World Bank: Iraq’s Economy To Contract 9% in 2020

(GH Headline)

The World Bank released a report on Iraq’s dire economic future. It was even worse than what the International Monetary Fund (IMF) predicted earlier.

Iraq is dealing with the dual crises of the meltdown in the world oil market and the coronavirus outbreak. The Iraqi government’s revenues have collapsed as a result of the former and the later has shut down much of the service sector such as transportation, banking, trade and tourism. The World Bank believes that Iraq’s economy will contract by -9.7% in 2020. That compared to the IMF that predicted a -4.7% growth rate this year. Because of the collapse of the petroleum industry that began with the price war between Russia and Saudi Arabia that oversupplied the world and then covid-19 that destroyed demand Iraq’s oil sector will likely decline by -13%. The non-oil sector will drop by -4.4% as well. Iraq is the most oil dependent country in the world, and yet never plans for the cyclical nature of the industry. In fact, when petroleum prices are up it greatly increases spending so when things head downward it is in even greater trouble.

Last year was a perfect example of Baghdad’s lack of long term strategy. In 2019 Prime Minister Adil Abdul Mahdi increased the number of government jobs and lowered the retirement age meaning more people are on pensions, in response to the country’s protests. Iraq no longer has the money to fund those programs. Even if petroleum prices stabilize at the predicted $30 a barrel Baghdad will still be running a huge budget deficit requiring severe spending cuts. The government is unwilling to take austerity measures because it doesn’t want to anger the public and the ruling parties rely upon public jobs and pensions for their patronage networks to maintain support.

The systemic problems with Iraq’s economy will make it unable to deal with these on-going troubles. Oil dependency and a state-run economy holds up development of the private sector which is needed at a time like this to provide jobs. The business environment in Iraq, ranked 172 out of 190 countries by the World Bank, has consistently been horrible due to red tape, the lack of rule of law and bank loans, etc. Taxes and tariffs provide little revenue because few people pay the former and armed groups and political parties take many of the latter. Iraq will have to rely upon foreign and domestic loans to cover its costs as a result.

SOURCES

World Bank, “Iraq Economic Monitor, Navigating the Perfect Storm (Redux)),” Spring 2020

- “Iraq: Structural Reforms Critically Needed to Manage a Multi-Faceted crisis,” 5/4/20