Officials: Iraq’s economic prosperity requires revolutionary steps, the first to withdraw from OPEC and to do these steps

Officials: Iraq’s economic prosperity requires revolutionary steps, the first to withdraw from OPEC and to do these steps

2017/07/28 10:09

Officials - Iraqs economic prosperity requires revolutionary steps the first to withdraw from OPEC and to do these stepsBaghdad today – follow-up

BAGHDAD (Reuters) – Iraq’s federal government’s commitment to an OPEC deal to cut oil production has exacerbated financial crises in the country it has sought to compensate through loans from abroad, Iraqi officials said.

Iraq faces a severe financial crisis that has forced it to borrow billions of dollars to compensate for financial expenses as oil revenues plummet, amid warnings of major consequences for the country’s economy.

Iraq is suffering from political, economic and security difficulties due to its war against terrorism, as well as falling oil prices, which led to imbalances and a record deficit in the public budget, officials said.

Iraq, OPEC’s second-largest oil exporter, agreed in November to cut its total output by 1.2 million barrels per day (bpd) from January to restore market balance.

The organization returned weeks ago and extended the agreement to nine months ending in March 2018.

Iraq relies mainly on its financial revenues on the export of crude oil by 97 percent, while currently working to activate the industrial, agricultural and commercial, to provide additional revenue.

Iraq ranks ninth among the world’s richest natural gas countries after Russia, Iran, Qatar, Saudi Arabia, the United Arab Emirates, America, Nigeria and Venezuela, with proven reserves of 143 trillion cubic feet of natural gas, with total gas reserves of 98.3 trillion cubic feet. Zahir al-Abadi, a member of the Committee on Oil and Energy in the Iraqi parliament that the identification of oil production of Iraq in the current stage, has significantly affected the volume of financial revenues, noting that his country has the ability to increase oil exports, after the introduction of many oil wells for service.

“Iraq has agreed to cut oil production and agreed to commit itself in an attempt to stop the deterioration of crude oil prices in world markets,” Abbadi said. “When comparing the prices of the oil that is deteriorating before OPEC and the oil market now after the agreement, Iraq. ”

The Iraqi official pointed out that «the size of financial losses after the oil agreement exists but less than expected before the agreement, as oil prices continued to deteriorate under the increase in the global supply of crude, pointing out that Iraq is currently working to increase the production of oil fields after the agreement».

Iraq has agreed to cut production by 210,000 barrels per day to 4.35 million barrels per day; Iraqi oil ministry officials say Baghdad has fully complied with the agreement.

Iraq relies on oil sales revenues to finance up to 95 percent of state expenditure; the decline in crude prices since 2014 has had a major impact on its economy.

Low revenues

“There is a severe financial crisis in the country that has been accumulating for years, as a result of the low annual financial revenues, but the crisis is worsening on a daily basis, especially with the increase in expenditures,” said Sarhan Ahmad, a member of the Iraqi parliament’s finance committee.

“Iraq has entered into international financial commitments with billions of dollars in loans, such as the Japanese, French, English, Qatari and other loans, which the government will have difficulty repaying, in the absence of a long-term government vision of the country’s economy,” Sarhan said.

He pointed out that «Iraq’s withdrawal from the agreement« OPEC »to reduce oil production, requires a government with a clear economic and financial policy, and this is what Iraq is missing now».

“Facing the financial crisis requires a series of practical measures taken by a strong government, notably controlling domestic spending and ending corruption,” Sarhan said.

According to economist Majid al-Suri, a member of the administrative body of the Central Bank of Iraq, the financial revenues of the Iraqi government, has risen slightly over the past months, but still below the level of ambition because of the lack of internal measures, which will revive the economy and raise the value of revenue.

“Financial revenues have increased over the past months, and this has been reflected in the Iraqi parliament’s approval of a supplementary budget for this year’s budget, but of course it would have been possible to generate greater financial revenues if a series of internal measures were taken to reduce dependence on oil,” he said.

He explained that «control of border ports and the activation of the industrial, commercial and agricultural sectors, had a significant impact in increasing the volume of financial revenues of the state, and reduce dependence on oil in the near-constant prices in world markets».

Two simultaneous crises

According to a research note issued late last year, the International Monetary Fund (IMF) says Iraq has faced two simultaneous crises since the second half of 2014: the state-led insurgency and the oil price shock. “These two crises have had severe effects on the economy, structural weaknesses and imbalances have been exacerbated; political instability in 2014 has led to a decline in consumption and investment in the private sector and constrained government spending, particularly on investment projects,” the IMF said.