-owned enterprises even though that means less money for Iraq’s development. There are few incentives for Baghdad to change its ways, which is another reason why the NDPs are never followed.

Iraq’s economy is in desperate need of diversification. Last year the United States Agency for International Development (USAID) warned that the country was at a crossroad. It could choose to develop its other industries or become even more dependent upon oil. So far, it has followed the latter. That was despite the fact that the previous 5-year development plan called for moving away from the energy sector. That’s because the NDP is put together by the Planning Ministry, but then rarely followed up with any specific policies that could help achieve its goals. Even if it was made official policy there’s no reason for politicians to follow it. The huge revenues that oil generates allow politicians to increase the public sector by funding more and more government jobs to hand out to their followers, and leaves plenty leftover to steal as well. There is little inducement therefore to change, and to make the Development Plan a reality. The country will suffer the consequences as its future will be determined by an oil industry that it has little control over, and politicians who only think about their own selfish goals.


Al-Salhy, Suadad, “Iraq budget battle opens new front in Kurdish feud,” Reuters, 2/15/13

Salman, Raheem, “Iraq five-year plan will attempt to diversify economy,” Reuters, 9/19/13

Tijara Provincial Economic Growth Program, “Assessment of Current and Anticipated Economic Priority In Iraq,” United States Agency for International Development, 10/4/12

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