Download the Country Brief (PDF) Iraq has abundant human and natural resources: a population of about 30 million, the world’s third-largest oil reserves, considerable gas reserves, and ample water resources. It attained the status of a middle-income country in the 1970s, developing good infrastructure and well-performing education and healthcare systems. However, over the past 25 years, dictatorship, wars, and international sanctions have undermined the country’s institutions and crippled its economy. GDP fell by 41 percent in 2003. The economy rebounded in 2004, growing by 46 percent, but annual growth slowed over the 2005-2007 period, with real GDP growth at 1.5 for 2007. This is mainly due to high insecurity and weak institutions and governance. However, growth was higher in 2008 due to significant improvements in the security environment and increased oil exports combined with higher international oil prices and is now estimated to have reached 9.5 percent.  Per capita income is now projected at about US$3,000 for 2008. The oil sector still dominates Iraq’s economy, accounting for two-thirds of GDP and over 98 percent of exports and government’s own revenues.  Between 2004 and end 2007, oil production averaged at about 2.0 million barrels per day (mbpd), below government targets and below the pre-2003 levels. High world oil prices, however, have boosted oil revenues significantly. Oil production and export volumes have picked up as well during 2008, reaching record highs since 2004 of 2.4 mbpd and 1.9 mbpd respectively. This is mostly due to the recent security gains in Iraq. Growth is also driven by consumption, which was pushed up by steep increases in salaries and pensions in the past three years. Agriculture, which has historically been an important employer, suffers from lack of investment and distorted input and output prices. Although there are significant data constraints, earlier surveys indicated that poverty and human development indicators had worsened in the 1990s and did not improve much in recent years. The 2007 Household Survey conducted with the support of the World Bank estimated overall unemployment at 11.7 percent. It is higher among younger adults (20-24 years old): 16.9 percent for men and 35.7 percent for women.   Service delivery continues to be patchy and unreliable. Only 12.5 percent of persons whose dwelling is connected to the public network report that their supply of water is stable. Furthermore, only 22.4 percent can rely solely on the public network for electricity to their housing unit. The government continues to provide large untargeted subsidies for food, fuel, and utilities. The Household Survey will help the authorities design efficient, targeted programs for the most vulnerable groups. Since 2003, Iraq has taken steps to reintegrate into the international financial system. In September 2004, the IMF approved the first stabilization program for Iraq in three decades, opening the way to a Paris Club agreement to write off 80 percent of Iraq’s debt in three stages over 2004-2008. The second and final review under the Stand-By Agreement with the IMF has been successfully completed on December 17, 2008, paving the way for the entry into force of the third and final phase of the debt restructuring agreement with Paris Club creditors. Negotiations are underway with the remaining non-Paris Club creditors, mainly the Gulf countries. Iraq resolved most private creditors claims. Outstanding claims with private creditors constitute only about 4 percent of total original claims.  Iraq has gained an observer status in the World Trade Organization, and in December 2004 submitted a request for full membership. Iraq has undergone rapid political transition.  A constitution was approved through public referendum in October 2005, followed by parliamentary elections in December 2005, and a constitutional government was appointed in May 2006. The current government – in power since Spring 2006 – has moved to get key reforms back on track, such as reducing fuel subsidies, liberalizing fuel imports, reforming the pension system, and introducing a targeted safety net for the poor.  Iraq maintained macroeconomic stability and good economic performance in 2008. End-2008 inflation reached 6.8 percent, compared to 4.7 percent in 2007 and 64.8 percent in 2006. The overall fiscal situation in 2008 was positive due to high oil revenues. Revenues totaled nearly $73 billion and capital spending rose substantially over 2007 levels partially as a result of budgetary and public financial management reforms.  The Central Bank of Iraq successfully stabilized the exchange rate at about 1,170 Iraqi Dinars per US dollar.  Direct fuel subsidies were phased out during that period. There are no more direct subsidies on fuel products, except for a small subsidy on imported kerosene. The highly insecure environment of the past three years and the transitional nature of Iraq as a state and an economy have impeded reconstruction efforts, and the delivery of basic services; and have created a large displacement problem. The key area in which the economy continues to exhibit vulnerability is investment spending. Capital spending remained below the budgeted amount. In addition, as widely reported, the Iraq conflict has generated the largest refugee crisis in the region since 1948 with an estimated1.6 million Internally Displaced Persons (IDPs) since February 2006 and about 1.5 million refugees, mainly in Syria and Jordan. Displacement in Iraq has slowed but still occurs in some locations. As of March 2009, approximately 18 percent of total IDPs have returned to their place of origin. The country’s main challenges are to reinforce the recent security gains and restore the rule of law. Iraq also needs to strengthen public sector governance, including public finance management, and tackle corruption. Furthermore, the recent fall in oil prices in the wake of the global economic crisis and the ensuing deterioration of Iraq’s fiscal situation in 2009 are clear reminders of Iraq’s extreme dependence on oil revenues. After holding fiscal surpluses in the order of 8.8 percent of GDP and 1.5 percent of GDP in 2007 and 2008, respectively, Iraq is projected to have an overall fiscal deficit of nearly 26 percent of GDP in 2009. As a result of Iraq’s oil dependence, its nominal GDP is projected to plummet from about $91.5 billion in 2008 to $70 billion in 2009. Iraq’s abundant natural and human resource base could be the engine for a remarkable economic diversification and socioeconomic revival if conditions in Iraq are conducive. Bank Group Relations The Bank’s overarching objective is to help Iraq use its own resources more effectively to support private sector-led growth and deliver basic services. Bank support aims at helping the country build efficient, inclusive, transparent, and accountable institutions as needed for stability, good governance, and sustainable economic prosperity. Better institutional frameworks, policies, and systems will improve the efficiency and effectiveness of both national expenditures and international aid. The Bank’s assistance is currently guided by a Third Interim Strategy Note (ISN) for FY09-11, which was discussed by the Bank’s Board of Executive Directors in March 2009. The ISN provides a framework for a World Bank administered Iraq Trust Fund as well as World Bank financed resources. The strategy focuses on implementing the current portfolio of about US$1 billion, capacity and institution building and knowledge sharing. It provides for additional IBRD financing of up to US$500 million to the existing portfolio. The World Bank Iraq Trust Fund finances 21 grants, totaling US$506 million to provide textbooks, schools, pharmaceuticals and health clinics, improved social safety nets, water supply and sanitation, irrigation and drainage, electricity, environment management, support public financial management, banking and private sector development, and a comprehensive household survey. The ITF focuses on helping Iraq build effective institutions and systems to deliver basic services and lay the groundwork for sector restructuring and long-term sustainability of investments. Nearly all Iraq Trust Fund grants are implemented directly by Iraqi governmental authorities, which help minimize security costs and maximize local employment, build capacity, and increase local ownership and sustainability. Details on the World Bank Iraq Trust Fund are available at: www.IRFFI.org. In late 2004, Iraq became eligible for exceptional Bank lending under IDA (the Bank’s concessional assistance window). Since then, the Bank has approved five IDA projects amounting to US$508.5 million, fully utilizing Iraq's IDA allocation to finance projects in education, roads, electricity, and water. The Bank is also undertaking a large program of advisory and technical assistance work to support the core objective of building capacity in Iraqi institutions for more effective and transparent use of their national resources. This work focuses on public sector governance; poverty and social safety nets; and growth and private sector development. All dollar figures are in US dollar equivalents. September 2009 For more information, please contact:
In Washington: Najat Yamouri, Phone: 1 (202) 458-1340; Fax: 1 (202) 522-0003; Email: nyamouri@worldbank.org |
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