Accumulating economic crises .. Will he declare bankruptcy in Iraq?

Accumulating economic crises .. Will he declare bankruptcy in Iraq?


Accumulating economic crises .. Will he declare bankruptcy in IraqResearcher Shatha Khalil *

Iraq is facing a combination of severe shocks afflicting its economy, as the collapse in oil prices has greatly reduced the state’s fiscal budget revenues, the health crisis caused by COVID-19 and the lockdown measures necessary to contain the epidemic have dealt a severe blow to economic activities, especially services sectors such as transport and trade. Religious tourism, growing resentment over poor service provision, and rising corruption.
All these conditions are reflected in a large way on the citizen, and directly today, the fear of stopping salaries, extreme poverty, unemployment and stagnation … one crisis after another, not to mention the political instability that has become clear and unable to alleviate these crises.
The Iraqi economy is characterized by its bounties that wasted its revenues, absent investments and infrastructure, and made the country from bad to worse, with great dependence on oil revenues, that is, an economy that is not diversified.
As for the private sector, the large presence of the state in economic and commercial activities makes it difficult to create the jobs required in the private sector for a predominantly young population. Moreover, rampant corruption, weak governance and the effects of service delivery have resulted in widespread protests through weakening the overall framework for Iraq.
And the deficit problem, which has become a big gap in the public financial budget and bridging this gap through local currency bonds, which weakens the balance sheet of the Central Bank of Iraq and creates pressure on it, and the current account deficit is estimated at 18.8% of GDP in 2020, CBI can also withdraw reserves Foreign currency to less than 3 months of imports by 2022 exacerbating the country’s vulnerability to external shocks.
The Central Bureau of Statistics announced that the Iraqi per capita gross domestic product for the first quarter of this year amounted to $ 1100.
The apparatus of the Ministry of Planning said in its statistics that “the average per capita share of GDP at current prices for the first half of the current year 2020 amounted to one million and 341 thousand dinars, or the equivalent of $ 1,100, compared to the first semester of 2019 when it reached one million and 707 thousand dinars or what Equivalent to $ 1,300, a decrease of 12.3%.

And that “the average per capita GDP at current prices for the first half of this year also decreased from the average per capita GDP for the fourth quarter of 2019, which amounted to $ 1,400, at a rate of 21.4%.”
A United Nations study revealed, in 2018, that Iraq ranks 108 in the world and 10th out of 122 Arab countries, in the ranking of countries globally in terms of the level of per capita income of gross domestic product in dollars annually.
Experts, specialists and even some politicians diagnose the causes that have become clear, but the deficit has become greater than the ability to treat; The country and its economy are still suffering from a complex and highly complex crisis, and it is not easy to deal with it within the current political process, due to the unprecedented financial and administrative corruption in the whole world.
And some statistics were monitored to shed light on what the citizen suffers, so the number of those registered below the poverty line was less than 5 dollars a day, that is, around 35% of the people, 6% used drugs and hashish, and 9% were children under 15 years of age.
As for the financial sector, the total Iraqi debt reached 140 billion dollars for 29 countries, in addition to the debts of the International Monetary Fund, 6 Western oil companies, and the debts of the Paris Club.
This is if we know that our oil sales during the period 2006 and 2014 and the period of high oil prices amounted to a trillion dollars, and did not contribute to solving any problem, as the rate of waste reached 450 billion dollars.
The Corona pandemic and the oil price shock clearly revealed how much the Iraqis have lost in the last two decades, and the impact has been great on all sectors, as the educational system, which was classified at one time closest to the summit among its peers in the Middle East and North Africa, is now close to the bottom. The rate of participation in the labor force in Iraq stumbles at 42%, in addition to Iraq registering one of the lowest rates of female participation in the workforce in the world. Iraq is now facing low levels of human capital, a deteriorating business climate, and one of the highest poverty rates among the upper-middle-income countries.

In spite of all the facts that we have presented, which leads us to pessimism, but there must be a glimmer of hope, as the World Bank presented a report in which he said, “The diversification of economic activity through reform and the development of the private sector is crucial to reducing the successive challenges that Iraq faces.
This economic memorandum includes a roadmap to help Iraq and its people reconsider the existing economic model, build a stronger and more diversified economy to eliminate unemployment, and rebuild the social contract.
The World Bank affirms its partnership in helping Iraq move on the path of reform to consolidate peace and stability, and to provide an opportunity for all Iraqis to achieve their highest aspirations and hopes.
And that Iraq’s oil wealth has enabled it over several decades to rise to the ranks of high-income countries, but in many ways it has made its institutions and social and economic outcomes resemble those of a fragile, low-income country. Oil revenues have eroded the country’s economic competitiveness, reduced the need for taxation, weakened the bond of accountability between citizens and the state, and fueled corruption.

The new report identifies the main paths that Iraq can adopt to achieve sustainable growth after a thorough study of the complex political economy conditions in the country. The report stresses that Iraq should give priority to refocusing the political process on development, and raising the level of transparency in managing oil wealth and public resources. The report also highlights the urgent need for Iraq to rebuild trust between citizens and the government by enhancing citizen participation and government accountability in providing priority services and infrastructure, meeting youth employment needs, and addressing social and economic inequalities.
Despite the political and economic challenges that Iraq is currently facing, there are three areas of focus that can help achieve economic diversification, growth, and stability:

the first; Keeping the peace in itself can be a powerful engine of growth. The average per capita GDP in Iraq in 2018 was one-fifth less than the level that would have been achieved had it not been for the conflict that began in 2014, while the GDP of the non-oil sector was less by a third. In countries experiencing a vicious cycle of violence and fragility, coordinated policies by a broad coalition of actors are critical to maintaining “paths to peace” and creating a positive cycle. The report concluded that in the short term, Iraq must focus on reforms that expand social safety nets for the poor and most needy groups, improve the provision of basic services such as education and health, and ensure improved transparency in the work of government institutions.
The second; Exploiting the export potential of Iraq to help diversify economic activity away from oil production and toward trade and integration. Iraq has a geographical location that qualifies it to be a regional center for logistics services, but Iraq’s performance in terms of logistics services lags far behind the performance of its counterparts to the point that it has become a regional bottleneck.
And third, the advancement of the agricultural sector in Iraq to become a basic pillar of a more diversified economy led by the private sector. The agricultural production, food industries and related services sectors, including logistics, finance, manufacturing, and technology have great potential for expansion and job creation. The agri-food sector is not subject to the same level of government oversight that other sectors face, and therefore it is in a position to develop new methods of work and adopt the latest technologies to maximize its competitiveness.
This new Iraq economic memo builds on two previous reports from 2006 and 2012 in which the World Bank emphasized the need for Iraq to move from conflict to rehabilitation, from state dominance to market orientation, and from dependence on oil to diversifying the economy, and from isolation to regional and global integration. .

The report builds on these recommendations by (1) conducting a thorough analysis of the underlying vulnerability and political economy challenges facing Iraq and their implications for the diversified growth model; (2) Analyzing the characteristics of growth in Iraq and the potential for diversification of economic activity and the desired benefits from it, (3) Assessing Iraq’s potential for trade and regional integration in order to achieve growth; And (4) reviewing the conditions of the agricultural sector in Iraq and its potential to support diversification of economic activity.
And mobilize Iraq’s material and human energies and push them to create sustainable development and eliminate the roots of underdevelopment in Iraq, concern for education and health, eradicate illiteracy and interest in scientific research and build an advanced industry supported by national agriculture and a service sector suitable for this development and rebuilding the human being on national foundations far from sectarian

Economic Studies Unit