Announcing a gradual recovery..Finance issues an important statement on the Iraqi economy and the dollar exchange rate

  •  Time: 11/14/2021 12:03:57 
  •  Reading: 2,210 times 
Announcing a gradual recovery..Finance issues an important statement on the Iraqi economy and the dollar exchange rate

{Economic: Al Furat News} The Ministry of Finance justified its adoption by raising the exchange rate of the dollar “to supplement national production, protect the reserves of the Central Bank of Iraq and support the budget.” 

And she said in a lengthy statement that the agency {Euphrates News} received a copy of it: “The Ministry of Finance has borne the burdens of a stifling financial crisis during the past three years that threatened the state’s ability to fulfill its obligations that were already burdened by the burdens of a large legacy represented by the inflation of the public spending rate and the rise in the wage bill, which threatened the insurance of Salaries of its employees, in light of a sharp drop in world oil prices and a dangerous health situation due to the consequences of the Corona pandemic (𝗰 𝗰 𝗰 table𝗱-19) on the national economy and its repercussions on the economic reality and the social fabric, the Ministry of Finance continues to balance the need for prudent public financial management with its obligations to ensure the protection of the most vulnerable And the neediest.

She indicated the support of the international community for the policies of the Ministry of Finance, and the International Monetary Fund and the World Bank approved the management of public finances under very difficult circumstances, and the World Bank issued its semi-annual report on the Iraqi economy, which the Ministry reissues below for the benefit of the honorable public.

The Iraqi Economy (Reality and Prospects)

Economic growth has begun to recover gradually following the downturn caused by the Corona pandemic last year, in part due to the increase in non-oil activity. It is expected that the improvement in the global oil market conditions will boost economic growth in the medium term and turn financial and external balances into surpluses from 2021, to reverse the recent rise in debt. The main downside risks are due to potential epidemiological developments, fluctuations in oil prices, setbacks in the security situation, and impeding the implementation of economic reform.

Main conditions and challenges

Iraq is one of the most oil-dependent countries in the world. Over the past decade, oil revenues accounted for more than 99% of its exports, 85% of the government budget, and 42% of GDP, an excessive dependence on oil that exposes the country to macroeconomic fluctuations.

The Corona pandemic had a significant impact on Iraq’s GDP in 2020, which shrank by 15.7%, and budget revenues shrank by 9% to reach 32% of GDP, which led to a sharp decline in public spending and investments.

As of January 2021, the unemployment rate increased by more than 10% than it was before the pandemic, which was 12.7%.

Concerns related to food security persisted despite the recent increase in families receiving social benefits from the government, primarily the salaries of the social protection network and food rations from the ration card system, as well as the efforts made to provide vaccines to treat the Corona epidemic.

While the economic conditions in Iraq are gradually improving with the recovery of international oil markets, this recovery is also fraught with major risks posed by structural constraints, including public investment management constraints that have affected the delivery of public services, and the slow repayment of overdue debt, especially those related to wages. The public and state-owned banks and the Central Bank of Iraq bear the burden of sovereign debt. Not to mention the fragility of the political situation, the weak health care system, and endemic corruption that continues to foment unrest across the country.

The white paper is a comprehensive framework for addressing dependence on oil and structural problems, and represents a medium-term strategic framework for comprehensive economic reform decisions.

Recent Developments

The economy is gradually recovering from its double shock in 2020 represented by (the drop in oil prices and the outbreak of the Corona pandemic), as the statistics indicate the GDP by 0.9% for the first half of 2021, and the growth of the non-oil economy by more than 21% in the first half of the year 2021, and this is due to the strong performance in the service sectors after easing measures to prevent the emerging corona virus, after the spread of the vaccination campaign and the decrease in infections. This recovery reduced lagging in the oil sector, by 10% in the first half of 2021, as Iraq adjusted its share in OPEC early in the year. Since then, OPEC has gradually increased the production share of member states, which was reflected in an increase in GDP. The general and core inflation rate in Iraq in the period from January to July 2021 reached 5.2% and 6.2%.

The financial statements for the first half of 2021 show significant gains in budget revenues (42% increase) as the average export price increased by at least $64 per barrel. These budget gains were also multiplied by the financial effects of last year’s devaluation. In addition, the reforms of the General Customs Authority and the General Tax Authority contained in the 2021 budget law began to bear fruit, as sovereign revenues increased by 53% than they were previously. Which contributed to reducing the public budget deficit.

Externally, the current account deficit also turned into a surplus of 4.7% of GDP in the first quarter of 2021, which contributed to the rise in the total official reserves of the Central Bank of Iraq by about 5 billion US dollars to reach 58.5 billion US dollars in the first quarter of 2021 compared to $54 billion at the end of 2020.

a future vision:

The prospects for the Iraqi economy have improved with the recovery in global oil markets, but the spread of new coronavirus variables and climate change challenges pose new risk factors. The economy is expected to gradually recover on the back of higher oil prices and an increase in OPEC production quotas that are due to be phased out in 2022. Oil GDP will be the main driver of growth in the medium term. It is expected that the non-oil GDP will improve, but it will remain with an average growth of less than 3% between the years 2021-2023 due to the mutated generations of the Corona pandemic, in addition to the challenges facing the Iraqi economy, foremost of which is the lack of water and electric power, which affects agriculture and industry.

The high indicators of the poverty line, which were linked to a direct relationship with the rise of the Corona pandemic, in addition to some of the social turmoil facing Iraq for years, require appropriate planning to achieve effective social goals.

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