DINAR REVALUATION REPORT: The Fragile State of the Iraqi Economy in 2024 and Proposed Solutions, 11 SEPT

 The Fragile State of the Iraqi Economy in 2024 and Proposed Solutions

As of September 10, 2024, the Iraqi economy is facing significant challenges that have raised concerns among economists and policymakers alike. 1 The economy has been heavily reliant on oil revenues, which account for over 99% of exports, 85% of the government budget, and 42% of gross domestic product. 1 This over-dependence on oil has left the country vulnerable to macroeconomic volatility and restricted fiscal space for countercyclical policy measures.

The Current State of the Iraqi Economy

The most recent data from January 2021 showed that Iraq's unemployment rate was more than 10 percentage points higher than its pre-COVID-19 level of 12.7 percentage points. 1 The economy has been gradually recovering from the oil and COVID-19 shocks of 2020, with real GDP estimated to have increased by 1.3% in 2021, following a sharp contraction of 11.3% in 2020. 1 The non-oil economy grew by over 6% in the first nine months of 2021, driven by a robust performance in the services sector as COVID-19 restrictions were eased.  1

The Risk of Economic Collapse

Economic researcher Manar Al-Obaidi has identified eight hidden weaknesses in the Iraqi economy, which he believes could lead to its collapse. 2 Al-Obaidi argues that the collapse is not a future event but rather a process that has been ongoing for a long time, exacerbated by fluctuations in oil prices. 2 The sustainability of the Iraqi economy is primarily threatened by its lack of diversity in revenue sources and the mismanagement of expenditures. 2

Proposed Solutions

To address the challenges and prevent a full-scale economic collapse, several solutions have been proposed by experts and policymakers. These include:

1. Diversification of the Economy: Reducing dependence on oil by developing other sectors such as agriculture, tourism, and manufacturing. 1
2. Fiscal Reforms: Implementing measures to control government spending, improve tax collection, and mobilize non-oil revenues. 1
3. Private Sector Engagement: Encouraging the growth of the private sector by creating a business-friendly environment, reducing bureaucratic red tape, and attracting foreign investment. 2
4. Job Creation: Focusing on creating productive job opportunities, particularly for the youth and women, to reduce unemployment. 1
5. Anti-Corruption Measures: Strengthening transparency and accountability to reduce corruption and improve the overall business climate. 2

Conclusion

The Iraqi economy has been facing significant challenges, exacerbated by its heavy reliance on oil revenues and the impact of the COVID-19 pandemic. To prevent a potential collapse and achieve long-term stability, the country must implement comprehensive reforms aimed at diversifying its economy, improving fiscal management, and fostering a more vibrant private sector.