France as a New Actor in the Caucasus
September 16, 2021
Qatari Elections: A Turning Point for the Arab Peninsula?
September 27, 2021
In the past period, the Iraqi economy faced a double challenge, as is the case with most oil-exporting economies, in light of the simultaneous decline in global oil prices, with the pressures resulting from the negative repercussions of the Coronavirus pandemic crisis, which caused the formation of a blurry picture regarding economic growth. In addition, the inflation of government debt in most economies, especially for the economies of the developing and emerging countries adds a negative connotation. The impact of this double challenge varies from one country to another, within the oil-exporting countries, according to several criteria, including the extent to which the economy of the concerned country depends on oil as a source of income, and the extent to which the economy is exposed to the repercussions of the Corona crisis. In addition there are two other criteria, one of which is related to the procedures and plans adopted by the government to deal with the economic repercussions of Corona, and the other is related to the availability of the necessary capabilities for this in the hands of the government.
Double effect:
The Iraqi economy, like other economies, faced the challenge of the Corona crisis, which coincided with the decline in oil prices by rates of up to 80% compared to their levels before the crisis. While oil is being a major source of income for the Iraqi economy, the impact of the crisis was multiplying on it, as the International Monetary Fund estimated that this economy shrank by up to 12% in 2020, due to the Corona conditions, which caused a sharp decline in its oil revenues. This expanded the state budget deficit and the current account to rates of 20% and 16% of Iraq’s GDP, respectively.
As a result of all these pressures that the Iraqi economy faced during the first year of the Corona crisis, its output fell to 178 billion dollars, compared to about 230 billion dollars before the crisis, and its government debt rose to about 66% of GDP, instead of 46% before the crisis.
The deprivation of the Iraqi economy from foreign exchange inflows during the year 2020 also caused pressure on the government’s ability to spend, whether it was related to planned public expenditures within the budget, or related to the government’s ability to emergency spending, within the framework of implementing stimulus plans, to support the economy in order to face the pressures of the crisis. It happened in many countries of the world, in order to support growth and spare the labor market the loss of jobs, by helping companies and private sector institutions to maintain employment levels and support the most affected social groups.
Positive indicators:
With the passage of more than a year since the outbreak of the Corona crisis at the international level, and the Iraqi economy, like other economies, entering its second year of the crisis, the government has worked to approve a general budget for the new year, taking into account the developments imposed by that crisis. In this context, the Iraqi parliament recently approved a government budget for the year 2021, with a value of 130 trillion dinars, or approximately $89.65 billion, with an expected deficit of about 28.7 trillion dinars ($19.79 billion). According to lawmakers in Parliament, the new budget adopts an average oil price of $45 a barrel throughout the year, and expects the country’s oil exports to average 3.25 million barrels per day.
According to the conditions prevailing in the oil markets now, it is not difficult for Iraq to achieve its goals related to the aforementioned general budget. Rather, the recent rises in oil prices, reaching about $75 a barrel at the present time, where the average of these prices was at $65 during the second quarter of the year The current trend, and its average rise to $75 a barrel in the third quarter, according to Goldman Sachs Bank, all point in the direction that Iraq will be able to achieve better than expected in terms of its general budget, whether it is related to the volume of revenues or the deficit.
In light of this, it is likely that the general budget will turn from deficit to surplus at the end of 2021, especially since the expected average oil price throughout the year will undoubtedly exceed the level of the oil breakeven price estimated by the International Monetary Fund for Iraq, which amounts to 64 dollars per barrel during the current year. This is in addition to growing hopes for the continued growth of global demand for oil, which Goldman Sachs expects to reach 100 million barrels per day by the end of the year, which enhances the chances of Iraqi daily oil exports reaching the level planned in the budget.
Exceptional opportunity:
The Iraqi economy has great opportunities to enhance performance and return to growth during the coming period, by obtaining exceptional returns through the convergence between the Iraqi government and the Gulf Cooperation Council countries, a convergence that will enable the economy to obtain new investments that were not available to it before. The Iraqi Prime Minister Mustafa Al-Kazemi visited Saudi Arabia and the UAE, in the context of strengthening economic relations with the GCC countries as a whole. On the sidelines of the visit, Saudi Arabia announced the launch of a joint investment fund with Iraq worth $3 billion, and the UAE also announced its intention to pump new investments in Iraq worth 3 billion dollars. In the event that the positive Iraqi trend towards the GCC states continues, it is expected that the Iraqi economy will receive more Gulf investments, which represent a new tributary for it, which is a catalyst for it to overcome the difficulties it has experienced over the past years.
In conclusion, the Iraqi economy appears to be on the verge of a positive stage of performance, in light of these new data, such as the International Monetary Fund’s expectations, issued in October 2020. They indicated that this economy would achieve growth of about 2.5% at the end of 2021, in the light of some developments. There could be a continuation of positive events, regarding global oil prices, as well as the flow of Gulf investments into Iraq, which is expected to increase during the coming period, it is likely that Iraqi growth will exceed this level expected by the Fund, and that the economy will gradually get rid of the pressures associated with the budget deficit, government debt and the current balance deficit. However, despite this, achieving these remains dependent on many factors, the most important of which are the economic policies followed by the government, and its ability to help the economy find a way out of the crisis, as well as maintaining its positive approach in its external orientations.
Disclaimer. The views and opinions expressed in this analysis are those of the authors and do not necessarily reflect the official policy or position of MEPEI. Any content provided by our authors is of their opinion and is not intended to malign any religion, ethnic group, club, organization, company, individual, or anyone or anything.
