Why doesn’t Iraq have a “sovereign fund” to get it out of the “rentier economy”?
Why doesn’t Iraq have a “sovereign fund” to get it out of the “rentier economy”?
2025-02-01
As Iraq’s economic challenges continue, calls are growing to establish a US dollar sovereign fund that would be used to invest oil revenues in economic and development projects that would enhance the country’s financial stability.
In this context, Mustafa Akram Hantoush, a researcher in financial and banking affairs, stressed the necessity of establishing such a fund, indicating its importance in achieving financial stability and enhancing investments.
According to Hantoush’s statement to “Baghdad Today”, Iraq has several local financial funds such as the Development Fund, the Retirement and Social Security Funds, and the Education and Training Funds, but all of these funds are denominated in Iraqi dinars and are inactive due to their inability to engage in major investments of an international nature.
Dinar or dollar?
He explained that the Iraqi dinar is an internal currency that cannot be used in foreign transactions or large investments, which makes these funds ineffective in generating profits that support the economy. Therefore, Iraq is in real need of a sovereign fund in US dollars through which oil revenues can be invested instead of remaining in the US Federal Reserve without direct use. He stressed that this fund will enable Iraq to enter into safe investments that generate large profits, especially in the oil and gas sectors, which will contribute to achieving financial stability that supports the national economy. He added that effective management of this fund will ensure strategic investments that contribute to enhancing government revenues and reducing dependence on oil fluctuations, as part of the revenues can be directed to development projects such as infrastructure, energy and technology, which will enhance Iraq’s financial independence in the long term.
Successful experiences
Experts cite successful international experiences in establishing sovereign funds, such as the Norwegian Sovereign Fund, which is one of the largest investment funds in the world, as it invests oil revenues in a variety of assets to ensure financial sustainability for future generations.
Gulf countries such as Saudi Arabia, the UAE and Qatar have also succeeded in establishing huge sovereign funds that have contributed to diversifying their economies and reducing dependence on oil as a primary source of income. However, Iraq faces major challenges that may hinder the establishment of such a fund, including weak political stability and its impact on major economic decisions, in addition to administrative corruption that may hinder the proper management and investment of the fund’s funds, and legal and legislative challenges related to establishing and managing the fund according to good governance standards, in addition to fluctuating oil prices and their impact on the flow of financial revenues.
Positive effects
Some economists believe that establishing a sovereign fund could help reduce dependence on international aid and external loans, and could help stabilize the Iraqi dinar exchange rate and reduce inflation. In addition, using the fund’s money to support infrastructure, housing, health and education projects instead of relying entirely on the general budget would enhance social and economic stability.
On the other hand, the Iraqi government may face political or partisan opposition to the establishment of this fund, as concerns may arise about its use for non-economic purposes or its being subject to political tensions that affect its independence. Despite all these challenges, successful experiences in other countries remain evidence of the importance of such funds in achieving financial sustainability, which prompts the need for Iraq to take a serious step in this direction.
Establishing a US dollar sovereign fund is a strategic step that could contribute to achieving long-term economic stability for Iraq by investing oil revenues in productive projects that promote growth and sustainable development. As calls for the establishment of this fund escalate, the most important question remains: Does the government have the political and administrative will necessary to realize this vital project?
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