Population 33.635 million
GDP 130.574 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
1 |
9.9 |
11 |
13.5 |
|
Inflation (yearly average) (%)
|
2.5 |
6 |
7 |
6 |
|
Budget balance (% GDP)
|
-9 |
7.5 |
4 |
6.5 |
|
Current account balance (% GDP)
|
-2 |
7.5 |
9 |
10.5 |
|
Public debt (% GDP)
|
107 |
40.5 |
35.5 |
32.5 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Substantial natural resources (oil and gas)
- Debt cancellation and a moratorium enabling an economic restart recovery on a more sustainable basis
- International aid supporting economic reconstruction and investment development efforts
WEAKNESSES
- Economy very exposed to fluctuation in hydrocarbon production and prices
- Ethnic and religious rivalries complicating the establishment of the rule of law and fuelling the risk of civil war
- Infrastructure repair needed after twenty years of war followed by seven years of chaos
- Insecurity and institutional weaknesses delaying reconstruction and investment
Risk assessment
Expansion still dependent on the hydrocarbon sector and the security situation
The economy will continue to expand in 2013 on the back of continuing high oil prices and still rising production, thanks to service contracts with international oil companies for oilfield rehabilitation and development. Moreover, higher public spending – for investment and current expenditures – will boost economic activity. Higher running expenses will have a knock-on effect on private consumption, since the Iraqi public sector accounts for a third of the country’s employment.
Insecurity and violence remain, however, the main obstacles to an improvement in basic services such as water and electricity, and to economic development. Strong variations will persist in the regions, depending on their degree of ethnic and religious homogeneity. In regions with fewer political and religious tensions, such as Kurdistan and the provinces in the South and West, strong economic growth is expected, while in certain areas in the Centre and the East expansion will continue to suffer.
Fiscal deficit contained and renewed rise in the very substantial external account surplus
The economy remains almost wholly dependent on hydrocarbon exports, an essential source of fiscal revenues and foreign currency earnings.
The strong rise in public spending in 2013, especially in investment, will result in a slight worsening of the fiscal deficit, despite increased revenue from hydrocarbon exports. On the other hand, the cancellation of 80% of the 2004 debt stock and the rescheduling of the balance from 2011, agreed by the Paris Club public creditors, make it possible to reduce government debt ratios to easily sustainable levels.
Meanwhile, the rise in oil exports will also lead to a renewed increase in the substantial current account surplus, despite growing demand for imported capital and consumer goods. Although this means Iraq has no external financing needs, it could, nevertheless, make use of long-term loans. Iraq benefits further from large foreign exchange reserves (about thirteen months of imports) and the unofficial pegging of its currency to the dollar.
Security and political situation and business environment still critical
There has been a resurgence of violence since the withdrawal of American combat troops in late 2011, despite the relative improvement in the security climate from 2007.
Iraq’s different rival political factions and various communities – the Shiite majority, the Sunni minority and the Kurds – are represented in the government of national unity, led by the Shiite Prime Minister, Nouri al-Maliki, since the end of 2010. However, the threat of a collapse of the coalition remains, as can be seen from the arrest warrant issued at the end of 2011 against a former vice president, the Sunni Tariq al-Hashemi. Furthermore, since late 2012, the absence from the political stage, for health reasons, of the Kurdish President Jalal Talabani, deprives Iraq of an effective mediator, at a time when many Sunnis in several regions of the country are protesting against the policies of the Shiite prime minister, which they perceive to be discriminatory against their minority.
The normalisation of the situation will also depend on successful resolution of key issues concerning the hydrocarbon law, the status of Kirkuk, the sharing of wealth and the amendment of the constitution. The most likely outcome is maintenance of the status quo with power-sharing between communities in the framework of a weakened state.
In this context, the business climate will remain overshadowed by institutional weaknesses, corruption and the ineffectiveness of an administration prone to struggles for political, religious and regional influence, all these factors being likely to affect payments and debt collection.
