Will Al-Kadhimi be able to end the Iraqi headache?
Shafaq News/ Mustafa Al-Kadhimi and his government need to devote themselves to open the outstanding economic files quickly, for the repercussions of the economic crisis threaten everyone with an explosion that leaves nothing behind.
The general deterioration of living conditions doesn’t need economic skill to reveal the hidden, for everyone knows what is happening from ordinary citizens to local officials, parliamentarians and members of the government, who might be unlucky-or lucky if they done their job - for taking the responsibility at a time Iraq is going through one of the hardest stages economically.
There is a general optimism that Al-Kadhimi’s government may be better than its predecessors, as it came after more than one attempt to form a government after Abd Al-Mahdi’s resigned.
This optimism is compulsory also, as people’s hopes are on the brink of vanishing after their living conditions became so bad that it’s no longer acceptable by any sane person, in a country that’s supposed to be amongst the richest for its large oil resources.
Saddam Hussein’s black era ended 17 years ago, and the idea of wasting Iraq’s resources previously is no longer acceptable to justify the fragility of the economic situation after all these years.
It is true that Iraq has gone through difficult security and military challenges during the past years, but Iraqi people do not feel the enormous benefits of oil wealth, or the plans for reform and development that successive governments promise and hardly verify anything about.
For example, one of Adel Abd Al-Mahdi's speeches in November 2019, shortly after the start of the demonstrations, which included a list of promises shared on his Facebook page, particularly highlights the ironic pledges that officials made over the years, then Iraqis gradually discovered that they’re nothing but fantasy.
What did Abd Al-Mahdi pledged? He said that increase the non-oil resources is a priority , enhance the economy and employment opportunities, control external and internal debts, create a budget capable of managing the economy, adhere to the government program, strengthening supervision, implement "serious" reforms, resolve outstanding financial problems including the oil that’s exported from Kurdistan and organizing projects (valued at 17 billion dollars) and activate them, after disabling them led to the loss of more than 350,000 employment opportunities.
There’s no need to say that most of the points that the former prime minister spoke about were not achieved.
One might say that four major events hindered the possibility of achieving them: The emergence of the demonstrations, ISIS, the outbreak of Corona virus, and the collapse of oil exports.
Some of this might be true, but it is important to recall that Iraq has achieved revenues during the past 17 years, with hundreds of billions of dollars, for example, the state achieved oil revenues amounting to about 84 billion dollars in 2018, so where did all this money go? While basic infrastructure is in dire straits, including electricity, water and unemployment.
Iraq can be described by numbers that can clarify the reality away from political-economic analysis, reveal the size of the contradictions and give legitimacy to the questions and concerns of Iraqis, which places Al-Kadhimi before the difficult challenge of expectations. So what can he do?
The numbers paint a picture of an Iraq that Iraqis do not want.
This country has the fifth largest reserves of crude oil, estimated at 150 billion barrels (about 8.8% of the global reserve), about 4.3 million barrels per day is produced, and the majority of it is exported abroad, which makes Iraq among the top five in exporting this vital commodity to the world’s economy.
Iraq, which is the second largest oil producer within "OPEC", due to the collapse of oil prices globally and the disruption of production and export capabilities because of Corona virus, achieved only 1.4 billion dollars of oil revenues during April.
This disabled the government’s ability to pay its public sector’s employees’ salaries, compensations and other government expenses, estimated at 4 billion dollars.
Ali Abd Al-Amir Allawi, Iraqi Finance Minister, acknowledged last Monday that things are "difficult" regarding the financial affairs in the country, adding "But salaries and people’s livelihoods are among the first concerns and priorities of the government."
To clarify the size of the economic gap that Iraq fell into, a member of the Parliamentary Finance Committee Jamal Kojer told Shafaq News Agency that "the Iraqi government has no solution but to resort to internal and external loans to fill the deficit in 2020’s budget, confirming that, "Iraq needs 15-20 billion dollars to fill the budget deficit."
However, “Jefferies Group" for financial services in New York considers that Iraq needs 40 billion dollars. While foreign governments and finance ministers such as the International Monetary Fund have pledged to support Iraq, while " Jefferies group “ believes that "Iraq is bigger for the creditor countries to bear", and that the Iraqis need to rely on themselves by adopting harsh austerity measures in the budget and reduce the size of the government.
It is known that Iraq has not yet approved the country's financial budget for the current year as a result of the demonstrations that forced Abd Al-Mahdi’s government to resign on December.
At the same time, Iraq lost 11 billion dollars due to the collapse in oil prices, according to statistics of State Organization for Marketing of Oil (SOMO) Company.
The horizon is gloomy and the annual performance is the worst since 2003 according to the World Bank assessment, which expects Iraq's Gross domestic product (GDP) to decrease by 9.7%.
It is considered that the demonstrations reflect the fragility of the social and economic system in Iraq, the World Bank is concerned that the healthcare system does not have sufficient operational and financial capabilities to contain and control Corona virus risk.
Instead of fighting corruption, implementing deep structural reforms, and stimulating the private sector to create employment opportunities for the youth, according to the World Bank, the government has undertaken extensive recruitment processes in the public sector and increased pensions and social transfers.
More than that, the World Bank notes that during 2019, most investment expenditures went to oil-related sectors, and the rate of implementation of investments in non-oil sectors was only 18%, which raised concerns about the level of public service delivery, the increasing infrastructure gap and the discontinued reconstruction program.
According to the World Bank, Iraq faces an acute financing gap, which results will not be limited to postponing the implementation of the vital infrastructure projects in the services sectors, but also the implementation of capital building programs. It will also limit the government's ability to meet the needs of economic recovery after Corona epidemic ends.
The Representative of the Secretary-General of the United Nations in Iraq, Jeanine Hennis Plasschaert confirmed during a briefing of the UN Security Council, that "Iraq’s economy is expected to decrease by 9.7% in 2020, with poverty rates rising to about 40%. It is expected that significant losses would happen in work incomes, as well as a decrease in economic opportunities.”
Iraq can resort to its cash reserves, (estimated at 63 billion dollars), but it needs a government decision that has the approval of the Parliament. And while the last budget was put on the basis that the price of the oil barrel is 56 dollars, it now ranges up to only 30 dollars.
In 2019, the economy was growing by 3.9% after the end of ISIS war, as oil exports improved to 4.7 million barrels per day, stimulating the reconstruction movement that requires 88 billion dollars. However, the International Monetary Fund, now expects negative growth of the domestic production to negative 4.7 in 2020, knowing that last year's budget was a record size, as it was estimated at 111 billion dollars.
It is estimated that the public debt constitutes 51% in 2019, and will increase slightly in 2020 and 2021 even if the government deals effectively with this situation.
Ali Al-Alaq, the governor of the Central Bank of Iraq, says that “Iraq is under the burden of external debt, which amounts to 23 billion dollars, while internal debts amount to about 40 trillion Iraqi dinars. However, that debt does not include the 40 billion dollars that represents the outstanding debts for the period before 2003, it is believed that most of it is in dispute with Saudi Arabia.
The general situation cannot be deferred, as The UNICEF indicates that one out of every four children lives in poverty, and there are four million children who need direct assistance.
There are no accurate figures on the rate of unemployment, but they are certainly high enough among the youth in a country where the state is the largest employer.
According to the World Bank, during the recent years, the state employed 4 out of every five people who got jobs in Iraq. Iraqis under the age of 24 make more than 60% of the population.
According to the Washington Post, employment in Iraq majorly depends on family and tribal connections, as well as bribes.
According to statistics provided by the Iraqi Ministry of Planning, the poverty rate during 2018 was about 20% in general, but in some provinces it was much higher. In Al-Muthanna it recorded 52%, Al-Diwaniyah 48%, and Maysan 45%.
The agricultural sector, despite its importance in a country that a quarter of its land is fertile due to Tigris and Euphrates, with a population of about 40 million people, still institutes only 2% of the general local production. Therefore, Iraq is forced to import most of its food needs from abroad.
According to CIA data, the state remains the largest player in the Iraqi economy that is highly dependent on the oil sector, providing it with 85% of its income and foreign currencies.
Anyway Al-Kadhimi started his movement to deal with the economic crisis, for this purpose, he met the Special Representative of the World Bank in Iraq, Ramzi Numan.
As the Prime Minister’s Office said in a statement received by Shafaq News Agency, “the two sides discussed ways to coordinate work between the Iraqi government and international institutions to overcome this economic crisis and work to launch economic reform efforts that would encourage investment and reconstruction, enhance the service reality as well as provide job opportunities.
It is hard to imagine that immediate economic plans will be sufficient to prevent the economic-financial collapse, unless Al-Kadhimi announces a comprehensive economic emergency plan.
Al-Kadhimi’s government needs a fundamental treatments of Iraq’s economic policies, diversify its options, and then announce an economic emergency rescue plan that certainly includes a war against inherent potential corruption networks. Without this, Al-Kadhimi’s government might soon end.