Economy

Historically, Iraq’s economy has been characterised by heavy dependence on oil exports and emphasis on development through central planning. Crude oil exports represent around 90 per cent of foreign exchange earnings.

The IMF projects GDP will grow by more than 12 per cent in 2012 and 10 per cent in 2013, as the country ramps up its oil production levels. The government passed a $100bn budget for 2012, its largest ever, based on average oil prices of $85 a barrel and crude oil exports of 2.6 million barrels a day. The budget takes into account a deficit of $12.6bn, most of which is expected to be covered by a surplus from higher oil prices. The government’s budget deficit is expected to be 10 per cent with a current account surplus of 9.1 per cent. Iraq has $60bn in net foreign reserves, according to the Central Bank.

Iraq has a rapidly growing economy and solid financial position, but continues to be held back by a lack of experience in dealing with the private sector and foreign direct investment (FDI). According to the IMF, Iraq’s nominal gross domestic product (GDP) is set to double by 2015/16 indicating a rapidly growing economy. The country’s debt to GDP ratio is also dropping rapidly, from 183 per cent in 2009 to 35 per cent in 2011. By 2014, this is expected to drop to 12 per cent.

But Iraq economy still has challenges. The country is still suffering from a difficult economic transition from a command to a market economy. Its legal and regulatory frameworks are under developed and, importantly, individuals and companies cannot demonstrate a track record of credit worthiness.

High unemployment is also a major problem and public sector jobs are often the only roles available. The last official figure reported was 15.3 per cent, although this was in 2008. Unofficial estimates put the 2011 figure at as much as 30 per cent.

FDI grew by 40 per cent in 2011 reaching $55.67bn. More than 27 per cent of this amount was directed in the oil rich southern province of Basra, followed by Baghdad with 19.9 per cent and the Kurdistan Region with 14.5 per cent.

While the oil and gas sector accounted for 23 per cent of FDI, the top sector for investment was real estate. According to the Construction and Housing Ministry and Planning Ministry there is a nationwide deficit of 4 million housing units, which require 650,000 new homes to be built every year to accommodate a population that is expected to grow to 38 million by 2018.

Iraq’s experience dealing with FDI is also limited. Projects can face long delays and bureaucratic setbacks. Also, companies looking to do business in Iraq face high costs due to lack of transparency, insurance costs and limited availability of debt.

Foreign assistance has been an integral component of Iraq’s reconstruction efforts since 2003. At a donors’ conference in Madrid in October 2003, more than $33bn was pledged to assist in the reconstruction of Iraq. Following that conference, the UN and the World Bank established the International Reconstruction Fund Facility for Iraq (IRFFI) to disburse about $1.7bn of those funds. The rest of the assistance is handled bilaterally. Since then, donors have some $18bn in financial and technical assistance, soft loans and trade finance. Japan is the leading soft-loan contributor, having committed nearly $3.3bn.

In 2004, the Paris Club, an informal group of officials from the 19 largest economies in the world agreed to write off 80 per cent of Iraq’s debt, which was then estimated at between $130bn and $140bn, although this is yet to be fully implemented. According to the Central Bank of Iraq, total government debt in 2010 was $92.3bn. External debt was $87.7bn, of which $45bn could be subject to debt reduction by non-Paris Club creditors. Domestic debt was just $4.6bn.