A Perfect Storm has Hit Iraq’s Economy

The drop in oil prices, the continued COVID-19 pandemic and months of political turmoil have left Iraq in a difficult financial situation.

As long as Iraq’s economy was dependent on oil income, corruption rendered it even more fragile. Infrastructure and human capital remained underdeveloped following the 2003 war, before deteriorating further following the ISIS invasion. A substantial proportion of the state budget is spent on defence and security, while other important areas such as health care, education and the environment remain largely underfunded.

Lack of government funding has hampered the hiring of thousands of medical college graduates and other health workers in Iraq. In response, a group of medical college graduates have started a campaign protesting the effective hiring freeze, which has been followed by protests by the Faculties of Engineering and Sciences demanding their inclusion in the 2020 budget amidst a financial crisis, spiralling pandemic and a bloated public sector workforce.

‘I am a young man and I cannot ask for money from my family. I studied to reap the benefit of my efforts’, said Mustafa Muhammad, a 26-year-old graduate student at the College of Science in Baghdad. ‘We have been here for 90 days, in high temperatures and facing the risk of coronavirus. I graduated in 2018 and I have not had an opportunity to get any work despite my need. With the pandemic, most jobs have disappeared’, Mustafa said.

The country remains heavily dependent on the oil sector, making it increasingly vulnerable to volatility in international oil markets. The government’s main priority has been to develop the petroleum sector, but in doing so they have neglected the non-oil economy, impeding any sustainable economic development. Even with this, the government has mismanaged the oil market, unable to take advantage of increasing oil prices to develop a stronger and more diverse economy.

Iraq had begun to recover after decades of sectarian wars and has witnessed transformations that changed the course of the political process since late 2019, starting with the October demonstrations, when protesters in Baghdad and central and southern Iraq called for the downfall of the government due to poor services, health and education, and demanded the provision of jobs. The movement evolved to push for a complete change in the political system and demanded new elections under the supervision of the United Nations. These demonstrations resulted in the overthrow of former Prime Minister Adel Abdul Mahdi and the installation of Mustafa Al-Kadhimi.

After the outbreak of the COVID-19 pandemic, demonstrations stopped in Baghdad and many governorates of Iraq. However, the ongoing campaign of assassinations of activists and journalists involved in the demonstrations fuelled violence in several governorates, including Nasiriyah and Basra. Failure to form a new government has delayed approval of the 2020 budget.

Ayat Sadiq is a 27-year-old graduate of the Department of Pathological Analysis at the University of Samarra. She graduated in 2015 and since then has been trying to find a job to help her family, having recently lost her job in a laboratory after she was infected with the coronavirus. Another graduate protester in Baghdad, Zahra Ali (24) from Basra province, said: ‘They don’t hire us nor issue our graduating certificates [so we are] able to leave the country. We [cannot] receive it until after 7 years, or in return for the payment of 27 million Iraqi dinars as compensation for academic years wages’.

‘Medical graduate students work 24 hours a day, even during holidays, for a very small salary of about 800 thousand Iraqi dinars. Some doctors have bought personal protective equipment to guard against the coronavirus with their own money, and these doctors pay their own transportation costs between governorates if the work is far from their residences’, Zahra said.

‘Article 13 of the Financial Management Law No. 6 of 2019 stipulates that if the General Budget Law is not approved until December 31, the Minister of Finance is to issue instructions for disbursement at a rate of 1/12 of the total expenditures. As for the internal and external borrowing law for the year 2020, it is only according to which internal and external borrowing is possible for the year 2020 only’, Ali Al-Tamimi, a 40-year-old legal expert said.

The protest was not limited to students, but also included resident doctors, demanding improvements in hospitals’ health standards and their protection from repeated attacks by patients’ families and various militias, in addition to facing tribal persecution.

Abeer Farouk (28) from the College of Science in Baghdad says that since she graduated in 2014, ‘our main request has been to implement the third amendment to the Medical Graduation Law of 2000, which guarantees employment in health institutions as analysts’.

Facing a liquidity crisis, Iraq urgently needs more emergency borrowing. If parliament does not pass a new stop-gap financing law, the government has warned it will be unable to fund basic expenses. ‘Iraqi governments have not completed productive economic investment projects to diversify the sources of the annual budget revenues and remove them from the circle of dependence on crude oil export revenues. As long as global oil prices are falling, Iraq will be in a difficult situation’, Malath al-Muein, a 37-year-old economist said.

‘The government must continue its fight against corruption, and search for financial sources other than oil for the budget, such as taxes, revenues from border crossings, and fees for the use of Iraqi airspace by international airlines, to [allow for the] hiring of college graduates’, al-Muein added. ‘The state does not have funds in the 2020 budget for hiring these graduates, and any such government commitment would be met through borrowing from the banks. Internal revenues are not sufficient [to fund] the budget and the reason for its delays is due to the change in governments during the recent period.’

‘Iraq has all [necessary] human and economic resources, but there [has been] misuse of these resources and the sole dependence on oil revenues is the reason for the poor economic situation’, according to the Parliamentary Finance Committee representative, Ahmed Al-Saffar.

Graduating students are preparing to protest nationwide on 25 October, coinciding with the anniversary of the October protests against the government and corruption.


https://blogs.lse.ac.uk/mec/2020/10/22/a-perfect-storm-has-hit-iraqs-economy/