An Idea On Economic Challenge

Unemployment or underemployment is at an all-time high. Inequality is growing, with many people excluded from the economic process in the world. Poverty is widespread, and progress is slow. In such a scenario, certain countries are bound to face an economic crisis, Iraq being one of them. 

Iraq’s economy has undergone a collapse in the past year, prompting the country’s currency, the dinar, to be devalued by 23 percent. As the country grapples with interconnected economic, political, and security concerns, many voices are clamouring for greater authority over local decision-making. 

Challenges Facing the Iraqi Economy

Iraq is one of the world’s most oil-dependent countries. Oil income has accounted for more than 99 percent of exports, 85 percent of the government’s budget, and 42 percent of GDP over the previous decade. This over-reliance on oil exposes the economy to macroeconomic instability, while budgetary constraints limit fiscal headroom and any chance for counter-cyclical policies. Unemployment among displaced people, returnees, women job searchers, pre-pandemic self-employed people, and informal labourers remain high.

The Iraqi ministry of finance needs to ensure that Iraq’s budget responds to the needs and goals of local communities. Decentralisation attempts on the budget or in other sectors will not fix Iraq’s numerous governance issues without complete changes, but they may be a start in the right direction. While the government is working towards modernising an economy dominated by a vast and inefficient state sector, it is plagued by issues from the previous administration and worsened by a ferocious insurgency. Iran has also been accused of influencing Iraq’s political destiny by deploying hundreds of Iranian officials and pouring large sums of money into Shiite electoral campaigns. Despite present disagreements and previous charges, the Iraqi government tries for cordial partnerships while avoiding interfering in one another’s business.

Recent Developments Affecting Iraq’s Economy

The draft budget for 2021 proposed by Prime Minister Mustafa Kadhimi is now being debated in parliament. Many of the earlier proposals to slash government spending, including severe cutbacks to the public sector, have been abandoned. Iraq’s public sector debts eclipsed the state’s vast oil profits in 2020, partly due to the significant decline in demand caused by the COVID outbreak. 

In comparison to 2019, federal export income roughly fell. Iraq’s fiscal deficit balance is expected to be higher than in 2004. The dinar’s depreciation is intended to stretch out government oil earnings as far as possible to address the nation’s rising deficit.

Such technical strategies are necessary, but owing to the country’s lingering governance issues and rampant corruption, such proposals will not address the core reasons for the country’s ongoing political and economic woes.

History of Iraq’s Economy

Oil revenues nearly quadrupled between 1973 and 1975, allowing the Baath regime to set ambitious development goals such as building industry, reducing the amount of imported manufactured goods, expanding agriculture (though Iraq has not achieved self-sufficiency), and significantly increasing non-oil exports. Infrastructure investment was significant, particularly for irrigation and water supply projects, roads and trains, and rural electricity. 

Health-care services were also considerably enhanced. However, the 1980s war with Iran slowed numerous projects and severely destroyed the country’s physical infrastructure, particularly in the southeast, where most of the fighting took place.

Control By the State

The socialist Baath Party ruled the economy with rigorous bureaucratic controls and centralised planning. Between 1987 and 1990, the economy was somewhat liberalised to attract private investment, particularly in small industrial and commercial firms, and to liquidate unproductive governmental assets.

However, any examination of a US-Iraq strategic partnership must consider these challenges, which fall into a few key categories:

• Iraq is dependent on its petroleum industry for much of its economic growth. Hence, most of its government revenue and self-financed development and security activities are in the short and medium term.

• Other sectors of the Iraqi economy, including manufacturing and agriculture and numerous government services, such as health and education, face significant issues.

• The impact of foreign help, where the Special Inspector General for Iraq Reconstruction (SIGIR) and other reports show that the US and other international aid initiatives have fallen well short of their aims and have sometimes done more harm than good.

Conclusion

Iraq is in a difficult position regarding its relationships with its neighbours. Iraqi cabinet ministers have accused Syria of shielding former regime members, supporting insurgent activities, and facilitating border crossings for insurgents from several Arab nations. 

The interim Iraqi government has surmounted significant challenges to construct a framework for economic restoration and head into the Second U.S.-Iraqi Joint Economic Commission in Washington. New legislation has been enacted to promote investment and open banking. And although passing legislation is relatively straightforward, implementing legislation needs time and social acclimation.