Iraq Economic Monitor Toward Reconstruction, Economic Recovery and Fostering Social Cohesion With a Special Focus on Transition to Poverty Targeted Cash Transfer System Fall 2018 Middle East and North Africa Region M cro conomics, Tr d Inv stm nt Iraq Economic Monitor Toward Reconstruction, Economic Recovery and Fostering Social Cohesion With a Special Focus on Transition to Poverty Targeted Cash Transfer System Fall 2018 M cro conomics, Tr d Inv stm nt Cover photo of the Mosul Dam, Iraq courtesy of Anmar Qusay. TABLE OF CONTENTS Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix ‫ملخص تنفيذي‬ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Chapter 1  Recent Economic and Policy Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Political and Social Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Output and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Oil Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Access to Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Poverty, Equity and Vulnerabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Labor Markets and Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Business Environment and Private Sector Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Public Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Inflation, Money and Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 External Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Chapter 2  Economic Outlook and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Economic Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Risks and Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Chapter 3  Special Focus: Transition to Poverty Targeted Cash Transfer System in Iraq . . . . . . . 27 Pre-reform Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 The Reform Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Looking Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Appendix: Selected Data on Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Selected Recent World Bank Publications on Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 iii List of Figures Figure 1: Casualty Figures Have Been Decreasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Figure 2: Overall GDP Growth Is Estimated to Rebound in 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 3: After a Marked Contraction, GDP Per Capita Is Estimated to Have Improved Since 2017 . . . . 3 Figure 4: A More Stable Security Environment Is Expected to Increase the Share of Non-Oil Industry to Growth, Especially Services in 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Figure 5: Non-Oil GDP Growth Has Exceeded that in MENA Oil Exporters since 2017 . . . . . . . . . . . . . . .4 Figure 6: Non-Oil Investment Is Estimated to Increase in 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Figure 7: Foreign Direct Investment Declined since 2014 due to Insecurity and Poor Business Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Figure 8: Oil Production Remains the Primary Driver of the Growth Despite Declining by 3.5 Percent in 2017 and Expected to Remain Flat in 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Figure 9: Oil Prices Are Estimated to Further Increase in 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 10: Oil Revenues Are Estimated to Increase Around US$82 Billion in 2018 Sustained by Higher Oil Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 11: Only about 50% of Energy Billed Is Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Figure 12: Electricity Tariffs Remain Low and Heavy Burden on the Budget . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 13: The Wage Bill Is the Largest and Fastest Growing Expense in the Government Budget . . . . . 11 Figure 14: Iraq Is an Outlier in Terms of the Wage Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Figure 15: Large Ratio of Public Sector to Population Compared to Comparators . . . . . . . . . . . . . . . . . . 12 Figure 16: The Public Sector Dominates in Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Figure 17: Unemployment Has Significantly Increased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 18: Unemployment Among Women Is Very High, Especially for Youth . . . . . . . . . . . . . . . . . . . . . . .14 Figure B1: Labor Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure B2: Youth Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 19: An Unfavorable Business Environment Remains a Significant Deterrent to Foreign Investment, but Reforms on the Way . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 20: Ease of Doing Business Slightly Improved, but Remains Below the Average of MENA . . . . . 16 Figure 21: The Quality of Governance Remains Critical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 22: The Fiscal Position Is Estimated to Improve Due Mostly to Higher Oil Prices . . . . . . . . . . . . . . 18 Figure 23: The Share of Non-Oil Investment to GDP Is also Expected to Increase . . . . . . . . . . . . . . . . . . . 18 Figure 24: Public Debt-to-GDP Ratio Is Estimated to Decline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 25: Total Debt Service Will Remain Large . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 26: Inflation Remains Low but Will Likely Increase at 2 Percent in 2018 . . . . . . . . . . . . . . . . . . . . . .19 Figure 27: Rising Food Prices and Transportation Costs Led to Some Pick-Up in Inflation in June and July 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Figure 28: Broad Money Is Estimated to Stabilize in 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 29: Higher Oil Prices Are Estimated to Consolidate the Current Account Surplus in 2018 . . . . . . 21 Figure 30: International Reserves Are Estimated to Increase as Well . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure B3: Global Growth has Eased but Remains Robust at an Estimated 3 Percent in 2018 . . . . . . . . . 25 Figure B4: Growth in MENA Region is Estimated to Pick Up to 3 Percent in 2018 . . . . . . . . . . . . . . . . . . .25 Figure 31: Incidence of Public Transfers in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 iv IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION List of Tables Table 1: Iraq: Selected Economic and Financial Indicators, 2014–2020 . . . . . . . . . . . . . . . . . . . . . . . . . .33 List of Boxes Box 1: Job Creation in the Short-Run in Iraq1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Box 2: Global and Regional Economic Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Box 3: Proxy Means Test for Poverty Targeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Table of Contents v ABBREVIATIONS AML/CFT Anti-Money Laundering and Combating IDPs Internal Displaced Persons of Terrorism Financing ILO International Labor Organization Bpd Barrel per day IHSES Integrated Household Socioeconomic BOP Balance of Payments Survey CWG Cash Working Group IMF International Monetary Fund CBI Central Bank of Iraq INUR Iraq National Unified Registry CCT Conditional Cash Transfer INOC Iraqi National Oil Company CGE Computable General Equilibrium IPP Independent Power Producers CoMs Council of Ministers ISIS Islamic State of Iraq and Syria CoRs Council of Representatives KRG Kurdistan Regional Government CPI Consumer Price Index MDTF Multi Donor Trust Fund CSO Central Statistical Organization MOLSA Ministry of Labor and Social Affairs DB Doing Business MENA Middle East North Africa Region DfID UK Department for International OPEC Organization of Petroleum Exporting Development. Countries DNA Damage and Needs Assessment PDS Public Distribution System DPF Development Policy Financing PFM Public Financial Management EMDEs Emerging Market Developing Economies PMT Proxy-Means Testing EODP Emergency Operation for Development PPP Public Private Partnerships Project RDF Reconstruction and Development ESSRP Emergency Social Stabilization and Framework Resilience Project SBA Stand-By Arrangement FATF Financial Action Task Force SFD Social Fund for Development FDI Foreign Direct Investment SOEs State Own Enterprises GCC Gulf Council Countries SPC Social Protection Commission GoI Government of Iraq TBI Trade Bank of Iraq GDP Gross Domestic Product TSP Transmission Service Provider GW Giga Watt UNDP United Nations Development Program ICA Investment Climate Assessment UNOCHA United Nation Office for the Coordination ICPI International Corruption Perception Index of Humanitarian Affairs ICRG International Co-operation Review Group WB World Bank ID Iraqi Dinar WDI World Development Indicators IEA International Energy Agency WGI World Wide Governance Indicators vi ACKNOWLEDGMENTS T he Iraq Economic Monitor provides an The report was prepared under the direction update on key economic developments and of Kevin Carey (Practice Manager, MENA MTI) and policies over the previous six months and Saroj Kumar Jha (Country Director, MNC02). Several presents findings from recent World Bank work on reviewers offered helpful comments and advice. Iraq, placing them in a longer-term and global context These included Benu Bidani, Ghassan Alkhoja, Hana and assessing the implications of these developments Brixi, Lili Mottaghi, Matthew Wai-Poi, Rene Antonio and other changes in policy regarding the outlook for Leon Solano and Yara Salem. Iraq. Its coverage ranges from the macro-economy The findings, interpretations, and conclusions to financial markets to indicators of human welfare expressed in this Monitor are those of World Bank and development. It is intended for a wide audience, staff and do not necessarily reflect the views of the including policy makers, business leaders, financial Executive Board of the World Bank or the governments market participants, and the community of analysts they represent. For information about the World Bank and professionals engaged in Iraq. and its activities in Iraq, please visit www.worldbank. The Iraq Economic Monitor is a product of org/en/country/iraq (English) or www.worldbank. the Middle East and North Africa (MENA) unit in the org/ar/country/iraq (Arabic). For questions and Macroeconomics, Trade & Investment (MTI) Global comments on the content of this publication, please Practice in the World Bank Group. The report was led contact Ashwaq Maseeh (amaseeh@worldbank.org), by Bledi Celiku (Economist). The report is authored by Bledi Celiku (bceliku@worldbank.org), or Kevin Carey Ashwaq Maseeh (Economist). The Special Focus is (kcarey@worldbank.org). authored by Dhiraj Sharma (Economist). Muna Abeid Salim (Senior Program Assistant) provided outstanding administrative support. vii EXECUTIVE SUMMARY I raq’s overall security situation has notably recent report by U.N. Office for the Coordination of improved after the defeat of ISIS, but Humanitarian Affairs (UNOCHA) estimates that of significant challenges lie ahead. Iraq has the almost 6 million people displaced since the rise witnessed major political and security transitions of ISIS in 2014, some 2.0 million remain displaced in 2017 when Prime Minister Al-Abadi announced at the end of June of 2018, and about 8.7 million in December the victory over ISIS after a war that need humanitarian assistance. Stabilization and lasted three years. The defeat of ISIS in Iraq left the reconstruction needs in areas liberated from ISIS are government with the daunting tasks of rebuilding extensive. Dire living conditions, including economic the country’s infrastructure, reconstruction of hardship, insufficient basic services such as health, liberated areas, establishing security and stability, water, and sanitation, are faced by the 3.9 million and providing services for the return of the displaced returnees, and are behind the reluctance of many persons. On May 12, 2018 Iraq voted in parliamentary displaced to return home. Agricultural production elections that delivered a win for a political bloc led by has declined by 40 percent leaving nearly 1.9 million Moqtada al-Sadr, while PM Al-Abadi’s bloc, once seen Iraqis food insecure; 7.3 million people require health as front runner, came in third. The ballots have been care; 5.4 million need water and sanitation assistance recounted after allegations of fraud and completed and 4.1 million people need shelter (UNOCHA 2018). on August 8th without major change. On September Following the successful liberation from 15th, Iraq’s parliament elected lawmaker Mohammed ISIS of all Iraq territory, the Government is al-Halbousi as speaker, marking a major step towards putting in place a comprehensive reconstruction establishing a new government. On October 2nd, package. The recent damage and needs assessment Iraq’s parliament elected as president Barham Salih, conducted by the Iraqi Ministry of Planning jointly who immediately named Adel Abdul Mahdi Prime with the World Bank estimated the overall damage at Minister-designate, ending months of deadlock after US$45.7 billion, and more than US$88 billion in short the national election in May. and medium-term reconstruction needs, spanning Humanitarian conditions remain difficult in various sectors and different areas of the country. many conflict-affected areas. The toll of four years US$30 billion worth of commitments were made mostly of intensive combat on Iraq’s civilian population has in the form of loans and guarantees at the International been enormous. The conflict claimed the lives of over Conference for the Reconstruction of Iraq, which 67,000 Iraqi civilians since 2014, before the casualty took place in February 2018 in Kuwait. At the same figures started to decrease at the end of 2017. A time, the government endorsed the Reconstruction ix and Development Framework (RDF) to reconstruct identify the poor. The GoI committed to adopt a unified the liberated areas, forging a renewed social database of eligible households based on the PMT contract based on citizen-state trust and sustainable system across all different social protection schemes. developments and reforms. At the Kuwait conference, Despite military success, Iraq continues to the World Bank pledged a total of US$6 billion to face political tensions and social unrest. Large support the GoI’s reconstruction and development protests against increasing unemployment, corruption agenda making it the biggest development financing and poor public services erupted in July this year, partner of Iraq. Furthermore, in April 2018, Iraq’s particularly in Iraq’s second largest and oil-rich city, Council of Ministers approved a 5 years National Basra, and spread to other cities including the capital Development Plan (2018–2022) which focuses on Baghdad. The government responded with pledges key issues including provincial construction, poverty to increase spending on electricity and water projects reduction, and social and private sector development. (ID3.5 trillion) and create 10,000 jobs. A new commission However, reconstruction has been slow due to political was created to investigate corruption and other factors uncertainty following elections but more needs to be inhibiting service delivery. More sustained actions to done urgently to restore basic services and rebuild meet protesters’ demands will be possible when a critical infrastructure. new government is in place. The new government is Poverty has risen sharply. The national expected to focus on prioritizing inclusion, economic poverty rate increased from 18.9 percent in 2012 to an reforms, justice, and accountability, while ensuring the estimated 22.5 percent in 2014. Recent labor market timely delivery of basic services. statistics suggest further deterioration of welfare. Relations with KRG are improving after the The unemployment rate, which was falling before the rupture related to the independence referendum crises, has climbed back to the 2012 level. Almost a in 2017. The relations between Baghdad and Erbil quarter of the working-age population is underutilized, have been strained since last year’s referendum on i.e., they are either unemployed or underemployed. regional independence on September 25th, which was Many households are prone to adverse shocks; more considered illegitimate by the Federal Government, than a third of the households has experienced an and on budget transfer issue in early 2018. However, adverse event since the beginning of the crises and tensions between the federal government and the one in six households has experienced some form KRG eased when the federal government agreed of food insecurity. The universal food ration (Public to temporarily resume transfers that seem to have Distribution System, PDS) remains the most extensive largely addressed the region’s immediate needs, and social assistance program, but people have also KRG total revenue is sufficient to pay salaries and turned to friends and relatives and humanitarian pensions. agencies for assistance. Internally displaced persons Economic conditions are gradually improving (IDPs) have been buffeted by multiple adverse following the deep economic strains of the last shocks: they have lost much of their wealth through three years. The 2017 rebound of economic growth destruction of assets; they have seen family members was constrained by oil production in line with OPEC+ die, get sick, or become injured at a higher rate; and agreement. In 2018, overall GDP growth is estimated they have faced loss of jobs or businesses. Fewer IDP to return positive at 1.9 percent thanks to a notable adults have a job, so each employed adult in an IDP improvement in security conditions, higher oil prices, household supports more than six other household and expected higher public and private investment. members. Some IDPs have lost access to the PDS. The Non-oil growth is estimated to show a strong rebound cumulative impact of these developments on IDPs is at 5.2 percent this year, underpinned by broad-based visible in several dimensions, including a higher risk of growth in agriculture, industry, and services. Inflation hunger. The GoI is implementing an ambitious reform was low in 2017 at just 0.1 percent, but increased to improve targeting of social spending, following the demand pushed inflation at 1.7 percent in July 2018. introduction of a Proxy Means Testing (PMT) system to Higher domestic demand and increased credit to the x IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION economy (albeit from a low level) will likely further governance, national reconciliation and peacebuilding, increase inflation to average 2.0 percent in 2018. social and human development, infrastructure, and Iraq’s fiscal position is estimated to economic development. Since July 2015, the World continue to benefit from higher oil prices. In 2018, Bank is supporting the reconstruction efforts with the overall fiscal balance is estimated to post a surplus the Emergency Operation for Development Project of 1.2 percent of GDP due mostly to higher oil prices. (EODP). In October 2017, the World Bank approved The plunge in world oil prices in 2015–16, increased a US$400 million additional financing to the original security and humanitarian outlays and weak controls project (US$350 million) to focus not only on the basic led to sharply lower oil revenues and rapidly widened infrastructure but also on health and education, with the budget deficit. It narrowed in 2017 due to the pick- a special attention to the needs of the marginalized up in oil prices and measures adopted to contain youth and women in those areas affected by ISIS. In current expenditures within the framework of IMF February 2018, the World Bank approved the Iraq’s program and World Bank DPF series. With oil prices Social Fund for Development (SFD) project financed expected to rise, the government will have ample with US$300 million, to improve the living conditions of fiscal space to finance reconstruction, provided that over 1.5 million poor households in Iraq by increasing the process of fiscal consolidation continues. Official access to basic services and creating employment financing for the budget has been less urgent with opportunities. This was followed in April 2018 by the the improvement in the fiscal position. KRG’s fiscal approval of the Emergency Social Stabilization and position is also estimated to relatively improve in 2018, Resilience Project (ESSRP), financed with US$200 with the federal government agreeing to reinstate million to increase livelihood opportunities, access transfers to pay salaries and pensions. to psychosocial services, and expand the provision Iraq public debt is estimated to further of social safety nets. In addition, efforts are under decline and to remain sustainable. Growth and the way to establish a Multi Donor Trust Fund (MDTF) positive overall fiscal balance are estimated to further for coordinated dialogue and donor financing of reduce public debt-to-GDP ratio from 67.3 percent in socioeconomic recovery and reconstruction and 2016 to almost 55 percent in 2018. The government deepening critical government reforms. also adopted a framework to control the issuance The outlook is expected to improve of guarantees, which reached US$33 billion (or 20 considerably due to higher oil prices and the percent of GDP) in end-2016 and these guarantees, improving security situation. Overall GDP growth most related to the electricity sector, are now believed is projected to accelerate to 6.2 percent in 2019 to be under control. In previous years large fiscal sustained by higher oil production. In the following deficits have been mainly financed through bilateral years, oil production is expected to increase only and multilateral support, occasional sovereign bond marginally, reducing overall growth to an average of issuance and indirect monetary financing by the CBI. 2.5 percent until 2023, due to the limited capacity of Higher oil prices since mid-2017 have also the GoI to mobilize investment in the oil sector. Non- been conducive to better outcomes on external oil growth is expected to remain positive on the back balance. Higher oil prices turned the current account of higher investment needed to rebuild the country’s balance from a deficit of 9 percent in 2016, into a damaged infrastructure network, private consumption surplus of 1.2 percent of GDP in 2017 and 2.1 percent and investment. But sustained non-oil recovery will of GDP in 2018. International reserves are estimated to depend on the transition from an immediate rebound increase from US$49 billion in 2017 (or 6.8 months of as security improves to implementation of a high- imports), to US$58.3 billion (or 7.7 months of imports) quality investment pipeline with sound financing. A in 2018, rebuilding buffers to external shocks. more stable security situation will allow for private The World Bank is supporting the GoI consumption and investment to pick up, increasing in this critical moment to address recovery import needs for consumer and capital goods. Inflation needs. Supported projects prioritize five key pillars: is projected to remain low at 2 percent in 2019. EXECUTIVE SUMMARY xi Fiscal and external balances are likely recovery in the conflict-affected governorates. to continue improving as higher oil prices feed Setbacks in security and/or a crisis over formation of through to higher revenues. Largely driven by the government could weaken growth. While the policy expected higher oil prices and fiscal consolidation, priorities of the new government remain unknown, the fiscal position will remain positive in 2019 but will there is a risk of weak policy implementation and turn into small deficits by 2020. The current account pressure to spend the expected budget surpluses, deficit is expected to remain limited as long as Iraq’s which would erode the fiscal and external positions. oil exports prices continue to rise. Thanks to fiscal Absence of a clear commitment in the budget on restraint, public debt is expected to continue to wage bill management and subsidy reduction could decline and to remain sustainable over the medium weaken the fiscal consolidation and absorb the term. The outlook includes making space for post- fiscal space otherwise available for reconstruction. A conflict reconstruction and infrastructure spending. decline in oil revenue or a shortfall in projected donors The short-term outlook also includes reviving financing would result in lower gross reserves and/ capital spending and responding to demands for or higher public debt. Moreover, the outlook provides improvements in basic services in 2019 and beyond. limited fiscal space to absorb shocks and further Carefully managing spending pressures over the expand capital spending. Iraq’s capacity to expand oil remainder of this year and taking measures in 2019 production and exports remains constrained, further budget would create space for capital/reconstruction exacerbating risks from a reduction of oil prices. The spending while also using some of the oil windfall to imposition of sanctions on Iran could curb non-oil build buffers. trade as Iran is the largest non-oil trade partner of Challenges remain due to political risk, Iraq and result in higher prices of key commodities, dependency on oil revenue and the regional while the economic crisis in Turkey is likely to operate situation. Although higher oil prices are associated mainly through trade channels. Implementing the new with reduced near-term vulnerabilities, the outlook enacted law of Iraqi National Oil Company (INOC) remains subject to considerable uncertainties due to may also have adverse impacts on the governance of political developments that could also delay economic the oil sector and macroeconomic stability. xii IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION ‫ملخص تنفيذي‬ ‫ة مع البنك الدويل حجم‬ ‫الذي أجرته مؤخرا ً وزارة التخطيط العراقية سوي ً‬ ‫ٍ‬ ‫ملحوظ بعد هزمية‬ ‫تحسن الوضع األمني العام يف العراق بشكلٍ‬ ‫لقد ّ‬ ‫األرضار الكلية مببلغ ‪ 45.7‬مليار دوالر أمرييك‪ ،‬وما يزيد عىل ‪ 88‬مليار‬ ‫ٍ‬ ‫تحوالت‬ ‫داعش‪ ،‬إال أنّ العراق ال يزال يواجه تحديات كبرية‪ .‬شهد العراق‬ ‫دوالر أمرييك الحتياجات إعادة اإلعامر عىل املدى القصري واملتوسط‪ ،‬والتي‬ ‫ة يف عام ‪ 2017‬عندما أعلن رئيس الوزراء العبادي يف‬ ‫ة رئيسي ٍ‬ ‫سياسي ٍ‬ ‫ة وأمني ٍ‬ ‫ة من البالد‪ .‬وقد أسهم املجتمع‬ ‫ة ومناطق مختلف ٍ‬‫قطاعات متنوع ٍ‬ ‫ٍ‬ ‫تغطي‬ ‫حرب دامت ثالث سنوات‪ .‬لقد تركت‬ ‫كانون األول النرص عىل داعش بعد ٍ‬ ‫در قيمتها بـ ‪ 30‬مليار دوالر أمرييك جاء معظمها‬ ‫الدويل بالتز ٍ‬ ‫امات ت ُق ّ‬ ‫ة تتمثل بإعادة بناء البنية‬ ‫هزمية داعش يف العراق الحكومة أمام مهام عسري ٍ‬ ‫عقد‬ ‫ٍ‬ ‫وضامنات يف املؤمتر الدويل إلعادة إعامر العراق‪ ،‬الذي ُ‬ ‫بشكل ٍ‬ ‫قروض‬ ‫التحتية للبالد وإعادة إعامر املناطق املحررة وتوطيد األمن واالستقرار وتوفري‬ ‫يف شباط ‪ 2018‬يف الكويت‪ .‬ويف الوقت نفسه‪ ،‬صادقت الحكومة عىل‬ ‫الخدمات الالزمة لعودة النازحني‪ .‬ويف ‪ 12‬أيار ‪ ،2018‬أدىل العراق بصوته‬ ‫إطار عمل إعادة اإلعامر والتنمية (‪ )RDF‬إلعادة إعامر املناطق امل ُحررة‪،‬‬ ‫ة يتزعمها مقتدى‬ ‫ة سياسي ٍ‬ ‫ز لكتل ٍ‬ ‫يف االنتخابات الربملانية التي نتج عنها فو ٌ‬ ‫وهي بهذا توطّد عقدا ً اجتامعياً متجددا ً يقوم عىل الثقة بني املواطن‬ ‫الصدر‪ ،‬بينام حلّت كتلة رئيس الوزراء العبادي‪ ،‬والذي كان يُنظَر إليه سابقاً‬ ‫هد البنك‬ ‫والدولة والتنمية املستدامة واإلصالحات‪ .‬ويف مؤمتر الكويت‪ ،‬تع ّ‬ ‫عىل أنه األوفر حظاً بالفوز‪ ،‬يف الرتتيب الثالث‪ .‬ومتت إعادة العد والفرز‬ ‫يل وصل اىل ‪ 6‬مليار دوالر لدعم أجندة الحكومة العراقية‬ ‫الدويل مببلغٍ ك ٍ‬ ‫ر وانتهت العملية يف الثامن‬ ‫لصنادق االقرتاع بعد ظهور مزاعم بحصول تزوي ٍ‬ ‫رشيك لتمويل التنمية يف‬‫ٍ‬ ‫إلعادة اإلعامر والتنمية وهو ما يجعله أكرب‬ ‫من آب دون حصول تغيريٍ كبري‪ .‬ويف الخامس عرش من أيلول‪ ،‬انتخب الربملان‬ ‫ة عىل هذا‪ ،‬يف نيسان ‪ ،2018‬صادق مجلس الوزراء العراقي‬ ‫العراق‪ .‬عالو ً‬ ‫ة صوب تشكيل الحكومة‬ ‫ة مهم ٍ‬ ‫العراقي محمد الحلبويس رئيساً له‪ ،‬يف خطو ٍ‬ ‫عىل خطة التنمية الوطنية الخمسية (‪ )2022–2018‬التي تركز عىل قضايا‬ ‫الجديدة‪ .‬كام انتخب يف الثاين من ترشين األول برهم صالح رئيسا للبالد‪،‬‬ ‫رئيسية بصمنها إعادة اإلعامر يف املحافظات والتخفيف من الفقر والتنمية‬ ‫والذي كلّف بدوره عىل الفور عادل عبد املهدي بتشكيل الحكومة الجديدة‬ ‫االجتامعية وتنمية القطاع الخاص‪ .‬ومع ذلك‪ ،‬كان سري عملية إعادة‬ ‫وأنهى بذلك شهورا ً من الجمود السيايس نتج عن االنتخابات الوطنية يف أيار‪.‬‬ ‫اإلعامر بطيئاً بسبب عدم اليقني السيايس يف أعقاب االنتخابات‪ ،‬وتبقى‬ ‫هنالك حاجة اىل فعل املزيد وبشكلٍ عاجلٍ من أجل استعادة الخدمات‬ ‫ة يف العديد من املناطق التي تأثرت‬ ‫ال تزال الظروف اإلنسانية صعب ً‬ ‫األساسية وإعادة بناء البنية التحتية الرضورية‪.‬‬ ‫ة عىل‬ ‫سنوات أربع من القتال املحتدم هائل ً‬ ‫ٍ‬ ‫بالنزاع‪ .‬لقد كانت حصيلة‬ ‫املدنيني يف العراق‪ .‬لقد أودى النزاع بحياة ما يزيد عىل ‪ 67,000‬مدين‬ ‫ارتفع الفقر بشكلٍ حاد‪ .‬ارتفع املعدل الوطني للفقر من ‪ 18.9‬يف عام‬ ‫عراقي منذ عام ‪ ،2014‬قبل أن تبدأ أعداد القتىل بالتناقص مع نهاية عام‬ ‫‪ 2012‬اىل ما يُقدر بـ ‪ 22.5‬يف عام ‪ .2014‬وتشري آخر إحصائيات سوق العمل‬ ‫ر صدر مؤخرا ً عن مكتب األمم املتحدة لتنسيق الجهود‬ ‫در تقري ٌ‬ ‫‪ .2017‬ويُق ّ‬ ‫اىل حدوث املزيد من التدهور يف الرفاهية‪ .‬لقد ارتفع معدل البطالة‪ ،‬الذي‬ ‫جر تقريباً منذ ظهور‬ ‫اإلنسانية (‪ )UNOCHA‬بأنّه من بني الستة ماليني ُ‬ ‫مه ّ‬ ‫كان يرتاجع قبل األزمة‪ ،‬مجددا ً ليصل اىل مستواه الذي كان عليه يف عام‬ ‫داعش يف ‪ ،2014‬ما يزال حوايل ‪ 2.0‬مليون منهم مهجرا ً يف نهاية حزيران‬ ‫دمني‪ ،‬أي‬ ‫مستخ َ‬ ‫ن حوايل ربع السكان ممن هم يف سن العمل غري ُ‬ ‫‪ .2012‬إ ّ‬ ‫ن‬‫‪ ،2018‬وهناك ‪ 8.7‬مليون منهم تقريباً بحاجة للمساعدة اإلنسانية‪ .‬إ ّ‬ ‫أنهم إما عاطلني عن العمل أو يبحثون عن عمل إضايف‪ .‬كام شهد العديد‬ ‫حاجات االستقرار وإعادة اإلعامر يف مناطق تم تحريرها من داعش هائلة‪.‬‬ ‫ذ منذ‬ ‫بحدث مؤ ٍ‬ ‫ٍ‬ ‫رت‬‫من األرس صدمات عنيفة؛ فأكرث من ثلث األرس م ّ‬ ‫كام يواجه العائدون اىل منازلهم البالغ عددهم ‪ 3.9‬مليون ظروفاً معيشي ً‬ ‫ة‬ ‫ر بشكلٍ من أشكال انعدام‬ ‫د من بني كل ستة أ ٍ‬ ‫رس قد م ّ‬ ‫بداية األزمة وواح ٌ‬ ‫ة مثل الصحة‬ ‫ة غري كافي ٍ‬‫وخدمات أساسي ٍ‬ ‫ٍ‬ ‫صعوبات اقتصادي ٍ‬ ‫ة‬ ‫ٍ‬ ‫ة تشمل‬ ‫مرتدي ً‬ ‫األمن الغذايئ‪ .‬ويظل نظام البطاقة التموينة (نظام التوزيع العام‪)PDS ،‬‬ ‫واملاء والنظافة‪ ،‬وهذه كلها تقف وراء تردد العديد من النازحني للعودة اىل‬ ‫ن الناس لجؤوا أيضاً‬ ‫الربنامج األوسع من بني برامج املساعدة اإلجتامعية‪ ،‬لك ّ‬ ‫ن اإلنتاج الزراعي تراجع بنسبة ‪ 40‬باملائة ما ترك ‪ 1.9‬مليون‬ ‫منازلهم‪ .‬كام أ ّ‬ ‫رض‬ ‫اىل األصدقاء واألقارب واملنظامت اإلنسانية طلباً للمساعدة‪ .‬ولقد تع ّ‬ ‫عراقي تقريباً يعاين من انعدام األمن الغذايئ؛ و‪ 7.3‬مليون فرد بحاجة‬ ‫ة متعددة‪ :‬حيث فقدوا الكثري من ثروتهم‬ ‫لصدمات عنيف ٍ‬ ‫ٍ‬ ‫جرون (‪)IDPs‬‬ ‫امله ّ‬ ‫ة يف مجال املياه‬ ‫للرعاية الصحية؛ و‪ 5.4‬مليون فرد بحاجة اىل مساعد ٍ‬ ‫بسبب تدمري املمتلكات؛ أو موت فرد أو أفراد من العائلة‪ ،‬أو أصبحوا‬ ‫ة للأموى (‪.)UNOCHA 2018‬‬ ‫والرصف الصحي و‪ 4.1‬مليون فرد بحاج ٍ‬ ‫ل يعيقهم عن العمل؛ كام واجهوا فقدان الوظائف أو األعامل‬ ‫جرحى مبعد ٍ‬ ‫ن‬‫جرين من ميلك عمالً‪ ،‬بحيث أ ّ‬ ‫ٌ‬ ‫التجارية‪ .‬وقلة من البالغني بني هؤالء امله ّ‬ ‫بعد التحرير الناجح لجميع األرايض العراقية من داعش‪ ،‬تُعد‬ ‫د آخرين‬ ‫جرة يُعيل أكرث من ستة أفرا ٍ‬ ‫كل بالغٍ عاملٍ يف ٍ‬ ‫بيت من البيوت امله ّ‬ ‫در تقييم األرضار واالحتياجات‬ ‫الحكومة حزم ً‬ ‫ة شامل ً‬ ‫ة إلعادة اإلعامر‪ .‬لقد ق ّ‬ ‫‪xiii‬‬ ‫فسح املجال لإلنفاق يف مجال إعادة اإلعامر والبنية التحتية املرتبط مبا‬ ‫ول بـ ‪ 300‬مليون دوالر أمرييك‪ ،‬لتحسني ظروف املعيشة ملا يزيد‬ ‫املم ّ‬ ‫بعد النزاع‪ .‬كام تشمل التوقعات عىل املدى القصري إعادة إحياء اإلنفاق‬ ‫عىل ‪ 1.5‬مليون من األرس الفقرية يف العراق بزيادة الوصول اىل الخدمات‬ ‫الرأساميل واالستجابة ملطالب إدخال التحسينات يف الخدمات األساسية‬ ‫األساسية وتوفري فرص العمل‪ .‬وتَبِع هذا يف نيسان ‪ 2018‬املوافقة عىل‬ ‫يف عام ‪ 2019‬وما بعده‪ .‬ومن شأن عملية اإلدارة املتأنية لضغوط اإلنفاق‬ ‫املرشوع الطارئ لدعم االستقرار االجتامعي والصمود (‪ ،)ESSRP‬املمول‬ ‫اءات يف موازنة ‪ 2019‬أن يوفر‬‫خالل ما تبقى من هذا العام واتخاذ إجر ٍ‬ ‫بـ ‪ 200‬مليون دوالر أمرييك لزيادة فرص املعيشة‪ ،‬والوصول اىل الخدمات‬ ‫فضاءا ً لإلنفاق الرأساميل‪/‬إعادة اإلعامر مع استخدام بعض مكاسب أسعار‬ ‫النفسية االجتامعية‪ ،‬وتوسيع نطاق توفري شبكات الحامية االجتامعية‪.‬‬ ‫النفط لبناء مخزون يف الوقت نفسه‪.‬‬ ‫د جاري ٌ‬ ‫ة إلنشاء صندوقٍ ائتام ٍ‬ ‫ين متعدد املانحني‬ ‫إضافة لهذا‪ ،‬هناك جهو ٌ‬ ‫ُنسق ومتويل املانحني للتعايف االجتامعي االقتصادي‬‫(‪ )MDTF‬للحوار امل ّ‬ ‫ما تزال التحديات قامئة بسبب املخاطر السياسية‪ ،‬واالعتامد عىل‬ ‫وإعادة اإلعامر وتوطيد إصالحات الحكومة الحاسمة‪.‬‬ ‫ن ارتفاع أسعار النفط‬ ‫عائدات النفط والوضع اإلقليمي‪ .‬عىل الرغم من أ ّ‬ ‫ن التوقعات تظل خاضع ً‬ ‫ة‬ ‫قد تخفف من املخاطر عىل املدى القريب‪ ،‬إال أ ّ‬ ‫من املتوقع أن تتحسن آفاق االقتصاد بشكلٍ كبريٍ بسبب أسعار‬ ‫ني كبريٍ بسبب التطورات السياسية التي من شأنها أن تؤخر أيضاً‬ ‫لعدم يق ٍ‬ ‫النفط املرتفعة والوضع األمني اآلخذ بالتحسن‪ .‬من املتوقع أن تزداد‬ ‫التعايف االقتصادي يف املحافظات املتأثرة بالنزاع‪ .‬فمن شأن النكسات التي‬ ‫وترية منو الناتج اإلجاميل املحيل الكيل وصوالً اىل ‪ 6.2‬باملائة يف عام ‪2019‬‬ ‫تحدث يف الوضع األمني و‪/‬أو األزمة التي قد ترافق تشكيل الحكومة أن‬ ‫والذي يستند يف استدامته اىل اإلنتاج املرتفع للنفط‪ .‬ويُتوقع أن يرتفع‬ ‫تؤدي اىل إضعاف النمو‪ .‬ففي الوقت الذي تظل فيه أولويات سياسة‬ ‫ة فقط‪ ،‬ما قد يؤدي اىل‬ ‫ة هامشي ٍ‬ ‫إنتاج النفط يف األعوام القادمة بصور ٍ‬ ‫ة ترتبط بضعف تنفيذ السياسة‬ ‫الحكومة الجديدة غري معروفة‪ ،‬مثة خطور ٌ‬ ‫تخفيض النمو الكيل مبعدل ‪ 2.5‬باملائة حتى عام ‪ ،2023‬بسبب القدرة‬ ‫والضغط الذي قد يرافق إنفاق الفائض املتوقع يف املوازنة‪ ،‬وهو من شأنه‬ ‫املحدودة للحكومة العراقية عىل زيادة االستثامر يف قطاع النفط‪ .‬ومن‬ ‫أن يُرض بالوضعني املايل والخارجي‪ .‬ومن شأن غياب االلتزام الواضح يف‬ ‫املتوقع أن يبقى النمو غري النفطي إيجابياً عىل خلفية ارتفاع االستثامرات‬ ‫املوازنة بخصوص خفض الرواتب واإلعانات أن يُضعف التامسك املايل‬ ‫مرة‪ ،‬ويف استهالك واستثامر القطاع‬ ‫الالزمة إلعادة بناء البنية التحتية امل ُد ّ‬ ‫ن‬‫وميتص الوفرة املالية التي يُفرتض أن تخصص إلعادة اإلعامر‪ .‬كام أ ّ‬ ‫تحسن الوضع‬‫ّ‬ ‫عىل‬ ‫سيعتمد‬ ‫النفطي‬ ‫ن التعايف املستدام غري‬ ‫الخاص‪ .‬لك ّ‬ ‫ز يف التمويل املتوقع‬ ‫انخفاض يف عائدات النفط أو عو ٍ‬ ‫ٍ‬ ‫من شأن حدوث‬ ‫األمني وتنفيذ مشاريع استثامر عالية الجودة بتمويلٍ سليم‪ .‬وسيسمح‬ ‫ة أوطأ و‪/‬أو دين عام أعىل‪.‬‬ ‫للامنحني أن ينتج عنه احتياطياتٌ إجاملي ٌ‬ ‫الوضع األمني األكرث استقرارا ً الستهالك واستثامر القطاع الخاص أن يرتفع‪،‬‬ ‫عالوة عىل ذلك‪ ،‬توفر التوقعات فضاءا ً مالياً محدودا ً المتصاص الصدمات‬ ‫ما يزيد من احتياجات االسترياد للبضائع االستهالكية والرأساملية‪ .‬ومن‬ ‫وتوسيع اإلنفاق الرأساميل بشكل إضايف‪ .‬كام تظل قدرة العراق عىل توسيع‬ ‫املتوقع أن يظل التضخم منخفضاً عند ‪ 2‬باملائة يف عام ‪.2019‬‬ ‫يدة‪ ،‬وهو ما يُفاقم املخاطر التي ترافق‬ ‫انتاج النفط وزيادة صادراته ُ‬ ‫مق ّ‬ ‫عقوبات عىل إيران أن يكبح‬ ‫ٍ‬ ‫انخفاض أسعار النفط‪ .‬ومن شأن فرض‬ ‫من املحتمل أن يستمر امليزانني املايل والخارجي يف التحسن مع‬ ‫ن إيران هي الرشيك التجاري غري النفطي‬ ‫التجارة غري النفطية حيث أ ّ‬ ‫ٍ‬ ‫عائدات أعىل‪ .‬سيظل‬ ‫استمرار ما تعود به أسعار النفط املرتفعة من‬ ‫األكرب للعراق وينتج عن هذا ارتفاع أسعار السلع الرئيسية‪ ،‬بينام نجد‬ ‫الوضع املايل إيجابياً يف عام ‪ ،2019‬مدعوماً بتوقعات أسعار نفط أعىل‬ ‫ة من‬ ‫ن األزمة االقتصادية يف تركيا من املحتمل أن تظهر بصور ٍ‬ ‫ة رئيسي ٍ‬ ‫بأ ّ‬ ‫ة بحلول عام ‪.2020‬‬ ‫ز صغري ٍ‬‫والتعزيز املايل‪ ،‬لكنه سيتحول اىل حاالت عج ٍ‬ ‫ن تنفيذ قانون رشكة النفط الوطنية العراقية‬ ‫خالل القنوات التجارية‪ .‬كام أ ّ‬ ‫ومن املتوقع أن يبقى عجز الحساب الجاري محدودا ً طاملا استمرت أسعار‬ ‫ة عىل حوكمة‬ ‫شع حديثاً قد يكون له أيضاً آثارا ً سلبي ً‬ ‫(‪ )INOC‬الذي ُ ّ‬ ‫تصدير النفط باإلرتفاع‪ .‬وبفضل الضبط املايل‪ ،‬من املتوقع أن يستمر الدين‬ ‫قطاع النفط وعىل استقرار االقتصاد‪.‬‬ ‫العام باالنخفاض ويبقى مستداماً عىل املدى املتوسط‪ .‬وتشمل التوقعات‬ ‫‪xiv‬‬ ‫‪IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION‬‬ ‫فائضاً بنسبة ‪ 1.2‬باملائة من الناتج اإلجاميل املحيل غالباً بسبب أسعار‬ ‫جرين الوصول اىل نظام البطاقة التموينية‪.‬‬ ‫يف البيت‪ .‬كام فقد بعض امله ّ‬ ‫النفط األعىل‪ .‬لقد أدى تدهور أسعار النفط عاملياً يف الفرتة–‪2016–2015‬‬ ‫د متعدد ٍ‬ ‫ة‪،‬‬ ‫جرين ميكن رؤيته بأبعا ٍ‬ ‫فاألثر املرتاكم لهذه التطورات عىل امله ّ‬ ‫واإلنفاق املتزايد يف املجالني األمني واإلنساين وضعف الضوابط اىل‬ ‫ة أعىل بالتعرض للجوع‪ .‬وهنا تقوم الحكومة العراقية‬ ‫بضمنها وجود مخاطر ٍ‬ ‫وسع رسيعاً من فجوة عجز املوازنة‪،‬‬ ‫انخفاض حاد يف إيرادات النفط‪ ،‬كام ّ‬ ‫ح لتحسني عملية استهداف اإلنفاق االجتامعي‪ ،‬بعد‬ ‫ح طمو ٍ‬ ‫بتنفيذ إصال ٍ‬ ‫لتعود وتضيق يف عام ‪ 2017‬بسبب ارتفاع أسعار النفط واإلجراءات التي‬ ‫إدخال نظام اختبار الدخل البديل (‪ )PMT‬للتعرف عىل الفقراء‪ .‬فالحكومة‬ ‫تم اعتامدها الحتواء النفقات الجارية يف إطار برنامج صندوق النقد‬ ‫ة لألرس املؤهلة عىل أساس هذا‬ ‫بيانات موحد ٍ‬ ‫ٍ‬ ‫ني قاعدة‬ ‫العراقية ملتزم ٌ‬ ‫ة بتب ّ‬ ‫الدويل وسلسلة مشاريع متويل سياسة التنمية (‪ )DPF‬التابعة للبنك‬ ‫النظام بني جميع برامج الحامية االجتامعية املختلفة‪.‬‬ ‫الدويل‪ .‬ومع توقع ارتفاع أسعار النفط‪ ،‬يُتوقع أن يكون للحكومة وفرة‬ ‫مالية أكرب لتمويل جهود إعادة اإلعامر‪ ،‬رشيطة استمرار عملية التعزيز‬ ‫ات سياسي ٍ‬ ‫ة‬ ‫بالرغم من النجاح العسكري‪ ،‬ال يزال العراق يواجه توتر ٍ‬ ‫تحسن الوضع‬ ‫املايل‪ .‬فالتمويل الرسمي للموازنة أصبح أقل إلحاحاً مع ُّ‬ ‫ة ضد البطالة املتزايدة‬ ‫ر اجتامعي‪ .‬اندلعت مظاهراتٌ كبري ٌ‬ ‫وعدم استقرا ٍ‬ ‫ن الوضع املايل لحكومة إقليم كردستان‬ ‫املايل‪ .‬وتشري التقديرات أيضاً اىل أ ّ‬ ‫ة يف ثاين‬‫والفساد وسوء الخدمات العامة يف متوز من هذا العام‪ ،‬خاص ً‬ ‫سيتحسن نسبياً يف عام ‪ ،2018‬مع موافقة الحكومة الفدرالية عىل‬ ‫ّ‬ ‫أكرب مدن العراق‪ ،‬البرصة الغنية بالنفط‪ ،‬وانترشت اىل مدنٍ أخرى مبا فيها‬ ‫استئناف تحويالت املوازنة لدفع الرواتب ومعاشات التقاعد‪.‬‬ ‫ٍ‬ ‫بتعهدات بزيادة اإلنفاق عىل‬ ‫العاصمة بغداد‪ .‬واستجابت الحكومة لها‬ ‫مشاريع الكهرباء واملاء (‪ 3.5‬ترليون دينار عراقي) وتوفري ‪ 10,000‬وظيفة‪.‬‬ ‫تشري التقديرات اىل أنّ الدَّ ين العام للعراق سينخفض مزيداً‬ ‫ة للتحقيق يف الفساد والعوامل األخرى التي‬ ‫ة جديد ٍ‬ ‫كام تم تأسيس هيئ ٍ‬ ‫وسيبقى مستداما‪ .‬من املتوقع أن يعمل النمو وامليزان املايل الكيل اإليجايب‬ ‫اءات مستدام ٍ‬ ‫ة أكرث‬ ‫تعيق تقديم الخدمات‪ .‬وسيكون باإلمكان القيام بإجر ٍ‬ ‫دين العام اىل إجاميل الناتج‬ ‫عىل إحداث املزيد من االنخفاض يف معدل ال ّ‬ ‫ة جديدة‪ .‬فمن املتوقع أن‬ ‫لإليفاء مبطالب املتظاهرين عند تنصيب حكوم ٍ‬ ‫املحيل من ‪ 67.3‬باملائة يف عام ‪ 2016‬اىل ‪ 55‬باملائة تقريباً‪ .‬كام قامت‬ ‫تُركز الحكومة الجديدة هذه عىل جعل الشمولية واإلصالحات االقتصادية‬ ‫ر للسيطرة عىل إصدار الضامنات‪ ،‬التي وصلت اىل‬ ‫ني إطا ٍ‬‫الحكومة أيضاً بتب ّ‬ ‫سلم أولوياتها‪ ،‬مع العمل يف الوقت نفسه عىل‬ ‫والعدالة واملحاسبة يف أعىل ُ‬ ‫‪ 33‬مليار دوالر أمرييك (أو ‪ 20‬باملائة من الناتج اإلجاميل املحيل) يف نهاية‬ ‫ضامن تقديم الخدمات األساسية بانتظام‪.‬‬ ‫عام ‪ 2016‬وهذه الضامنات‪ ،‬التي يرتبط معظمها بقطاع الكهرباء‪ ،‬يُعتقد‬ ‫بأنها اآلن تحت السيطرة‪ .‬ويف السنوات املاضية‪ ،‬تم متويل العجز املايل‬ ‫بالتحسن بعد الرشخ‬ ‫ّ‬ ‫العالقات مع حكومة إقليم كردستان آخذ ٌ‬ ‫ة‬ ‫ة من خالل الدعم الثنايئ واملتعدد األطراف‪ ،‬وإصدار‬ ‫ة رئيسي ٍ‬ ‫الكبري بصور ٍ‬ ‫الذي نتج عن استفتاء االستقالل الذي جرى يف عام ‪ .2017‬شهدت العالقات‬ ‫السندات السيادية بني الحني واآلخر‪ ،‬والتمويل النقدي غري املبارش من‬ ‫بني بغداد وأربيل توترا ً منذ استفتاء العام املايض حول استفتاء اإلقليم يف‬ ‫قبل البنك املركزي العراقي‪.‬‬ ‫الخامس والعرشين من أيلول‪ ،‬والذي اعتربته الحكومة الفدرالية غري ٍ‬ ‫رشعي‪،‬‬ ‫وكذلك بسبب تحويالت املوازنة اىل اإلقليم يف مطلع عام ‪ .2018‬ومع ذلك‪،‬‬ ‫ساعدت أسعار النفط املرتفعة منذ أواسط عام ‪ 2017‬اىل تحقيق‬ ‫دة التوترات بني الحكومة الفدرالية وحكومة إقليم كردستان عندما‬ ‫خفّت ِ‬ ‫حّ‬ ‫ولت أسعار النفط‬ ‫نتائج أفضل عىل صعيد امليزان الخارجي‪ .‬فقد ح ّ‬ ‫وافقت الحكومة الفدرالية عىل استئناف تحويالت املوازنة التي بدا بأنها قد‬ ‫ز نسبته ‪ 9‬باملائة يف عام ‪2016‬‬‫املرتفعة ميزان الحساب الجاري من عج ٍ‬ ‫ن عائدات حكومة‬ ‫غطّت بشكلٍ كبريٍ احتياجات اإلقليم املبارشة‪ ،‬كام يُعتقد أ ّ‬ ‫اىل ٍ‬ ‫فائض بنسبة ‪ 1.2‬باملائة من الناتج اإلجاميل املحيل يف عام ‪ 2017‬و‪2.1‬‬ ‫اإلقليم اإلجاملية كافية لدفع الرواتب ومعاشات املتقاعدين‪.‬‬ ‫باملائة من الناتج اإلجاميل املحيل يف عام ‪ .2018‬وتشري التقديرات اىل أ ّ‬ ‫ن‬ ‫االحتياطيات الدولية سرتتفع من ‪ 49‬مليار دوالر أمرييك يف عام ‪2017‬‬ ‫بالتحسن تدريجياً بعد الصعوبات‬ ‫ّ‬ ‫الظروف االقتصادية آخذ ٌ‬ ‫ة‬ ‫(أو ما يعادل ‪ 6.8‬شهر من الواردات)‪ ،‬اىل ‪ 58.3‬مليار دوالر أمرييك (أو‬ ‫االقتصادية العميقة التي رافقت األعوام الثالث املاضية‪ .‬فانتعاش النمو‬ ‫‪ 7.7‬شهر من الواردات) يف عام ‪ ،2018‬وهذا ما يعيد بناء مخزونٍ أمام‬ ‫االقتصادي يف عام ‪ 2017‬قيّده إنتاج النفط وفق اتفاقية الدول األعضاء يف‬ ‫الصدمات الخارجية‪.‬‬ ‫در أ ّ‬ ‫ن منو‬ ‫ودول أخرى من غري األعضاء‪ .‬ويف عام ‪ ،2018‬يُق ّ‬ ‫منظمة أوبك ٌ‬ ‫الناتج اإلجاميل املحيل سيعود إيجابياً عند ‪ 1.9‬باملائة والفضل يف ذلك يعود‬ ‫يدعم البنك الدويل الحكومة العراقية يف هذه الفرتة الحساسة‬ ‫التحسن امللحوظ يف الظروف األمنية وارتفاع أسعار النفط واملستوى‬ ‫ّ‬ ‫اىل‬ ‫للتعامل مع احتياجات التعايف‪ .‬متنح املشاريع املدعومة األولوية لخمس‬ ‫األعىل لالستثامر املتوقع حدوثه يف القطاعني العام والخاص‪ .‬ومن املتوقع‬ ‫ركائز أساسية‪ :‬الحوكمة‪ ،‬واملصالحة الوطنية وبناء السالم‪ ،‬والتنمية‬ ‫أيضاً أن يُظهر النمو غري النفطي انتعاشاً قوياً عند ‪ 5.2‬باملائة هذا العام‪،‬‬ ‫االجتامعية والبرشية‪ ،‬والبنية التحتية‪ ،‬والتنمية االقتصادية‪ .‬فمنذ متوز‬ ‫و واسع النطاق يف الزراعة والصناعة والخدمات‪ .‬وكان معدل‬ ‫مدعوماً بنم ٍ‬ ‫‪ ،2015‬يدعم البنك الدويل جهود إعادة اإلعامر من خالل املرشوع الطارئ‬ ‫ن الطلب املحيل‬ ‫التضخم منخفضاً يف عام ‪ 2017‬عند ‪ 0.1‬باملائة فقط‪ ،‬لك ّ‬ ‫لدعم التنمية (‪ .)EODP‬ويف ترشين األول ‪ ،2017‬وافق البنك الدويل‬ ‫جح أن يعمل‬ ‫املتزايد دفع التضخم اىل ‪ 1.7‬باملائة يف متوز ‪ .2018‬ومن املر ّ‬ ‫يف بقيمة ‪ 400‬مليون دوالر أمرييك للمرشوع األصيل (‪350‬‬ ‫عىل متويلٍ إضا ٍ‬ ‫الطلب املحيل املتزايد وزيادة اإلئتامن اىل القطاع الخاص (وإن كان من‬ ‫مليون دوالر أمرييك) للرتكيز ليس فقط عىل البنية التحتية األساسية بل‬ ‫دل ‪ 2.0‬باملائة يف عام ‪.2018‬‬ ‫مستوى واطئ) عىل زيادة التضخم مبع ّ‬ ‫خاص باحتياجات الشباب والنساء‬‫وأيضاً عىل الصحة والتعليم‪ ،‬مع اهتاممٍ ٍ‬ ‫املهمشني يف تلك املناطق التي تأثرت بداعش‪ .‬ويف شباط ‪ ،2018‬وافق‬ ‫تشري التقديرات اىل استمرار انتفاع الوضع املايل للعراق من أسعار‬ ‫البنك الدويل عىل مرشوع الصندوق االجتامعي للتنمية للعراق (‪)SFD‬‬ ‫النفط املرتفعة‪ .‬من املتوقع أن تحقق املوازنة املالية الكلية يف عام ‪2018‬‬ ‫‪xv‬‬ IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION 1 RECENT ECONOMIC AND POLICY DEVELOPMENTS Political and Social Context Iraq’s overall security situation has notably improved after the defeat of ISIS, but significant Following the declaration of military victory against ISIS challenges lie ahead. On December 9, 2017, Prime in December 2017, security conditions have improved, Minister Al-Abadi announced victory over ISIS after a and Iraqis are shifting their attention toward recovery war that lasted three years. The defeat of ISIS in Iraq left and the country’s political future. Parliamentary the government with the daunting tasks of rebuilding elections that were held on May 12th, 2018, resulted in the country’s infrastructure, reconstruction of liberated a win for al-Sadr bloc. The winning blocs would have to areas, establishing security and stability, and providing agree on the nomination of a new prime minister. On services for the return of the displaced persons. On September 15th, Iraq’s parliament elected lawmaker May 12th, 2018 Iraq voted in parliamentary elections Mohammed al-Halbousi as speaker, marking a major that delivered a win for al-Sadr bloc, while prime step towards establishing a new government. On minister Al-Abadi’s bloc, once seen as front runner, October 2nd, Iraq’s parliament elected as president came in third. The winning blocs would have to agree Barham Salih, who immediately named Adel Abdul on the nomination of a new prime minister. The ballots Mahdi as Prime Minister-designate. The political have been recounted after allegations of fraud and environment remains difficult, despite an improving completed on August 8th without major change. On security situation, with popular protests regarding September 15th, Iraq’s parliament elected lawmaker weak public services and increasing unemployment. Mohammed al-Halbousi as speaker, marking a major IDPs are returning home in greater numbers, but step towards establishing a new government. On stabilization and reconstruction needs in areas October 2nd, Iraq’s parliament elected as president liberated from ISIS are extensive. Relations between Barham Salih, who immediately named Adel Abdul Baghdad and KRG are improving. The Government Mahdi as Prime Minister-designate, ending months of is putting in place a comprehensive reconstruction deadlock after the national election in May. package, but the reconstruction has been slow due to Humanitarian conditions remain difficult in political uncertainty after the elections. many conflict-affected areas. The toll of four years 1 FIGURE 1 • Casualty Figures Have Been Decreasing inhibiting service delivery. More sustained actions to meet protesters’ demands will be possible when a 35,000 new government is in place. The new government is 30,000 expected to focus on prioritizing inclusion, economic 25,000 Number of death 20,000 reforms, justice, and accountability, while ensuring the 15,000 timely delivery of basic services. 10,000 Relations with KRG are improving after the 5,000 rupture related to the independence referendum 0 in 2017. The relations between Baghdad and Erbil 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 have been strained since last year’s referendum on Source: Iraq Body Count, 2017. regional independence on September 25th, which was considered illegitimate by the federal government, and on budget transfer issue in early 2018. However, of intensive combat on Iraq’s civilian population has tensions between the federal government and the been enormous. The conflict claimed the lives of over KRG eased when the federal government agreed to 67,000 Iraqi civilians since 2014, before the casualty temporarily resume transfers that seem to have largely figures started to decrease at the end of 2017 (Figure 1). addressed the region’s immediate needs, and KRG Some 2.0 million people remain displaced at the end of total revenue is sufficient to pay salaries and pensions. June of 20181 of the almost 6 million people displaced since the rise of ISIS in 2014, and about 8.7 million Output and Demand need humanitarian assistance (22 percent of the population). Stabilization and reconstruction needs Iraq’s economic conditions are gradually improving in areas liberated from ISIS are extensive.2 Dire living from the deep economic strains of the last three years, conditions, including economic hardship, insufficient thanks to a more favorable security environment, basic services such as health, water, and sanitation, higher oil prices and the pick-up in public and private are faced by 3.9 million returnees, and are behind investment. Overall GDP growth is estimated to return the reluctance of many displaced people to return positive at 1.9 percent in 2018 and non-oil GDP to home. Agricultural production has declined by 40 rebound at 5.2 percent supported by the broad- percent leaving nearly 1.9 million Iraqis food insecure; based growth in the key economic sectors. 7.3 million people require health care; 5.4 million need water and sanitation assistance and 4.1 million Economic Growth people need shelter (UNOCHA 2018). Hundreds of thousands of people, especially among women and Economic conditions are gradually improving youth, have been brutalized by violence and remain following the deep economic strains of the vulnerable and at increased risk to gender-based last three years. Economic growth in 2017 was harassment and exploitation. constrained by oil production in line with OPEC+ Despite military success, Iraq continues to agreement, and investment were lower than expected, face political tensions and social unrest. Large especially in construction. In 2018, overall GDP growth protests against increasing unemployment, corruption is estimated to return positive at 1.9 percent thanks to and poor public services erupted in July this year, a notable improvement in security conditions, higher particularly in Iraq’s second largest and oil-rich city, oil prices, and expected higher public and private Basra and spread to other cities including the capital Baghdad. The government responded with pledges to increase spending on electricity and water projects 1 U.N. Office for the Coordination of Humanitarian Affairs (ID3.5 trillion) and create 10,000 jobs. A new commission (UNOCHA). was created to investigate corruption and other factors 2 OCHA Iraq Humanitarian Bulletin, July 2018. 2 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION FIGURE 2 • Overall GDP Growth Is Estimated to FIGURE 3 • After a Marked Contraction, GDP Per Rebound in 2018 Capita Is Estimated to Have Improved Since 2017 20 Year-on-year growth, percent 15 9,000 10 5 7,000 0 US$ –5 –10 5,000 –15 –20 3,000 2010 2011 2012 2013 2014 2015 2016 2017 2018e 2012 2013 2014 2015 2016 2017 2018e GDP Non-oil GDP Iraq MENA Sources: IMF; and World Bank estimates. Sources: IMF; and World Bank WDI. investment. Non-oil growth is estimated to show a sector development. However, reconstruction effort strong rebound at 5.2 percent this year, underpinned has been slow due to political uncertainty following by broad-based growth in agriculture, industries, and elections but more needs to be done urgently to restore services (Figure 2). The economic rebound in 2018 basic services and rebuild critical infrastructure. is also estimated to improve GDP per capita from A more favorable security environment will US$4,952 in 2017 to an estimated US$5,597 in 2018, improve the performance of non-oil industry and albeit still a lower level compared to 2013 (Figure 3). services in 2018. The impact of the conflict and Following the ISIS defeat, the GoI is putting contained government spending has had a profound in place a comprehensive reconstruction package. impact on the already weak and under-developed The recent Damage and Needs Assessment (DNA) non-oil economy. Non-oil industry was the hardest-hit conducted by the Iraqi Ministry of Planning jointly sector; it contracted by an average of 22 percent in the with the World Bank estimated the overall damage at period 2014–2017 and contributed –2.0 percentage US$45.7 billion, and more than US$88 billion in short points to overall growth. However, a more favorable and medium-term reconstruction needs, spanning security environment and the initial reconstruction various sectors and different areas of the country. effort are estimated to increase the growth rate of US$30 billion worth of commitments were made mostly non-oil industry to over 6 percent in 2018, and its in the form of loans and guarantees at the International contribution to GDP growth to 0.3 percentage points. Conference for the Reconstruction of Iraq, which took Also, easing of disruptions to supply chains and trade place in February 2018 in Kuwait. At the same time, routes by a more stable security situation is estimated the government endorsed the Reconstruction and to enhance the growth in the services sector in 2018 Development Framework (RDF) to reconstructing the by almost 5 percent, with its contribution to overall liberated areas, forging a renewed social contract based growth being 1.4 percentage points (Figure 4). Non-oil on citizen-state trust and sustainable developments growth in 2018 is estimated to exceed that in MENA oil and reforms. At the Kuwait conference, the World Bank exporters group for the first time since 2014 (Figure 5). pledged a total of US$6 billion to support the GoI’s On the demand side, private consumption reconstruction and development agenda making it and investment are expected to pick up. With the biggest development financing partner of Iraq. millions of Iraqis displaced because of the fighting, Furthermore, in April 2018, Iraq’s Council of Ministers revenue streams for many households have approved the 5 years National Development Plan (2018– disappeared. However, a more stable security situation 2022) which focuses on key issues including provincial and higher oil prices allowed for private consumption construction, poverty reduction, and social and private and investment to pick up, increasing imports’ needs RECENT ECONOMIC AND POLICY DEVELOPMENTS 3 FIGURE 4 • A More Stable Security Environment FIGURE 5 • Non-Oil GDP Growth Has Exceeded Is Expected to Increase the Share that in MENA Oil Exporters since 2017 of Non-Oil Industry to Growth, Especially Services in 2018 15 10 18 Sectoral contribution to GDP, % 14 5 10 0 Percent 6 2 –5 –2 –10 –6 –15 –10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e –20 2013 2014 2015 2016 2017 2018e Agriculture Oil Services Iraq MENA oil exporters Non-oil industry Total GDP Sources: Iraqi authorities; WB; and IMF staff estimates Sources: Iraqi authorities; world Bank; and IMF REO, 2018. for consumer and capital goods. The GoI is also taking percent of GDP) in 2014 to US$1.8 billion (0.8 percent steps to prioritize investment in areas liberated from of GDP) in 2018, but foreign investment will become ISIS and to repair the damaged infrastructure network. increasingly important in the coming years, as the Thus, expenditure on non-oil investment is estimated country attempts to move away from its reliance on oil to increase to 53 percent of total investment in 2018, and finances reconstruction needs (Figure 7). up from an average of 38 percent of total investment expenditure in the 2015–17 period, while oil investment Oil Sector expenditure is estimated to decline to 47 percent, from 62 percent of total investment expenditure in the same Iraq remains highly dependent on the oil sector. period (Figure 6). Due to insecurity and poor business It accounts for over 65 percent of GDP, 92 percent of environment, FDI declined from US$4.1 billion (2 central government revenue, and almost 100 percent FIGURE 6 • Non-Oil Investment Is Estimated to FIGURE 7 • Foreign Direct Investment Declined Increase in 2018 since 2014 due to Insecurity and Poor Business Environment 80 6 Percent of total investment 60 expenditure, (%) 5 40 4 US$, billion 20 3 2 0 2013 2014 2015 2016 2017 2018e 1 Non-oil investment expenditures 0 Oil investment expenditures 2010 2011 2012 2013 2014 2015 2016 2017 2018e Sources: IMF; and World Bank estimates. Sources: Iraqi authorities; and IMF staff estimate. 4 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION FIGURE 8 • Oil Production Remains the Primary FIGURE 9 • Oil Prices Are Estimated to Further Driver of Growth Despite Declining Increase in 2018 by 3.5 Percent in 2017 and Expected to Remain Flat in 2018 120 5 5.0 100 4 Million barrel per day 4.5 80 US$ per barrel 4.0 Barrel per day, million 3 3.5 3.0 60 2.5 2 40 2.0 1.5 20 1 1.0 0.5 0 0 0.0 2013 2014 2015 2016 2017 2018e 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e Iraq oil exports price-LHS Oil production-RHS Sources: CSO; and IMF. Source: Iraq Ministry of Oil. of the country’s exports. Despite the volatile security in Iraqi Kurdistan. (Figure 8). Gross oil production situation, oil production has tripled since 2003. With from KRG amounts to 300,000 bpd, of which 40,000 153 billion barrels Iraq has the fifth largest proven destined to local refineries. Major obstacles to further crude oil reserves in the world and the rapid increase expansion of oil production plans include insufficient in production in 2015 and 2016 makes it the world’s water supply and gas injection, and cumbersome third largest and OPEC’s second largest oil exporter. bureaucratic procedures. With 130.5 trillion cubic feet of proven reserves, Iraq’s The recent global increase in the oil price is largely untapped natural gas reserves are the twelfth expected to have a positive impact on government largest in the world. Iraq is also the fourth largest revenues. Higher oil revenues have been driven by the gas flaring country in the world, with more than 50 increase in oil prices since mid-2017. Iraq’s average percent of gas produced flared in-field. The amount of crude oil export price decreased from US$96.5 per gas currently flared represents an annual economic barrel in 2014 to US$35.6 in 2016, before increasing to loss approximately equivalent to US$2.5 billion and an average of US$48.7 in 2017 (Figure 9). As a result, would be sufficient to meet most of Iraq’s unmet the government hydrocarbon revenue decreased needs for gas-based power generation. In 2013, the to US$40 billion in 2016, a 53 percent reduction Council of Ministers committed to eliminate routine compared to 2014 and increased to over US$56 billion natural gas flaring by 2030 and in November 2016, in 2017. In 2018, oil revenues are estimated to increase Iraq endorsed the World Bank’s “Zero Routine Flaring to about US$82 billion, due to higher oil prices,5 a 45 by 2030” initiative. However, limited progress has percent increase compared to 2017 (Figure 10). been achieved to date in terms of flaring reduction In March 2018, the Iraqi parliament enacted as volumes of associated gas have continued to rise a law establishing the Iraqi National Oil Company since 2014 in tandem with increasing oil production.3 (INOC). The INOC is expected to take over the Ministry Oil production remains strong despite its decline since 2017 to implement the OPEC+ 3 Iraq vision 2030, hydrocarbon sector policy note, Dec. agreement.4 Oil production declined by 3.5 percent 2017. in 2017 and estimated to remain flat at 4.5 million 4 Iraqi oil production takes place in the heavily protected barrels per day (mbpd) in 2018 in compliance with its south and ISIS was unable to decisively damage oil output target under a global pact to cut supplies as exports. well as the stoppage of oil exports through the pipeline 5 Around US$68 per barrel. RECENT ECONOMIC AND POLICY DEVELOPMENTS 5 FIGURE 10 • Oil Revenues are Estimated to the government capacity to deliver services and cater Increase Around US$82 Billion in to the needs of the growing numbers of internally 2018 Sustained by Higher Oil Prices displaced persons (IDPs). Inadequate infrastructure has affected access to quality of public service delivery. 100,000 1,600 Water and electricity shortages, and improper disposal 80,000 1,400 of sewage are bringing constraints on the population’s Million, barrel US$, million 1,200 60,000 quality of life and private sector development. 1,000 Meanwhile, the absence of good governance, the 40,000 800 spread of administrative and financial corruption, 20,000 600 weak accountability and transparency have resulted 2013 2014 2015 2016 2017 2018e in low efficiency and effectiveness of the government Oil revenues-LHS Oil Exports Volumes-RHS apparatus and poor quality of public services. Women Source: Iraq Ministry of Oil. have been particularly affected by increased insecurity, which imposed restrictions on movement that affected access to education, health, and jobs. Moreover, the cost of the war on terrorism resulted in the crowding of Oil’s responsibilities of managing oil production and out of priorities related to development, reconstruction exports and contracting with international oil companies. and social spending. For example, the federal budget It will also have large discretion over the distribution of its law for 2018 included more than US$18 billion on profits—with a maximum of 90 percent to be distributed security and defense—about 21 percent of the total to the budget—and have a right to operate in any sector public expenditure—compared with 9.5 percent on of the economy. The new law also exempts INOC from education and 4 percent on health.6 PFM and procurement laws, and the customs code; In the conflict-affected governorates, allows it to contract external and domestic debt outside the already poor-quality services, inadequate the budget. The law is currently on hold until a new infrastructure and low levels of public spending government is formed. Implementation of the new law were aggravated by the crisis. The scale and speed could have adverse implications on macroeconomic of the displacement as a result of the crisis make it stability and the governance of the oil sector (see a challenge for the government to deliver quality outlook and risks section). services, especially in the ISIS affected areas where the infrastructure destruction has been most severe Access to Services and service delivery has been adversely impacted. A huge vulnerable population, including millions of IDPs Quality of public services remains deficient especially and refugees, exacerbates pressure on an already in conflict-affected areas, but the GoI is implementing weak system, sharpens disparities of access between multiple projects supported by the World Bank aiming regions, and is poorly served by the education and to improve service delivery and address recovery health systems and by social safety nets. The latest needs. World Bank report on Iraq DNA in the seven affected The delivery of basic social services has governorates estimates that the health and education been markedly affected by the security situation, sector were two of the most affected sectors, which but GOI has embarked on a comprehensive endured substantial damage totaling US$2.3 billion reform of social protection programs to improve and US$2.4 billion, respectively. Such damages have the living conditions and opportunities of the severely affected health care service delivery causing poor and vulnerable. Despite the large increase spikes in morbidity and mortality. The recovery needs in public expenditure, the quality of public services (health, education, electricity, and transport) remains deficient and the recent conflict further undermined 6 Iraq, Budget 2018 allocations by sector. 6 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION for the health and education sectors were estimated Only about 50% of Energy Billed Is FIGURE 11 •  at US$4.6 billion and US$4.3 billion, respectively.7 Collected The World Bank, as part of the international 90 community, is supporting the GoI in this critical 80 moment to address recovery needs. Supported 70 projects prioritize five key pillars: governance, 60 In KWh 50 national reconciliation and peacebuilding, social and 40 human development, infrastructure, and economic 30 development. In July 2015, the World Bank approved a 20 10 US$350 million Emergency Operation for Development 0 Project (EODP) to support the reconstruction of Total generated Total billed Eq. collected damaged infrastructure and restoration of public Source: Iraq Ministry of Electricity. services in liberated areas. In October 2017, the World Bank approved a US$400 million additional financing to the original project to expand the reconstruction Iraq’s public resources, particularly due to high losses, support in the agriculture and education sectors, with a lower than cost-recovery tariffs, and poor revenue special attention to the needs of the marginalized youth collection. Over 50 percent of electricity is lost before it and women in conflict-affected areas. In February is billed. Adding to this burden, due to lack of effective 2018, the World Bank approved Iraq’s Social Fund metering, billing and commercial management systems for Development (SFD) project financed with US$300 (Figure 11), only about 50 percent of the energy billed million, to improve access to basic services and to is collected; leaving the actual electricity paid at less increase short-term employment opportunities in than 30 percent of the total electricity generated. The targeted communities.8 This was followed in April 2018 IMF estimated the deficit of the electricity sector at 5.2 by the approval of the Emergency Social Stabilization percent of GDP in 2017.10 Severe power shortages in the and Resilience Project (ESSRP), financed with US$200 conflict-affected governorates, even before the onset million to improve the livelihood for more than a million of the crisis, imposes huge challenges. According to households in liberated areas. In addition, efforts the DNA report, damages to infrastructure in the most are underway to establish a multi Donor Trust Fund conflict-affected governorates were the highest in the (MDTF) for coordinated dialogue and donor financing power sector at US$7 billion, with the recovery needs of socioeconomic recovery and reconstruction and estimates at US$9 billion. deepening critical government reforms. Electricity subsidies represent a significant Despite some progress achieved in terms burden on Iraq’s budget and consume a major of electricity supply, inadequate electricity services and infrastructure continues to impede private sector development and household and businesses. Although Iraq has made significant 7 Iraq Reconstruction and Development, Damage and progress in improving its power generation, and Need Assessment in affected governorates, The World Bank Group, January 2018. increasing oil production,9 its energy sector continues 8 The SFD is expected to scale-up across all of Iraq, to face serious issues, including high demand growth including KRG, over a period of five years, using a phased of over 10 percent per annum, chronic electricity approach, with resource allocation based on population shortages with grid supply availability of less than and poverty headcount figures in the governorates. 15 hours per day. New generating units (mainly gas 9 Electricity production has grown by nearly 10 percent turbines) have been installed, but their operation often per year over the past 13 years; from a peak demand suffers because of fuel supply problems, especially supply of 5.7 GW in 2003 to about 14.0 GW in 2016 with the lack of infrastructure to provide natural gas. The an estimated investment of about US$18.0 billion. electricity sector is putting increasing fiscal pressure on 10 See IMF Staff Report, August 2017. RECENT ECONOMIC AND POLICY DEVELOPMENTS 7 FIGURE 12 • Electricity Tariffs Remain Low and reliability of supply and transparency of tariff index. On Heavy Burden on the Budget a scale of 0 to 8, where higher values indicate greater reliability of electricity supply and greater transparency 20 of tariffs, Iraq scores the lowest (0), compared to the 15 average of 4.2 for the MENA region. The Government of Iraq is committed US¢/KWh 8.11 10 5.53 5.16 to reform the electricity sector, supported by 5 1.70 the World Bank. In 2013, the Cabinet adopted the Iraq Integrated National Energy Strategy (INES) 0 2015 2016 2017 2018 for the period 2013–2030 and a new Electricity Law was issued in March 2017. Both the Strategy Domestic Commercial Government Industrial Agriculture Average and the Law provide the pillars for the sector’s reforms and governance; specifically, highlighting Source: Ministry of Electricity, 2015 Operating statistics. the Government’s commitment to: (i) private sector participation in the generation and distribution functions, and (ii) decentralized management for the portion of the government revenues. The energy provision of electricity services. To increase electricity sector represents a large fiscal cost for the government supply, the Government is engaging private sector to both in the electricity tariff and in the fuel used for lead investments in new generation11 and retrofitting generators. In 2017, the cost of production of electricity the existing inefficient power plants. The World Bank is estimated to amount to US$11.2 billion, including has had a long engagement in Iraq’s energy sector. purchase of electricity from Independent Power The DPF series has supported the GoI to have in Producers (IPPs) and investments. These subsidies place appropriate policies related to improve energy include US$6.7 billion of lost oil exports, corresponding efficiency by reducing gas flaring and increasing to more than 10 percent of total oil exports from Iraq gas to power generation; and reducing energy (excluding KRG) in 2017, and US$3.2 billion of budget subsidies. A new world Bank project of US$250 transfers or 5 percent of total government expenditure. million is under preparation that aims to improve the Tariff adjustment has begun but is reliability, efficiency and accountability of electricity constrained by weak improvement in the quality of supply in the governorates of Basra, Al-Muthana, service. Tariff collection covers only about 11 percent Dhi Qar, and Missan by improving transmission and of the cost (Figure 11). The authorities recognize the distribution infrastructure, and reducing technical loss heavy burden of these subsidies on the budget, and of electricity within the transmission and distribution plan to reform electricity tariffs, by implementing a system. The project is also expected to increase progressive tariff increase to improve revenues and the electricity supply reliability in the project areas reduce subsidy. In January 2016, the GoI has initiated by reducing the electricity supply interruptions and actions to increase tariffs by about fourfold from an network technical losses by about 50 percent and average of US¢1.7/KWh to US¢8.0/KWh), but protests 16 percent, respectively, and therefore to increase from segments of society led the cabinet to lower the electricity revenues sales by about 30 percent, with tariffs effective January 2017 by an average of 25 increased billing from 40 percent to over 70 percent.12 percent to about (US¢6.0/KWh) (Figure 12). However, and compared to prior 2015 when tariffs had been frozen for a long time, the overall 2018 tariffs have 11 To date, a total IPP capacity of 6000MW has been increased by about threefold. To reach a cost reflective signed/ongoing advanced negotiations including Mass level, the tariffs would need to increase to about US¢13/ Global Energy (Bismaya IPP) transaction of 3000MW. KWh (MoE 2017 estimate). The World’s Bank Doing 12 Electricity services reconstruction and enhancement Business 2018 report ranks Iraq poorly in terms of project, World Bank, September 2018. 8 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION Poverty, Equity and Vulnerabilities IDPs is visible in several dimensions, including a higher risk of hunger. Krishan and Olivieri (2016) Poverty remains prevalent at 22.5 percent in Iraq estimate that the twin crises reduced the per capita and almost double for IDPs, exacerbated by the consumption of IDPs by almost 22 percent (double conflict, the decline of oil prices and large wave of the average reduction in per capita consumption for displacement in recent years. The GoI is introducing the rest of the population) largely due to an estimated comprehensive measures to introduce a new social 27 percent increase in the unemployment rate among protection roadmap, a new poverty reduction IDPs (almost three times higher than the average strategy, focusing on the needs of the returnees and increase for the population as a whole). They estimate IDPs in the liberated areas, and aiming at improving that the IDP headcount poverty rate increased from the targeting for the existing programs, especially the 23 to 38 percent (double the increase in poverty for Public Distribution System (PDS). The country has the population as whole), i.e. 4 out of 10 IDPs became also embarked on a national roll-out of a conditional poor as a result of the twin crises. cash transfer (CCT) program to preserve and enhance The GoI launched a second Poverty human capital. Reduction Strategy (PRS2) 2018–2022 in Poverty has risen sharply. The national February 2018 aiming to increase the coverage poverty rate increased from 18.9 percent in 2012 to an ratio and improve efficiency. The new strategy,13 estimated 22.5 percent in 2014. Recent labor market aims to reduce Iraq’s poverty by at least 25 percent statistics suggest further deterioration of welfare. by 2022. This strategy aligns with the Iraq’s on- The unemployment rate, which was falling before the going strategies and plans, including Iraq’s Vision crises, has climbed back to the 2012 level. Almost a 2030, Social Protection Strategic Roadmap, and the quarter of the working-age population is underutilized, National Development Plan 2018–22. Particularly, i.e., they are either unemployed or underemployed. the new poverty strategy and the Iraqi Vision 2030 Many households are prone to adverse shocks; more share the common pillars of: creating opportunities than a third of the households have experienced an for generating sustainable income; empowerment adverse event since the beginning of the crises and and building human capital; and establishment of an one in six households has experienced some form effective social safety net. The new PRS also focuses of food insecurity. The universal food ration (Public on the needs of the returnees and IDPs in the recently Distribution System, PDS) remains the most extensive liberated areas, promotes income generation from social assistance program, but people have also projects in agriculture and women participation in turned to friends and relatives and humanitarian economic activity, particularly in rural areas. agencies for assistance. Poverty rate increased Iraq has longstanding inefficiencies in in the Kurdistan region from 3.5 percent to 12.5 its social protection system. The non-age-related percent because of the large wave of displacement. social protection system is dominated by the Public In governorates under ISIS occupation, poverty rate Distribution System (PDS), in which the government doubled to 41.2 percent. Even though the impact purchases imported food, along with some domestic was limited in the rest of Iraq, poverty increased in all procurement, that is then distributed to all families, governorates, especially in the South where the rate irrespective of income. The PDS suffers from severe remains stubbornly high, at more than 30 percent, inefficiencies but remains the primary safety net for due to the economic crisis. the poor. This program is large—the 2018 budget Internally displaced persons (IDPs) have allocated ID 1.5 trillion, or 2 percent of the current been buffeted by multiple adverse shocks. Fewer IDP adults have a job, so each employed adult in an IDP household supports more than six other household 13 The first PRS-1 finalized in 2009 and adopted by the members. Some IDPs have lost access to the PDS. Parliament in 2010, has reached the end of its initially- The cumulative impact of these developments on envisaged implementation period in early 2016. RECENT ECONOMIC AND POLICY DEVELOPMENTS 9 budget expenditure—but remains untargeted, multiple pension rights provided by other laws, which covering also 98.6 percent of the non-poor with allows individuals to have more than one pension salary. significant inefficiencies in procurement, distribution, The draft law also introduces mechanisms for voluntary and management. Other safety net programs are not pensions, and along with other measures, are designed poverty targeted and cover a small share of the poor. to increase pension coverage in the long-term. The government is introducing reforms to Iraq has embarked on a national roll-out of a improve targeting and to create a unified registry conditional cash transfer (CCT) program, starting of social protection beneficiaries (see Special with a pilot at Sadr City 2 area of Baghdad. The Focus). Together with the support of the World overall objective of the program is to preserve and Bank, Iraq embarked on its social reforms with the enhance human capital by incentivizing a greater use adoption of a new Social Protection Law (SP) in April of education and health services.17 In July 2017, 50 2014. The law targets various assistance programs social workers have visited 6,700 households-who more efficiently by replacing broad categories of meet at least two of the CCT criteria- to explain the recipients with a proxy means testing methodology program to beneficiaries and ensure that all required meant to increase coverage and reduce errors of information is collected at the start of the pilot. The inclusion and exclusion. Under the Social Protection pilot is being supported by both the World Bank Law, the government’s current efforts are focusing on and UNICEF. Households are expected to meet co- moving from categorical targeting to a new targeting responsibilities of investing in health (maternal and methodology based on proxy means testing. In child vaccinations) and education (attendance and addition, the establishment of a unified registry of staying in school for grades 5–7). The national roll-out, beneficiaries, would enhance the capacity to help IDPs based on pilot program evaluations, will be financed and people with disabilities, and to better identify the under the World Bank-financed Emergency Social poor, as beneficiaries for SP programs. In November Stabilization and Resilience Project. 2014, the government adopted its Social Protection The CCT program is also introducing a case Strategic Roadmap 2015–2019 with the vision of management approach to improve the program’s having “a comprehensive social protection system efficiency. This will include the following activities: for Iraq covering social safety nets, social insurance, (i) develop social workers competency framework, and labor market policies”. The number of beneficiary including their skills and behavioral attributes needed households increased from 850,000 (2016) to to work with beneficiaries;18 (ii) conditions assessment, 1,100,000 (2017). Of those, 55 percent are female- including casework data collection instrument, headed households. The monthly cash assistance for methodology to define needs and conditions, and in need households increased from US$70 to US$150 intervention application guide; (iii) family development on average14. The World Bank team is now supporting plan to include guidelines for the intervention plan with implementation of the roadmap through a technical assistance financed from UK DfID15 and Japan to support GoI in laying the foundation for the integration 14 Iraq Emergency Social Fund for Development, World Bank, October 2017. of social protection systems and enhancing their 15 UK Department of International Development. efficiency.16 The GoI is also reforming its social insurance 16 The World Bank is also providing another TA to Central Statistics Office (CSO) and KRG Statistics Office (KRSO) law. The draft of a new pensions and social insurance to implement rapid welfare monitoring survey (SWIFT) to law has been completed, approved by Council of monitor living standards of Iraqi population. Ministers (CoM) in 2017, and is currently in the Council 17 MOLSA has developed the CCT Pilot, including the of Representatives (CoR) for discussion. The main design, the formation of an operational committee, and characteristic of this new law is the integration of the a detailed operational manual. public and private sectors pension schemes. The draft 18 Including conducting home visits, and guidelines which law will address fiscal drains on the treasury caused by will serve as reference for social workers. 10 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION the beneficiary households, template for the family FIGURE 13 • The Wage Bill Is the Largest and development plan, and how to track it; (iv) referral Fastest Growing Expense in the Government Budget services manual; (v) guidelines and procedures for implementation support; and (vi) user manual for the 60% Case Management System. 50% 40% Labor Markets and Employment 30% Iraq faces a serious shortage of employment 20% opportunities—particularly for young people—and a low 10% labor force participation rate of women. The large public 0% sector is dominant in the economy leading to subdued 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e private sector job growth. The unemployment rate has significantly increased, especially for women and youth Wage bill % total expenditure and in the conflict-affected areas. The wage bill, at 15 Wage bill % total revenue percent of GDP, is among the highest in the region and exceeds most other comparators. Supported by Sources: Iraqi authorities; WB; and IMF. the World Bank and IMF, the GoI has demonstrated a commitment to structural reforms, to control wage bill and mitigate endemic payroll fraud through several private sector job growth. During 2003–2016 wage key measures. The WB is also assisting the country to expenditures quadrupled in real terms, driven primarily strengthen systems and deliver programs to empower by unchecked hiring of employees, raises in employee women economically and politically, and to influence compensation, and payroll fraud. The ratio of wages female labor force participation. to total government spending and revenues rose The large public sector dominates the even faster during the same period, partly because of economy. Close to 3 million people are employed the constrained fiscal space following the 2014 twin in the public sector, representing approximately 42 shocks of oil prices and ISIS conflict (Figure 13). In percent of all jobs. While the oil economy represents 2017, at 15 percent of GDP, 42 percent of the budget, well over half of GDP, it produces only about 1 and 43 percent of total revenues, Iraq’s wage bill percent of total employment and has few links to non- dominates comparators (Figure 14) and is the GoI’s oil activities. Rather, oil revenues have enabled the single largest and fastest growing budget item. rapid expansion of the public sector. Although more than 750,000 new jobs were created between 2007 and 2012, these were not enough to absorb all new FIGURE 14 • Iraq Is an Outlier in Terms of the participants in the labor market, and four-fifths of Wage Bill these new jobs were generated by the public sector. 18% Despite reform initiatives, the economy remains 16% largely dependent on oil revenues, which—without 14% significant private sector development—continue to Percent of GDP 12% fund a bloated public-sector workforce. 10% 8% Public spending is high by international 6% standards, driven by a large public wage bill. 4% The public-sector payroll lacks centralized control 2% and, therefore, has been growing rapidly. Relatively 0% Ems (2015) OECD (2015) MENA (2015) Iraq (2017) high public-sector wages and job security make Source:Jobs in Iraq: a primer on job creation in the short run, WB, June 2018. other alternatives appear undesirable, curtailing RECENT ECONOMIC AND POLICY DEVELOPMENTS 11 FIGURE 15 • Large Ratio of Public Sector to the payment of government salaries from cash to Population electronic means and to track employee attendance using biometric technologies.20 Together, these 0.14 reforms support the Government’s efforts to control 0.12 wage expenditure and corruption by building sounder 0.10 and more transparent payroll and payment systems, 0.08 that reduce opportunities for payroll fraud. Under 0.06 the IMF SBA, GoI has also committed to reduce the 0.04 number of employees through natural attrition. Failure 0.02 to implement such measures to contain the wage bill 0 could limit the country fiscal space for reconstruction. Morocco (2012) Bahrain (2011) Turkey (2011) Iran (2014) Tunisia (2014) MENA (2000-10 avg) Egypt (2013) OECD (2015) Qatar (2015) Saudi Arabia (2015) Iraq (2016) The crowding out of the private sector is pervasive. Limited growth in the private sector is a direct hurdle to large-scale employment creation, especially for young Iraqis. The private sector remains relatively small, does not contribute Source: Jobs in Iraq: a primer on job creation in the short run, WB, June 2018. significantly to income generation and fails to absorb and contain unemployment. The security and oil shocks impacted private sector consumption and In response to the recent plunge in oil investments, and limited government spending, prices, Iraqi governments have made large particularly on investment projects. The private sector expenditure cuts. However, these cuts have focused also suffers from dysfunctional infrastructure and on investment, goods, and have left personnel and energy supply, absence of constructive public-private social expenditures structurally unchanged. Between sector dialogue, widespread corruption, and low 2003 and 2015 the number of central government available credit. Employment in small and medium employees alone more than tripled (from 0.9 to over enterprises (SMEs) is concentrated in construction, 3 million) and more than doubled as a share of the commerce (retail and wholesale trade), transport and labor force (from 15 to 35 percent). By conservative communications. Construction is the single largest estimates, in 2016 the public sector (including the employment sector in the private sector and one of subnational government and SOEs) employed at the largest sectors for jobs in the entire economy least 4.3 million people, or almost two thirds of all (Figure 16). Due to reconstruction activities, the sector working Iraqis. In practical terms, this means that has also large potential to grow. Tourism, whose there is currently one public employee for every 8.1 main driver is religious tourism, generated US$4 Iraqi citizens. This ratio is very high ratio relative to billion in export earnings in 2015 and is the largest comparators (Figure 15), including MENA and GCC non-oil export. Transportation, freight, and logistics countries whose public sectors typically deliver a wider remain dominated by the state, but growth of SMEs array of services to larger and more heterogeneous is increasing. Agriculture more broadly provides populations. about 20 percent of employment and contributes 4 Supported by the World Bank and the percent of GDP and represents a large employer for IMF, the GoI has demonstrated a commitment to women. However, in February 2015, Iraqi government control the wage bill and mitigate endemic payroll launched a Private Sector Development Strategy fraud. GoI’s measures include the formulation and 2014–2030 in an attempt to stimulate growth and implementation of strategies to (i) enable monthly collection of reporting of detailed payroll data from all public sector spending units into a Central Payroll 19 Council of Ministers’ Decision 281 of 2017. Database starting in October 201719 and (ii) transition 20 Council of Ministers’ Decision 313 of 2016. 12 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION FIGURE 16 • The Public Sector Dominates in Iraq 1,200,000 1,000,000 800,000 Number 600,000 400,000 200,000 0 Mining and quarrying Utilities Public admin, health and education Other services Manufacturing Financial, insurance and professional Transport, storage and communication Agriculture and fishing Commerce and retail Construction Private Public Source: Iraq Household Socio-Economic Survey 2012. create jobs through diversifying the private sector and FIGURE 17 • Unemployment Has Significantly promoting investment. The National Development Increased Plan 2018–2022 envisions a rise of the share of private capital by 2022 but recognizes that public 2.5 investment is likely to still play a large role, and a role that is not limited to the oil sector. 1.5 Millions Experience from various conflict and post- 1.0 conflict settings shows that self-employment, entrepreneurship development, and support for microenterprises can play an important Unemployed adults Unemployed IDPs Total unemployed role in generating economic opportunities. Source:Jobs in Iraq: a primer on job creation in the short run, WB, June 2018. Financial inclusion and microeconomic development opportunities, particularly for vulnerable segments including farmers, haven proven especially effective in other post conflict environments. The World Bank’s jobs. At least 2.5 million unemployed Iraqis urgently Emergency Social Stabilization and Resilience Project need jobs (Figure 17). Most of the unemployed are contributes to increasing livelihood opportunities in young. Compared to the national unemployment liberated areas through the provision of microfinance rate of 16 percent, youth unemployment is about 36 to beneficiaries to carry out income generating percent (2016).21 Three groups–youth, women, and opportunities. IDPs–are affected disproportionately by the paucity The unemployment rate has significantly of jobs. Iraq has one of the youngest populations in increased, especially for women and youth and the world. Nearly 50 percent of Iraqis are younger in the areas affected by conflict. Iraq has one of the lowest employment-to-total population ratios in the region, even among men, and the 2014 crisis has led 21 Jobs in Iraq: a primer on job creation in the short-run, to an estimated reduction in employment by 800,000 World Bank, June 2018. RECENT ECONOMIC AND POLICY DEVELOPMENTS 13 Unemployment Among women is FIGURE 18 •  or instructions have been issued.23 Although there Very High, Especially for Youth have been some positive legal reforms over the last few years, women remain vulnerable and lack legal 65 support and protection due to the weak enforcement mechanisms. A new World Bank project in Iraq and Percent % 36 KRG titled “Gender and Social Protection in Iraq: 32 27 27 Towards Economic Empowerment”, will provide 16 14 technical assistance to strengthen systems and deliver programs to empower women economically Total Females Males IDPs Total Females Males and politically. The project is consistent with the Iraq Iraq Iraq youth (15–24 yrs) Social Protection Strategic Framework and PRS2, which highlights gender as a cross-cutting theme Source:Jobs in Iraq: a primer on job creation in the short run, WB, June 2018. across its six pillars. Social norms can also sometimes push back and resist new changes supported by laws. than 19 years, and 60 percent are below 25 years Women, especially between the age of 18 to 50, lack of age. Low levels of human capital constrain young legal protection from violence in general even when Iraqis from engaging in productive activities. Of the seeking protection of law enforcement. This can be seven million Iraqi youth, over 3.4 million are out attributed to both lack of legal protection as well as of school. The outsized public sector, the poorly social norms. Social norms related barriers could targeted social transfers, and the declining quality be reduced by strengthening gender sensitization of health and education services negatively impact training for government officials, by building the labor participation and constrain young Iraqis from capacity of civil society to advocate, monitor and engaging in productive activities (Box 1). Labor force evaluate women’s empowerments initiatives, and by participation rate for women is 19 percent, compared promoting positive norms. Strengthening of existing to 74 percent among men–below the median among leadership programs and improving SMEs programs Arab countries. In particular, fewer than one in ten available for women would address the constraints adult women with intermediate or lower levels of at the individual level. The above-mentioned project education participates in the labor market. Women is supporting Iraq to influence female labor force who do participate in the labor market are also more participation, in two activities: (i) A qualitative and likely to be unemployed. In 2016, about 27 percent of quantitative study to capture the prevalent beliefs women of all ages were unemployed, compared to 14 and social norms prohibiting women from joining the percent of men; among youth, 65 percent of young labor market and (ii) Design, implement, and evaluate women were unemployed compared to 32 percent of interventions to shift the beliefs at the individual, young men (Figure 18). household, and society level. Women’s empowerment faces legal, structural, and social barriers, limiting women’s choices and agency and negatively impacting their ability to participate in and benefit from 22 Agency is “the ability to make decisions about one’s own political and economic development.22 Current life and act on them to achieve a desired outcome, free of violence, retribution, or fear. The ability to make those laws impose barriers and constraints on women’s choices is often called empowerment.” ability to work, such as restrictions on women’s 23 Other legal constraints are the lack of prohibition of employment (night work or jobs considered harmful to gender-based discriminatory practices by employers and the health of women), limiting their agency. In addition, lack of equal pay and lack of enforcement mechanisms while the law requires employers to provide childcare have slowed down the realization of the recent legal services when they employ women, no decrees reforms. 14 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION BOX 1  •  Job Creation in the Short-Run in Iraqa Iraq is facing a job crisis of unprecedented proportions. It could foment a resurgence in violence unless the government makes credible and swift progress in job creation and reconstruction. In the short-term, neither private or public sector hiring can create jobs at the desired scale without significant new policy action. The firs-best solution for a large scale private sector job creation hinges on structural reforms that must begin now but are achievable only in the medium to longer term. However, the options to deliver large-scale job creation in the short-term, based on investments in construction, agriculture and agribusinesses, small and medium enterprises, and vocational skills. Financing needs for jobs are large, and while business climate reforms are under way, private investment in jobs will be limited. Yet, the recent oil price hike offers the government of a uniquely timely opportunity to make an investment in jobs that makes a real difference. By 2030, Iraq’s adult population will increase from 20 to 32 million (figure B1) and the number of Iraqis in need of new jobs is projected to range between five and seven million. Youth, women and IDPs urgently need more access to jobs. Without special attention to their demand for jobs, peace and reconstruction are at risk. Nearly 50 percent of Iraqis are younger than 19 years, and 60 percent are below 25 years of age. The youth population is projected to increase from seven to ten million between 2015 and 2030 (figure B2). Low levels of human capital constrain young Iraqis from engaging in productive activities. The challenge is further compounded by the fact that Iraq has experienced earlier waves of internal displacement in the course of the conflict of the past decades. About 27 percent of the IDPs are unemployed. The most vulnerable IDPs are women and children—49 percent are less than 18 years old. Options for the short-term job creation would include: (a) construction and public works. Reconstruction and repairs can commence immediately and are potentially job-intensive. In addition, there is a private sector and SME presence in the construction and construction materials sectors, so that there is a direct opportunity for the GOI to use its investments to help build private sector capacity, (b) agriculture and agribusiness to improve food security and generate jobs, particularly for women and returning IDPs. A revived primary agriculture sector will boost job creation through SMEs as farm-to-farm related services and processing scale up the agribusiness sector, (c) support to SMEs and vocational skills development for jobs in services and across other sectors. With the scaling-up of infrastructure and agriculture, SMEs will be able to seize some opportunities and create new jobs through backward and forward linkages. At the same time, it will be difficult for the large number of unskilled job seekers to benefit from new opportunities. Policies that foster vocational skills are a promising way of promoting access to jobs across all productive sectors. However, meaningful reform requires a stable social and political environment and significant political will. The crucial next step is for GoI to define the level of ambition it wishes to pursue, and to shape the pillars of its own jobs strategy. FIGURE B1 • Labor Structure FIGURE B2 • Youth Population 60,000 12,000 50,000 10,000 40,000 8,000 5,385 Thousands Millions 55,898 30,000 6,000 14,058 3,651 3,133 36,423 9,124 20,000 4,000 8,110 32,958 31,662 20,383 5,113 18,221 10,000 2,000 2,967 3,472 0 0 2012 2015 2030 2012 2012 2030 Population Working age population Labor force Female 15–24 Males 15–24 Source: World Bank staff estimates. Source: World Bank staff estimates. a Jobs in Iraq: a primer on job creation in the short-run, World Bank, June 2018. The employment challenge is further female labor force participation rate in KRG is also compounded by large unemployment among the one of the lowest in the world, at 14 percent, and IDPs and in KRG. About 27 percent of the IDPs are the unemployment rate has significantly increased, unemployed. The most vulnerable IDPs are women especially for young women, reaching 69 percent and children, 49 percent are less than 18 years for women aged 15 to 24.24 Of the unemployed old. Compounding the problem has been a decline women, more than one-third are women with post- in employee training and skills development. The secondary school degrees, compared to one-quarter unemployment rate in KRG also increased from 6.5 percent prior to the ISIS conflict to 14 percent in 2016, due to the influx of IDPs and refugees. The 24 Compared to 24 percent for men in the same age bracket RECENT ECONOMIC AND POLICY DEVELOPMENTS 15 FIGURE 19 • An Unfavorable Business FIGURE 20 • Ease of Doing Business Slightly Environment Remains a Significant Improved, but Remains Below the Deterrent to Foreign Investment, Average of MENA but Reforms on the Way Starting a Business 200 Dealing with U.A.E (rank 21) 78.7 Resolving Insolvency Construction Permits 150 Oman (rank 71) 67.2 100 Saudi Arabia (rank 92) 62.5 Enforcing Contracts Getting Electricity Jordan (rank 103) 60.6 50 Regional average (rank 115) 56.7 0 Iran (rank 124) 56.5 Trading Across Registering Borders Property Egypt (rank 128) 56.2 Iraq (rank 168) 44.9 Paying Taxes Getting Credit 0 20 40 60 80 100 Protecting Minority Investors Distance to frontier score (100 = most favorable, 0 = least favorable) Iraq-2018 Rank MENA-2018 Rank Source: World Bank, Doing Business 2018. Source: World Bank, Doing Business 2018. of unemployed men. Almost 80 percent of employed substantive changes in the local regulatory framework in women are employed in the public sector. The KRG two main areas: starting a business and getting credit. three-year reform plan was launched in May 2016 in In fact, starting a business in Iraq has become easier partnership with the World Bank and via this plan, by combining multiple registration procedures and the KRG intends to create more job opportunities reducing the time to register a company. Entrepreneurs and establish a fund for paying pensions and social are no longer required to register separately with the tax security for the private sector labor force.25 authority. The time required to register a company has declined thanks to increased resources at the registry, and an improved online registration system. As a result, Business Environment and Private Iraq’s rank in the ease of doing business improved by 11, Sector Development from 165 to 154, but still below the average of the MENA region (113) (Figure 20). Iraq has also improved access Absence of good governance, the spread of to credit information by launching a new credit registry administrative and financial corruption, and power managed by the Central Bank of Iraq.26 Iraq performed shortages, among other factors, have resulted in a poorly on several of the other areas that Doing Business poor business environment. Implementation of recent measures, including, trading across borders (179), reforms and a more stable security environment will resolving insolvency (168), enforcing contracts (144), help improve business environment in Iraq. and getting electricity (133). Security concerns, outdated legislation, Rampant corruption is undermining widespread corruption, and crumbling infrastructure efforts to strengthen institutions and their hampers foreign investment. Difficulties with effectiveness. The country is persistently ranked corruption, customs regulations, cumbersome visa around or below the tenth percentile globally procedures, unreliable dispute resolution mechanisms, electricity shortages, and lack access to finance are common complaints from businesses. In Doing Business 25 Ibid. 2018, Iraq ranks 168 out of 190 economies; significantly 26 As of January 1, 2017, the registry listed 234,967 consumers behind peer countries in MENA region (Figure 19). It and 4,877 commercial borrowers with information on their finds that during 2016 and 2017, Iraq has implemented borrowing history within the past five years. 16 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION based on indicators of government effectiveness, FIGURE 21 • The Quality of Governance Remains rule of law, and control of corruption (Figure 21). Critical Iraq’s performance was particularly poor in the Control of Corruption indicators for stability and absence of violence, 50 rule of law, and control of corruption. It is also 40 Voice & 30 Government ranked 169 out of 180 countries in the latest Accountability Effectiveness 20 Transparency International Corruption Perception 10 Index in 2017, with only Syria, Yemen, and Libya 0 scoring worse within MENA region. Social unrest Stability & has continued periodically due to low quality and Absence of Regulatory Quality Violence availability of basic public services and perception of widespread corruption. In 2016, Iraqi parliament Rule of Law questioned and dismissed the Minister of Trade, Percentile rank (0 to 100), higher values indicate better governance ratings. Defense and Finance on corruption allegations. Recently, in July 2018 and amid widespread Iraq MENA protests over a power crisis, Iraq’s PM ordered Source: World Bank Worldwide Governance Indicator. the suspension of the country’s electricity minister until an investigation on poor service delivery is concluded. Payroll corruption, including collection of salaries by “ghost employees”, chronic absentees Iraq is keen to reform its business and skimming of salaries, is rife, and hiring and environment. The Government is committed to disciplinary decisions are affected by nepotism and continuous improvement of the business environment bribery. Difficulties with corruption and unreliable and the investment climate in Iraq, conducive for dispute resolution mechanisms remain common both domestic and foreign investment that generates complaints from companies operating in Iraq. Weak positive effects on the domestic economy. The public administration, lack of experienced staff, and World Bank is supporting the GoI in improving weak oversight of government spending provide the business environment in areas covered by the incentives and opportunities for corruption.27 DB indicators through implementation of a reform Efforts continue to address these action plan in four priority areas, namely (i) resolving deficiencies. On September 16, the World insolvency, (ii) enforcing contracts, (iii) getting credit, Bank Group and the European Union signed a and (iv) protecting minority investors; and reforming US$18.1million technical assistance program to the business registration at the national level in strengthen Public Financial Management (PFM) Baghdad and KRG. The Government is committed to oversight and accountability Institutions in Iraq, continuous improvement of the business environment increase the efficiency in the management of public and the investment climate in Iraq conducive for resources and delivery of services. The initiative, both domestic and foreign investment that generates which will be implemented jointly by the European positive effects on the domestic economy. Union and the World Bank, complements the US$41.5 million “Modernization of Public Financial Public Finance Management Systems” program launched by the World Bank in 2017, and currently under Iraq’s overall fiscal balance is estimated to post a implementation. Investors in KRG face many of the surplus in 2018, as recovering oil prices feed through same challenges as investors elsewhere in Iraq, but a business-friendly investment law and more stable security situation are generally more attractive to 27 Transparency International, Coralie Pring, U4 Expert foreign businesses. Answer, Anti-Corruption Resource Center 2015. RECENT ECONOMIC AND POLICY DEVELOPMENTS 17 FIGURE 22 • The Fiscal Position Is Estimated to FIGURE 23 • The Share of Non-Oil Investment to Improve Due Mostly to Higher Oil GDP Is also Expected to Increase Prices 12 60 15 10 Twin shock 40 10 5 8 Percent of GDP Percent of GDP 20 0 0 6 –5 –20 –10 4 –40 –15 2 –60 –20 2010 2011 2012 2013 2014 2015 2016 2017 2018e 0 2013 2014 2015 2016 2017 2018e Non-oil revenues Oil revenues Current expenditures Non-oil investment expenditure Capital expenditures Overall fiscal balance-RHS Security-related expenditure Sources: World Bank; and IMF staff estimates. Sources: World Bank; and IMF staff estimates. to higher revenues. Positive overall fiscal balance and KRG’s fiscal position is also estimated to growth are estimated to further reduce the public relatively improve in 2018. The federal government debt-to-GDP. Higher oil prices will also enable the agreed last March to resume transfers to KRG, government to have adequate fiscal space to finance sufficiently to pay salaries and pensions, and on the reconstruction, provided that the GoI continues the back of implementing measures to improve non- fiscal consolidation process. oil revenue. In addition, following the measures In 2018, the overall fiscal balance is announced in 2016 to withhold a significant percentage estimated post a surplus of 1.2 percent of GDP due of government salaries and pensions, KRG in March mostly to higher oil prices, estimated to average 2018, abolished the salary cuts for the low-earners above US$67 per barrel (Figure 22). The plunge in government employees and reduced salary cuts world oil prices in 2015–16, increased security and for high-earners to as low as 30 percent, down from humanitarian outlays, and weak controls led to sharply about 60 percent. The measures announced were in lower oil revenues and rapidly widened the budget response to anti-government protests, calling for an deficit. It narrowed in 2017 due to the pick-up in oil prices end to the unpopular salary system introduced in 2016, and measures adopted to contain current expenditures and in view of the funds sent by the Iraqi government within the framework of IMF program and World Bank to the region.28 DPF series. Official financing for the budget has been Public debt is estimated to further decline less urgent with the improvement in the fiscal position. and to remain sustainable. Growth and the positive A more favorable security situation is estimated to overall fiscal balance in 2018 are estimated to further increase the share of non-oil investment to GDP, while reduce public debt-to-GDP ratio from 67.3 percent in the share of the security spending is estimated to 2016 to almost 55 percent in 2018 (Figure 24).The decline (Figure 23). Higher oil prices accompanied with government also adopted a framework to control careful management of spending pressures over the the issuance of guarantees, which reached US$33 remainder of the year would create space for capital/ billion (or 20 percent of GDP) in end-2016 and these reconstruction spending while also using some of the oil windfall to build reserve buffers, provided that the process of fiscal consolidation continues. 28 http://www.rudaw.net/english/kurdistan/280320181. 18 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION FIGURE 24 • Public Debt-to-GDP Ratio Is FIGURE 25 • Total Debt Service Will Remain Estimated to Decline Large 150 150 6 125 125 5 Percent of GDP Percent of GDP 100 100 4 US$, billion 75 75 3 50 50 2 25 25 1 0 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018e 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 External debt (left) US$ Domestic debt (left) US$ Amortization on external debt External interest payments Debt-to-GDP ratio (right) Domestic interest payments Total debt service Sources: Ministry of Finance; and World Bank estimates. Sources: Ministry of Finance; and World Bank estimates. guarantees, most related to the electricity sector, Inflation Remains Low but Will FIGURE 26 •  are now believed to be under control. In previous Likely Increase at 2 Percent in 2018 year large fiscal deficits have been mainly financed 7 through bilateral and multilateral support, occasional 6 sovereign bond issuance and indirect monetary Headline inflation, 5 y-o-y change % financing by the CBI. Large borrowing at commercial 4 terms, including through the issuance of Eurobonds is 3 projected to rapidly increase total debt service, which 2 would reach 5 percent of GDP by 2023 (Figure 25). 1 0 2011 2012 2013 2014 2015 2016 2017 2018e Inflation, Money and Banking Source: Iraq CSO. Inflation remains low and the spread between official and parallel exchange rate is narrowing. The financial system remains underdeveloped, but the prices and transportation costs led to some pick up CBI continues its efforts to develop banking sector in overall inflation at 1.7 percent in both June and July and improve supervision. Credit to the private sector 2018 (Figure 27). Official statistics don’t include the is improving. Thanks to its progress in strengthening conflict-affected provinces, where inflation could be Anti-Money Laundering and Combating the higher due to shortages in fuel and goods. Financing of Terrorism (AML/CFT) framework, Iraq Broad money and credit to private sector was removed from the Financial Action Task Force are estimated to improve in 2018, but public FATF monitoring. banks’ NPLs remain elevated. As of May 2018, total Inflation remains low. The pegged exchange liquidity receded 2.8 percent since the beginning of rate and subdued demand have kept inflation low at the year. Preliminary data point to a reversal in the just 0.1 percent in 2017. However, higher domestic y-o-y contraction in CBI’s balance sheet beginning demand and increased credit to the economy (albeit July for the first time in 15 months. As a result, the from a low level) will likely further increase inflation to broad money is estimated to stabilize (Figure 28). The average 2 percent in 2018 (Figure 26). Rising food share of non-performing loans (NPLs) is high and RECENT ECONOMIC AND POLICY DEVELOPMENTS 19 FIGURE 27 • Rising Food Prices and Transportation FIGURE 28 • Broad Money Is Estimated to Costs Led to Some Pick-Up in Stabilize in 2018 Inflation in June and July 2018 20 3 15 Percentage growth 2 10 1 5 Percent, % 0 0 –1 –5 –2 –10 –3 –15 –4 2013 2014 2015 2016 2017 2018e Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Sources: World Bank; and IMF staff estimates. Food and Non-Alcoholic Beverages Clothes and Footwear Housing, Water, Electricity & LPG Transportation Headline inflation estimated at 12 percent of GDP, the lowest level in the Middle East and North Africa (MENA). Private banks Source: Iraq CSO. are small, and they are mostly active in currency exchanges and wire transfers. Access to finance is very low in Iraq with only 11 percent of adults having rising, both in public and private commercial banks a bank account, suggesting that there is a substantial (respectively 12 and 34 percent) as of March 2018.29 unmet demand for financial services. Capital markets Private sector cash credit extended by commercial in Iraq are underdeveloped and little reliable data is banks also increased from about ID18.5 trillion in available for non-bank financial institutions. The CBI July 2017 to almost ID21 trillion in June 2018 (11.3 has also implemented several measures to simplify percent increase). access to its foreign exchange window, which has The spread between the official and contributed in the decline of the spread between parallel exchange rates is narrowing. The spread the official and parallel exchange rates. The WB and between the official and parallel exchange rates IMF continue to provide technical assistance to the has narrowed to 2 percent in June 2018 from 6.25 CBI to strengthen the supervisory and regulatory percent at end-2017. This reflects a streamlining of frameworks and adopt international standards. documentation requirements for access to the CBI’s The WB is currently assisting the CBI to reform its foreign exchange window and increased foreign payment system and propose drafting suggestions currency sales. for legal and regulatory measures and develop an Iraq continues to pursue efforts to develop oversight framework. its underdeveloped banking system. The financial Iraq is making progress in strengthening sector is dominated by state-owned banks, which its AML/CFT. In July 2018, in light of the progress provides credits mainly to SOEs. As of September made in strengthening its Anti-Money Laundering 2017, there were 70 banks operating in Iraq, including and Combating the Financing of Terrorism (AML/ 7 state-owned banks (SOBs), 44 Iraqi private banks, CFT) framework, the Financial Action Task Force and 19 foreign banks. The SOBs account for the (FATF) has removed Iraq from its list of states bulk of assets and credits, particularly three of them, deemed weak in combating money laundering and Rafidain Bank, Rasheed Bank and Trade Bank of terrorist financing. The International Co-operation Iraq (TBI), which hold around 90 percent of the Review Group (ICRG) also saw concrete progress banking system’s assets, 71 percent of total deposits and extend 54 percent of total credit in the Iraq banking sector. In 2018, total credit to the economy is 29 Iraqi authorities, preliminary estimates. 20 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION FIGURE 29 • Higher Oil Prices Are Estimated to FIGURE 30 • International Reserves Are Consolidate the Current Account Estimated to Increase as Well Surplus in 2018 80 12 50 10 Months of imports 40 60 30 8 US$, billion Percent of GDP 20 40 6 10 0 4 20 –10 2 –20 –30 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018e –40 2010 2011 2012 2013 2014 2015 2016 2017 2018e Imports Exports Current account balance Foreign Reserves (left) Coverage Ratio (right) Sources: Iraqi authorities; world Bank; and IMF staff estimates. Sources: Iraqi authorities; World Bank; and IMF staff estimates. in criminalizing the financing of terrorism, evidenced current account surplus at 2.1 percent of GDP in 2018 by good coordination between law enforcement, (Figure 29). International reserves are estimated to intelligence agencies. increase from US$49 billion in 2017 (or 6.8 months of imports), to US$58.3 billion (or 7.7 months of imports) External Position in 2018, rebuilding buffers to external shocks30 (Figure 30). Higher oil prices will consolidate the current account surplus for 2018, and also increase international reserves. Higher oil prices since-mid 2017 has also 30 The strong reserve accumulation in 2010–2013 smoothed the impact of the fiscal policy adjustment required to been conducive to better outcomes on external maintain external sustainability, and foreign reserves balance. Higher oil prices turned the current account financed most of the balance of payment deficit, when from a deficit of 9 percent in 2016, t into a surplus of declining from US$77.8 billion at end-2013 to US$48.1 1.2 percent of GDP in 2017 and will consolidate the billion at end-2017. RECENT ECONOMIC AND POLICY DEVELOPMENTS 21 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION 2 ECONOMIC OUTLOOK AND RISKS Economic Outlook increasing import needs for consumer and capital goods. Inflation is projected to remain low at 2 percent The outlook is expected to improve considerably in 2019. due to higher oil prices and the improving Fiscal and external balances are likely to security situation. Overall GDP growth is projected continue improving as recovering oil prices feed to accelerate to 6.2 percent in 2019, compared to 1.9 through to higher revenues. Largely driven by percent in 2018, sustained by higher oil production. expected higher oil prices and fiscal consolidation, the In the following years, oil production is expected to fiscal position will remain positive in 2019 but will turn increase only marginally, reducing overall growth to into small deficits by 2020. The current account deficit an average of 2.5 percent until 2023, due to the limited is expected to remain limited as long as oil exports capacity of the GoI to mobilize investment needed to prices continue to rise. The rebuilding of reserves and rebuild the country’s damaged infrastructure network, emergence of current account surpluses imply that private consumption and investment. Iraq no longer has large exceptional financing needs Non-oil growth is expected to gain momentum in the near term. Thanks to fiscal restraint, public on the back of higher investment needed to rebuild debt is expected to continue to decline and to remain the country’s damaged infrastructure network, sustainable over the medium term. private consumption and investment. But sustained The outlook includes making space for non-oil recovery will depend on the transition from post-conflict reconstruction and infrastructure an immediate rebound as security improves to spending. After sharp spending cuts in 2014–17 implementation of a high-quality investment pipeline (focused on capital spending), the short-term with sound financing. Thus, reconstruction will remain outlook also includes reviving capital spending and an upside risk for growth (rather than in the baseline) responding to demands for improvements in basic given the continued uncertainty about how it will services in 2019 and beyond. Resources are available evolve. A more stable security situation will allow given the recovery in oil prices and following the donor for private consumption and investment to pick up, conference, although further efforts are required to 23 strengthen absorption capacity. Carefully managing gross reserves and/or higher public debt. Moreover, spending pressures over the remainder of this year the outlook provides limited fiscal space to absorb and taking measures in 2019 budget would create shocks and further expand capital spending. On the space for capital/reconstruction spending while also other hand, every US$1 per barrel sustained increase using some of the oil windfall to build buffers. in oil prices would add US$1.5 billion to annual oil revenue. Iraq’s capacity to expand oil production and exports remains constrained, further exacerbating Risks and Challenges risks from a reduction of oil prices. The recent regional developments could Challenges remain due to political risk, dependency also have an adverse impact. The imposition of on oil revenue and the regional situation (Box 2). sanctions on Iran by the U.S. administration could Although higher oil prices are associated with reduced curb non-oil trade, religious tourism and financial near-term vulnerabilities, the outlook remains channels as Iran is the largest non-oil trade partner subject to considerable uncertainties due to political of Iraq and result in higher prices of key commodities, developments that could also delay economic recovery while the economic crisis in Turkey is likely to operate in the conflict-affected governorates. Setbacks in mainly through trade channels. security and/or a crisis over formation of the government Implementing the new enacted law of Iraqi could weaken growth. While the policy priorities of the National Oil Company (INOC) may have some new government remain unknown, there is a risk of impact on the governance of the oil sector and weak policy implementation and pressure to spend macroeconomic stability. The law gives INOC the expected budget surpluses, which would erode considerable freedom with limited oversight from PFM the fiscal and external positions. Absence of a clear and procurement laws, raising significant governance commitment in the budget on wage bill management concerns. The INOC’s freedom to borrow and to and subsidy reduction could weaken the fiscal operate outside the oil sector could lead to contingent consolidation and absorb the fiscal space otherwise fiscal risks and undermine processes to ensure that available for reconstruction. The ISIS threat cannot be capital spending is appropriately vetted, financed and considered entirely vanquished unless stabilization is monitored. The accumulation of oil revenues to INOC also achieved in Syria. could also reduce international reserves available to A decline in oil revenue or a shortfall in maintain the exchange rate peg. The law is currently projected donors financing would result in lower on hold until a new government is formed. 24 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION BOX 2  •  Global and Regional Economic Outlook Global Economy. Global growth has eased, but remains robust, and is projected to reach 3.1 percent in 2018 (Figure B3). It is expected to decrease in the next two years to 2.9 percent by 2020, as global slack dissipates, trade and investment moderate, and financing conditions tighten. Growth in advanced economies is predicted to decelerate toward potential rates, as monetary policy normalizes and the effects of U.S. fiscal stimulus fade. In emerging market and developing economies (EMDEs), growth in commodity importers will remain robust, while the rebound in commodity exporters is projected to mature over the next two years. Risks to the outlook remain tilted to the downside. They include disorderly financial market movements, escalating trade protectionism, heightened policy uncertainty, and rising geopolitical tensions, all of which continue to cloud the outlook. EMDE policymakers need to rebuild monetary and fiscal policy buffers and be prepared for rising global interest rates and possible episodes of financial market turbulence. In the longer run, EMDEs need to tackle ongoing structural challenges and boost potential growth by promoting competitiveness, adaptability to technological change, and trade openness. MENA Regional Economy Growth in MENA region is expected to pick-up to 3 percent in 2018 from 1.6 percent in 2017, as oil exporters ease fiscal adjustments amid firming oil prices. The region is also expected to benefit from a favorable global environment, post-conflict reconstruction efforts, and from oil importers’ reforms to boost domestic demand and increase foreign investment. Growth in oil importers is expected to rise to 3.7 percent in 2018, as business and consumer confidence is spurred by business climate reforms and improving external demand. Growth in oil exporters is expected to rise substantially to 2.7 percent due to additional government spending, enabled by increased domestic revenues and firm oil prices. Policies to relax foreign investment restrictions have supported higher capital flows and are expected to boost foreign investment and trade flows. Tourism growth is also expected to improve upon stable security conditions. However, fiscal consolidation is expected to be an important headwind for activity among oil importers. In smaller oil importers (e.g., Jordan, Lebanon), external and fiscal imbalances remain a constraint to higher growth in the short-term. Reform programs, such as World Bank-supported initiatives to improve urban investment capacity or electricity performance, are expected to improve growth potential). Similarly, public-private partnerships and bilateral agreements within the region are expected to support private sector participation in infrastructure investment, which benefits economic activity. Risks to the outlook are diverse, but tilt to the downside. Key downside risks include renewed volatility in oil prices, an intensification of geopolitical tensions, and a slower-than-expected pace of reforms. Nonetheless, favorable spillovers from stronger than expected activity in key trading partners and recovery in war-torn areas cannot be ruled out. Global Growth has Eased but FIGURE B3 •  Growth in MENA Region is FIGURE B4 •  Remains Robust at an Estimated 3 Estimated to Pick Up to 3 Percent Percent in 2018 in 2018 6 6 4 4 2 2 Percent Percent 0 0 –2 –2 –4 –4 2013 2014 2015 2016 2017 2018e 2013 2014 2015 2016 2017 2018e World Advanced economies MENA Developing oil exporters excl. Iran Emerging and developing economies Developing oil importers Source: World Bank, Global Economic Prospects, June 2018. Source: World Bank, Global Economic Prospects, June 2018. Note: The World Bank’s MENA aggregate includes 16 economies, and is grouped into three sub regions: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE comprise the Gulf Cooperation Council (GCC); all are oil exporters. Other oil exporters in the region are Algeria, the Iran, and Iraq. Oil importers in the region are Djibouti, Egypt, Jordan, Lebanon, Morocco, Tunisia, and West Bank and Gaza. Syria Yemen, and, as of this publication of Global Economic Prospects, Libya, are excluded from regional growth aggregates due to data limitations. ECONOMIC OUTLOOK AND RISKS 25 REFERENCES World Bank Group. 2018. Iraq Doing Business 2018: Recent Reforms in Iraq Pave the Way for More Government of Iraq, January 2018. Damage and Progress Going forward. Washington, DC. Needs Assessment of Seven Directly Affected World Bank Group; and external contribution.2016. Governorates. “Kurdistan region of Iraq, Reforming the International Monetary Fund. 2017. Iraq: Staff Report Economy for Shared prosperity and protecting Second Review of the Three-Yea Stand-By the Vulnerable”. Washington, DC. Arrangement. Washington, DC. World Bank Group. “Republic of Iraq Public Government of Iraq, Strategy for the Reduction of Expenditure Review-Toward More Efficient Poverty in Iraq, 2018–22, January 2017 Spending for Better Service Delivery”. A World Krishnan, Nandini, Olivieri, Sergio, 2016. “Losing the Bank Study. Washington, DC. 2014. Gains of the Past: The Welfare and Distributional World Bank Group. 2018. Global Economic Impacts of the Twin Crises in Iraq 2014”, Prospects: Divergences and Risk, June 2018. February 2016. World Bank Policy Research Washington, DC. Working Paper WPS7567. World Bank, June 2018. Jobs in Iraq: a primer on job World Bank Group. 2012. Iraq Investment Climate creation in the short-run. Assessment. Washington, DC. World Bank, September 2018. Electricity services World Bank Group. 2014. “The Unfulfilled Promise of Oil reconstruction and enhancement project. and Growth: Poverty, Inclusion and Welfare in Iraq, UNOCHA Iraq Humanitarian Bulletin, July 2018. 2007–2012”. WP/93858/V3. Washington, DC. World Bank Group. 2018. Doing Business Report 2018, Reforming to Create Jobs, World Bank, Washington, DC. 26 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION 3 SPECIAL FOCUS: TRANSITION TO POVERTY TARGETED CASH TRANSFER SYSTEM 31 P overty has been a persistent problem for ISIS-affected governorates and among internally Iraq. The poverty rate declined modestly displaced persons (IDPs), as well as in the Kurdistan between 2007 and 2012, from 22.4 to 18.9 region that experienced spillovers of the conflict.33 percent.32 But this was accompanied by a 40 The reduction in poverty before 2012 was percent increase in GDP per capita over the same driven mainly by an increase in labor income. Yet, period. Low elasticity of poverty with respect to GDP because of limited opportunities for employment and reflects the predominance of the oil sector, which earnings, non-labor incomes constitute a significantly constitutes over 65 percent of GDP and 92 percent larger share of total household income of poorer of central government revenue, and yet employs households. In 2012, households in the poorest decile only 1 percent of the country’s work force. Poverty is derived more than 30 percent their total income from unevenly distributed across space, with the southern public transfers. governorates experiencing the highest incidence of poverty. What little gains were made, were lost 31 Prepared jointly by Poverty and Equity and Social to the twin crises of oil price decline and ISIS Protection and Labor Global Practices. insurgency soon after; the poverty rate climbed 32 Measured by the national poverty line. back to the 2007 level (22.5 percent) in 2014. 33 The ISIS-affected governorates are Anbar, Salah al-din, The increase in poverty was most pronounced in and Nineveh. 27 FIGURE 31 • Incidence of Public Transfers in 2012 accounted for as much as 30 percent of incomes of the poorest 10 percent and provided 70 percent of the 120 calories of the poorest 40 percent of the population. 99.4 98.6 100 The only cash transfer scheme in the 80 country is the Social Safety Net (SSN) program. 60 Until 2014, the eligibility for cash transfers was based 40 on demographic characteristics of the household. 26.7 25.8 20.0 19.5 15.3 Households with orphans, married students, disabled, 20 10.6 7.6 blind, paralyzed, families of the imprisoned and missing 0 PDS rations Public pension Cash transfer persons, and the unemployed qualified for cash assistance. Due to the categorical targeting criteria, the % of poor receiving % of non-poor receiving % of recipients who are poor program was plagued by low coverage of the poor and high leakage to the non-poor. Only 11 percent of the Source: World Bank, 2014. poor received benefits while of those receiving benefits, only 26 percent were poor. The use of demographic characteristics rather than poverty criteria for targeting Given the outsized importance in the resulted in a majority of the poor from being left out of household budget of poorer households, public the cash transfer program (Figure 31). transfers play a crucial role in reducing poverty The third main social assistance program and mitigating vulnerability in Iraq. However, the in Iraq is public pensions, which consists of two programs are inefficient and fragmented, which limit mandatory pension schemes covering public their effectiveness. Recognizing this, the country has and private sector employees. Total expenditure embarked on a process to adopt a more efficient on pensions is around 4 percent of the GDP and a targeting method. The objective of this note is to sixth of annual current expenditure.35 Despite such describe the evolution of Iraq’s cash transfer scheme high costs, there are large coverage gaps, with only from categorical to poverty-targeted system. The about 48 percent of the total labor force contributing reforms described below apply exclusively to the to and covered by the pension (public) or social Social Safety Net (SSN) program, which is but a small security (private) system. Public pensions reached portion of overall social assistance spending. less than 20 percent of the poor (while reaching more than a quarter of the non-poor) because they are not intended as anti-poverty transfers. Of the Pre-Reform Scenario pension recipients, about 85 percent were non-poor households (Figure 31). Public Distribution System (PDS), a universal food subsidy program, is the largest social assistance program in the country. In 2018, the spending on The Reform Process PDS was approximately 1.7 trillion Iraqi dinars, and it accounted for approximately 2.3 percent of 2018 Despite a difficult political and economic context, current expenditure.34 Because of universal targeting, Iraq embarked on a gradual reform of its social the program reaches almost all the poor; 99.4 percent protection sector in 2014. The new Social of the poor receive PDS benefits. But this coverage Protection Law for Iraq (Law 11/2014) enacted in comes at a significant cost because almost all the non-poor (98.6 percent) also receive the benefits 34 Source: Staff Report for the 2017 Article IV Consultation (Figure 31). Due to the absence of other systems of (IMF, 2017). social protection, the PDS is also the biggest source 35 Source: Staff Report for the 2017 Article IV Consultation of social assistance. In 2012, the PDS transfers (IMF, 2017). 28 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION April 2014 established poverty and means testing as source were held with officials from the Ministry of the primary targeting mechanisms. In addition, the Planning, Ministry of Labor and Social Affairs, and Iraq Social Protection Strategic Roadmap developed the Baghdad and Kurdistan Region Statistics Offices. in November 2014 aimed to have a comprehensive, Preliminary models and results were also presented to integrated, and efficient social protection system for a high level Iraqi delegation led by the Minister of Labor Iraq covering social safety nets, social insurance, and and Social Affairs at the Social Protection Strategic labor market policies. Roadmap Discussion Form in Istanbul from November The switch from categorical to poverty 3–7, 2015 (Istanbul 2 Forum). The suggestions targeting necessitated an objective criterion to and recommendations received in the Istanbul 2 identify the poor. To meet this need, a proxy means forum were incorporated in the final model, which test (PMT) formula (Box 3) was developed using the consisted of 11 indicators on observable household existing 2012 Integrated Household Socioeconomic characteristics. The consultative process helped build Survey (IHSES). As the name suggests, proxy means strong ownership of the tool by the government as test uses proxies of income or expenditure to identify evidenced by its swift adoption and implementation. whether a household is poor. The appropriate proxy The new poverty targeting program was indicators and the weight on each indicator are launched by MOLSA and Social Protection obtained from regression analysis based on the latest Commission (SPC) on April 10, 2016, with a available household expenditure survey (Box 1). budget of IQD 1.9 trillion.36 The program was The PMT form was developed in close implemented in multiple stages as following. First, coordination between the World Bank, MOP, and MOLSA. Several technical discussions on the assumptions underpinning the model and the data 36 Equivalent to US$1.6 billion. BOX 3  •  Proxy Means Test for Poverty Targeting Why do we need poverty targeting? Governments have limited resources for development activities and poverty alleviation and there are opportunity costs to the use of resources. Targeted use of limited funds improves program efficiency by reaching more number of poor with the same amount of resources and increasing program effectiveness by achieving greater poverty reduction on a fixed budget. What is the Proxy Means Test? In countries where a significant share of the population is employed in the formal sector and accurate and comprehensive tax records exist, a means test is often used to identify poor households. In countries where these conditions do not hold, a simple and cost-effective alternative is proxy means testing (PMT). It uses proxies of income or consumption derived from regression analysis to identify the poor. PMT has been used at least since mid-1990s to target social services. How is the PMT constructed? Multiple regression analysis is carried out to select the proxy indicators. While there may be many candidate variables, only those indicators that best predict household consumption or income are retained in the final formula. How is the PMT model assessed? The use of proxy indicators in place of direct consumption or income measures introduces some error. Some households who are not actually poor will be deemed poor by the PMT formula (error of inclusion) and some households who are poor will be classified as non-poor (error of exclusion). The PMT model is designed to keep both the errors to a minimum. What indicators are included in the typical PMT formula? PMT formula is determined by a complex interaction of the underlying data, the target population, and the relationship between the consumption or income variable and the socioeconomic characteristics. Therefore, no two PMT formula are identical. Nevertheless, the indicators most commonly selected are location, demographic composition of the household, dwelling conditions, and ownership of assets. To prevent households from strategically misreporting the information, the PMT indicators must be easy to observe and verify. SPECIAL FOCUS: TRANSITION TO POVERTY TARGETED CASH TRANSFER SYSTEM IN IRAQ 29 existing beneficiaries requested continuation of cash coverage since 2014. Separate models have been benefits by filling out a preliminary questionnaire. developed for three regions of the country (North, A unique identifier was assigned to all applicants, Center, and South). The SWIFT survey from Kurdistan and the SPC checked all applications against other has recently become available, and a model for the databases including public pensions, social security, region will be developed once data quality control civil service, tax records, motor vehicle registration, checks have been completed. ration card system, and loans for small business. Recertification of cash beneficiaries has This cross-validation resulted in a list of pre-qualified begun with the updated PMT model for the households that were visited by social workers to fill governorates of Iraq not organized as a region. out the complete PMT questionnaire. After the full This process is expected to be completed by the PMT information was collected, a PMT score was end of September 2018. Under the recertification generated for each household by the MOP Poverty process, all existing beneficiaries will be revisited and Reduction Strategy team. The score determined the reassessed with the new PMT formula. Those who eligibility for cash assistance according to a cutoff no longer qualify will be dropped from payroll. After point set by the SPC. recertification of existing households and removal of Implementation of PMT helped improved ineligible households, the application will be reopened the targeting efficiency of the cash transfer for replacement households. The extent to which new system. Before the introduction of PMT, 934,000 households can be brought into the program will be households were receiving assistance from MOLSA limited because of budget constraints. under categorical targeting. These households were The application process to replace re-assessed using PMT, and 594,000 were found to be households involves submitting an application eligible according to the PMT criterion while 340,000 to MOLSA electronically through the online that were deemed not eligible were removed from e-Application form. It is particularly important to the programme. An additional 515,000 households ensure that the electronic application is possible were subsequently added to the programme through in previously occupied areas where many poor and an open window PMT assessment. The number of vulnerable households may not have been able to households that receive monthly cash transfers now apply during the earlier application window. To ensure totals 1.1 million. that as many vulnerable households as possible The original PMT formula was derived apply, the World Bank and MOLSA are looking to from the Integrated Household Socioeconomic coordinate with humanitarian actors active in the Survey (IHSES), a comprehensive nationally areas to disseminate information to the vulnerable representative household budget survey carried households and give guidance on how the process out in 2012. The country has undergone many works, as well as help with online application to those socioeconomic changes since then, including the households who will otherwise not be able to access fall in oil prices and the ISIS-related violence and it. Humanitarian case workers will have an important displacement in 2014. The need for an updated role play in this respect. After the window for online formula was felt because it was recognized that the welfare distribution, the indicators that proxy for the welfare status of households, and their relationship 37 SWIFT survey is a short survey designed to assess the to household income or expenditure have changed core socioeconomic conditions of Iraqis in the post- since 2012. crisis period. The survey also collected expenditure data Recently, the data from the SWIFT survey from a subset of households, which permits an updating of the poverty estimates. The survey was carried out from 2017/2018 was used to update the PMT by Kurdistan Regional Statistical Organization (KRSO) formula.37 The survey has a small sample size and in the three governorates in Kurdistan and by Central incomplete geographical coverage, but it had the Statistical Organization (CSO) in the remaining 15 advantage of being the only survey of its scope and governorates. 30 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION application is completed, MOLSA social workers will However, if there is a large degree of overlap between make home visits to fill out the complete PMT form households targeted for humanitarian assistance and and assess eligibility under the updated PMT scoring. PMT, in the long term, these households could be Once home verification is complete, transferred to the cash transfer program. Needless MOLSA’s registry will then contain the number to say, MOLSA’s capacity to absorb more cases of households deemed eligible for assistance. depends on the availability of resources. However, without an increase in MOLSA’s budget, the Despite its limitations, the PMT formula total number of beneficiary households will remain provides the soundest basis to target the less around 1.1 million. Consequently, the number of well-off households for social assistance. It is replacement households brought into the program empirically grounded on the latest available data from those deemed newly eligible will depend on the of national coverage. While there is a common number of existing beneficiaries who are removed understanding between the Government and the during the earlier recertification stage. MOLSA will World Bank that the formula must be updated then enroll these households and process payment periodically to keep it up to date, such an opportunity using their usual SmartCard technology platform. will arise when a new round of household budget It is important to carry out a rigorous survey is available. In the meantime, the current PMT evaluation of the accuracy of the PMT model formula will underpin Iraq’s effort to reform its social and the characteristics of the newly eligible protection system. households. The success of PMT implementation can be partly assessed by the number of households deemed eligible by PMT (coverage rate) compared to Looking Forward the number of eligible households in the survey, as While the transition to the poverty targeted cash well as by comparing the profile of eligible households transfer has already begun to yield results, the in the database to that in the survey. Preliminary poverty targeting system can play a much larger analysis comparing the PMT registration database role in improving the efficiency and sustainability with the 2012 household survey yield inconclusive of Iraq’s social safety net system when coupled results. Such an evaluation will be possible after the with Iraq National Unified Registry (INUR). The completion of next household survey (IHSES) that establishment of a unified registry and for participation identifies SSN program beneficiaries and determines of other government ministries and agencies to support their poverty status (according to their consumption).38 building human capital through the cash transfer These data are expected to be available in 2020. program is called for by Law 11/2004. The INUR is Steps are also being taken to align expected to: (i) Serve as a tool to identify and assess the targeting mechanisms of humanitarian the needs and conditions to determine eligibility for agencies and the government. Thought will be social assistance programs (benefits and services); given particularly to a future transition for some (ii) monitor the demand for social assistance programs vulnerable households from humanitarian assistance based on the profiles of needs and conditions of the beneficiaries to MOLSA assistance beneficiaries, population; (iii) coordinate and integrate benefits and depending on their needs and the available resources. services; and (iv) monitor and evaluate the quality of Analysis is underway to estimate how many existing the data system and coordination of policies. humanitarian beneficiaries qualify for MOLSA assistance under existing eligibility criteria. This will be important for both humanitarian agencies and the government. If households deemed needy from a 38 This analysis cannot be carried out with the recently humanitarian perspective are not identified as chronic conducted SWIFT survey because it does not collect poor by PMT, they will not receive any social support information on receipt of public assistance at sufficient once the humanitarian support comes to an end. detail. SPECIAL FOCUS: TRANSITION TO POVERTY TARGETED CASH TRANSFER SYSTEM IN IRAQ 31 The new targeting system, combined with workers and; (iii) an effective case management the unified registry, is expected to address the program. To facilitate the process, World Bank current fragmentation of databases used across will support in the planning of referrals between various agencies. It will introduce a unified welfare MOLSA and humanitarian actors in the mapping of database in which applicants are well identified services and looking at how and when humanitarian based on a single welfare measure for distribution beneficiaries can be transferred to MOLSA services. of social assistance. The purpose of consolidating This will also build the capacity of MOLSA to refer beneficiary information is to achieve a level of beneficiaries listed in its database, and requires efficiency and targeting effectiveness and allow for developing an adequate communication plan within fiscal consolidation while minimizing the deleterious MOLSA, including training of social workers, as well impact on the poor. The welfare database is currently as within communities. Integration of beneficiary in operation at MOLSA, and enhancements are data across different programs managed by MOLSA, underway to allow for its use to target poverty related and between humanitarian and public assistance transfers across multiple programs. will ensure that benefits are accruing to the right The SSN also needs to increase coverage, people at the right time, improving the efficiency and considering the likely increase in the number of effectiveness of social assistance. poor.39 Therefore, a major implementation challenge In the long term, these activities will for the SSN system is rolling-out the SSN program provide the foundation to help the GoI develop across the country, including in the liberated areas. an integrated social protection system. This The targeting tool will be helpful in this regard as well involves developing the full suite of tools and services, to identify poor and vulnerable households. including a social registry, a case management Steps are being taken to establish a system, a monitoring system, a grievance and redress framework through which development and mechanism, and a graduation mechanism to institute humanitarian actors can improve coordination a countercyclical social safety net system. of current and planned interventions. Referral of cases from MOLSA or Cash Working Group (CWG) databases requires the establishment of a system that builds on: (i) mapping of existing services of both 39 A combination of the chronic poor and the new poor as MOLSA and humanitarian actors; (ii) training of social a result of displacement. 32 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION APPENDIX: SELECTED DATA ON IRAQ Iraq: Selected Economic and Financial Indicators, 2014–2020 TABLE 1 •  (Quota: SDR 1,663.8 Million) (Population: 39.3 Million; 2018 Est.) (Poverty Rate: 22.5 Percent, 2014) (Main Export: Crude Oil) 2014 2015 2016 2017 2018e 2019p 2020p Economic growth and prices Real GDP (percentage change) 0.7 2.5 13.0 –2.1 1.9 6.2 2.9 Non-oil real GDP (percentage change) –3.9 –14.4 –4.0 0.8 5.2 5.2 5.4 GDP deflator (percentage change) –0.7 –26.1 –14.0 15.3 13.8 –0.8 0.9 GDP per capita (US$) 6,517 4,812 4,505 4,952 5,597 5,751 5,820 GDP (in ID trillion) 273.6 207.2 201.4 227.4 263.7 277.9 288.5 Non-oil GDP (in ID trillion) 149.5 137.3 132.8 137.1 150.5 165.1 181.6 GDP (in US$ billion) 234.7 177.7 170.7 192.4 223.1 235.1 244.1 Oil production (mbpd) 3.1 3.7 4.6 4.5 4.5 4.8 4.8 Oil exports (mbpd) 2.60 3.40 3.80 3.80 3.90 4.10 4.10 Iraq oil export prices (US$ pb) 96.5 45.9 35.6 48.7 61.0 56.9 53.2 Consumer price inflation (percentage change; end of period) 1.6 2.3 0.4 2.0 2.0 2.0 Consumer price inflation (percentage change; average) 2.2 1.4 0.4 0.1 2.0 2.0 2.0 (In percent of GDP) National Accounts Gross domestic investment 26.0 24.9 20.9 16.8 18.8 19.2 18.8 Of which: public 18.2 15.6 11.8 8.4 10.9 11.0 10.3 Gross domestic consumption 69.6 81.2 87.6 81.5 78.2 80.3 82.6 (continued on next page) 33 Iraq: Selected Economic and Financial Indicators, 2014–2020 (continued) TABLE 1 •  (Quota: SDR 1,663.8 Million) (Population: 39.3 Million; 2018 Est.) (Poverty Rate: 22.5 Percent, 2014) (Main Export: Crude Oil) 2014 2015 2016 2017 2018e 2019p 2020p Of which: public 18.3 22.6 23.2 22.2 21.4 20.7 20.3 Gross national savings 28.6 18.4 12.0 18.0 20.9 18.0 15.4 Of which: public 13.0 3.1 –2.1 7.4 13.0 12.4 9.5 Saving - Investment balance 2.6 –6.5 –9.0 1.2 2.1 –1.2 –3.5 (In percent of GDP, unless otherwise indicated) Public Finance Government revenue and grants 38.2 30.6 27.6 33.8 39.9 39.3 36.2 Government oil revenue 36.0 27.8 23.3 28.8 36.0 35.4 32.2 Government non-oil revenue 2.1 2.8 4.1 4.5 3.3 3.4 3.6 Expenditure, of which: 43.8 43.4 41.8 35.2 38.6 38.2 37.3 Current expenditure 25.5 27.8 30.1 26.8 27.7 27.1 27.1 Capital expenditure 18.2 15.6 11.8 8.4 10.9 11.0 10.3 Overall fiscal balance (including grants) –5.6 –12.8 –14.2 –1.4 1.2 1.1 –1.1 Non-oil primary fiscal balance, accrual basis (percent of non-oil GDP) –56.6 –46.5 –45.1 –40.1 –49.7 –46.0 –41.4 Adjusted Non-oil primary fiscal balance, accrual basis (excl. KRG, –54.9 –44.7 –45.1 –39.8 –45.7 –42.4 –38.1 percent of non-oil GDP) Adjusted non-oil primary expenditure (excl. KRG, percent of non-oil 58.8 48.9 51.3 47.3 51.1 47.7 43.3 GDP) Adjusted non-oil primary expenditure (excl. KRG, annual real growth, –9.0 –24.7 1.0 –5.0 16.3 0.3 –2.0 percent) Memorandum items: Total government debt (in percent of GDP) 32.9 56.7 67.3 61.8 54.7 52.7 51.7 Total government debt (in US$ billion) 77.1 99.9 114.7 118.5 121.7 124.1 126.5 External government debt (in percent of GDP) 24.8 37.2 39.3 36.2 33.2 33.9 33.7 External government debt (in US$ billion) 58.1 66.1 67.1 69.7 74.0 79.8 82.3 (In percent, unless otherwise indicated) Monetary indicators Growth in reserve money –9.6 –12.6 8.1 –3.3 2.4 4.7 5.0 Growth in broad money 3.6 –9.0 7.2 2.7 6.0 6.0 6.0 Policy interest rate (end of period) 6.0 6.0 6.0 4.0 — — — (In percent of GDP, unless otherwise indicated) External sector Current account 2.6 –6.5 –9.0 1.2 2.1 –1.2 –3.5 Trade balance 10.9 –0.1 –2.2 7.2 9.2 6.5 4.0 (continued on next page) 34 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION Iraq: Selected Economic and Financial Indicators, 2014–2020 (continued) TABLE 1 •  (Quota: SDR 1,663.8 Million) (Population: 39.3 Million; 2018 Est.) (Poverty Rate: 22.5 Percent, 2014) (Main Export: Crude Oil) 2014 2015 2016 2017 2018e 2019p 2020p Exports of goods 39.6 31.8 29.3 35.3 39.0 36.3 32.9 Imports of goods –28.7 –31.9 –31.5 –28.1 –29.9 –29.8 –28.9 Overall external balance –10.0 –7.3 –3.8 2.6 5.8 3.1 0.0 Gross reserves (in US$ billion) 66.7 53.6 45.1 49.0 58.3 63.8 62.7 In months of imports of goods and services 10.9 9.1 7.6 6.8 7.7 8.3 8.1 Exchange rate (dinar per US$; period average) 1166.0 1167.0 1180.0 1182.0 1182.0 — — Real effective exchange rate (percent change, end of period) 4.6 7.0 5.9 –0.6 — — — Financing gap (US$ billion) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Sources: Iraqi authorities; World Bank and Fund staff estimates and projections. APPENDIX: SELECTED DATA ON IRAQ 35 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION SELECTED RECENT WORLD BANK PUBLICATIONS ON IRAQ (For an exhaustive list, please go to: http://go.worldbank.org/country/iraq/research) Title Publication Date Document Type Jobs in Iraq: a primer on job creation in the short-run, World Bank, June 2018. June 2018 Working Paper Iraq Economic Monitor Report, From War to Reconstruction and Economic Recovery Spring 2018 Report Iraq Reconstruction and Investment, Part 1, Reconstruction and Development Framework, Joint report with Iraqi February 2018 Report Government Iraq Reconstruction and Investment, Part 3, Investment Opportunities and Reforms, Joint report with Iraqi January 2018 Report Government Damage and Needs Assessment of Seven Directly Affected Governorates 17/1/2018 Report Systematic Country Diagnostic 3/2/2017 Report Programmatic Development Policy Financing 1/12/2016 Report The Kurdistan Region for Iraq: Reforming the Economy for Shared Prosperity and Protecting the Vulnerable. 24/6/2016 Working Paper Iraq Economic Monitor: Laboring Through the Crisis 1/6/2016 Working Paper Decentralization and subnational service delivery in Iraq: status and way forward 14/4/2016 Report Where are Iraq’s poor? mapping poverty in Iraq 23/6/2015 Working Paper Assessing the economic and social impact of the Syrian conflict and ISIS 16/4/2015 Publication Iraq – Electricity distribution 1/4/2015 Brief Iraq – Strengthening capacity of the water sector 18/3/2015 Working Paper Iraq – Diversified development in a resource-rich fragile state: World Bank background note 1/1/2015 Working Paper (continues on next page) 37 (continued) Title Publication Date Document Type The unfulfilled promise of oil and growth: poverty, inclusion and welfare in Iraq 2007–2012 1/12/2014 Working Paper A stocktaking of social assistance programs in the Republic of Iraq 8/12/2014 Working Paper The legal and regulatory framework for microfinance in Iraq 1/1/2014 Working Paper Republic of Iraq – Public expenditure review: toward more efficient spending for better service delivery 6/8/2014 Report SABER workforce development country report: Iraq 2013 1/1/2013 Working Paper Iraq – Country partnership strategy for the period FY13–FY16 13/11/2012 Report Iraq – Investment climate assessment 2012 1/1/2012 Report Iraq – Financial sector review 1/1/2011 Working Paper International Reconstruction Fund Facility for Iraq: World Bank Iraq Trust Fund – progress report 6/12/2010 Working Paper Status of Projects in Execution (SOPE) – FY10: Middle East and North Africa region – Iraq 3/10/2010 Annual Report Doing business 2011: Iraq – making a difference for entrepreneurs: comparing business regulation in 1/1/2010 Annual Report 183 economies Iraq – IEITI Work Plan 1/1/2010 Working Paper International Reconstruction Fund Facility for Iraq (IRFFI) World Bank Iraq Trust Fund – report to donors: status 31/12/2009 Working Paper report as of December 31, 2009 Iraq – World trade indicators 2009: Trade brief 1/12/2009 Brief Iraq – Interim strategy note for the period mid FYO9–FY11 19/2/2009 Interim Strategy Note 38 IRAQ ECONOMIC MONITOR: TOWARD RECONSTRUCTION, ECONOMIC RECOVERY AND FOSTERING SOCIAL COHESION 1818 H Street, NW Washington, DC 20433 1818 H Street, NW Washington, DC 20433