AJ
So many of you have asked why is this taking so long? or Why the delay? I have stated many times in the past the Iraq's non-oil revenues need to be higher.
It is their achilles heel. PM adviser Saleh explains why in this recent article.
Key highlights
The Central Bank of Iraq manages cash reserves efficiently, which ensures the stability of financial liquidity, and the cash reserve is a fundamental pillar to maintain the stability of the exchange rate and ensure the ability to meet the financial needs of the state.
The central bank’s reserve has exceeded the $100 billion barrier in recent months
Saleh stressed that oil prices will not fall below $70 per barrel, considering this a positive matter for Iraq, which depends on oil revenues to finance its general budget,
Historically, Iraq witnessed severe economic crises when oil prices fell, as happened in 2014 and 2020, forcing the government to take austerity measures and resort to internal and external borrowing to fill the budget deficit, so any sudden drop in oil prices may bring Iraq back to similar scenarios.
The financial adviser noted that non-oil revenues are “going properly,” referring to the government’s attempts to boost other sources of income, such as taxes, customs, and investments in non-oil sectors.
However, non-oil revenues still constitute a small percentage of the total national income, which raises questions about the government’s seriousness in achieving economic diversification. Some analysts believe that Iraq needs serious structural reforms in the industrial and agriculture sectors, in addition to enhancing the investment climate to attract foreign capital.
Also, administrative and financial corruption, as Iraq still faces great challenges in combating corruption, which is a major factor hindering economic development, in addition to unemployment and the weakness of the private sector.
Unless the business environment is strengthened and investments are encouraged, the public sector will remain the main operator, which increases the pressure on the general budget, with the exchange rate and inflation factors, as despite the stability of the Iraqi dinar, any disturbances in global markets may lead to fluctuations in the exchange rate and increased inflation.
The Iraqi government’s statements reflect optimism about the country’s ability to maintain its financial stability, but they do not hide the fact that the economy is still fragile in the face of external variables. Despite the current good monetary reserves and stable oil prices, the absence of a clear economic strategy to diversify sources of income puts Iraq in an insecured position in the long term.
IMO - The non-oil revenue number is the one to watch. We know they have raised 63 billion for investments in Iraq. It now needs to be turned into a revenue stream for the Government.