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Finance Minister Ali Abdul Amir Allawi "Internet"
Economy News - Baghdad
Finance Minister Ali Allawi found himself at a loss last year amid the outbreak of the Corona epidemic and the low demand for oil and its price drop on the global market. The state treasury, whose oil sales constitute 90% of its imports, and spends 45% of it to pay salaries and social welfare dues, suddenly became without sufficient balance to pay the salaries of millions of public sector employees and retirees.
The second largest oil producer has borrowed billions of dollars, mostly from local banks, to fill the deficit gap. But the public anger grew more and more intense. Then the consequences of the Corona epidemic hit the commercial sector and the self-employed, as most of their important customers are employees who have reduced their spending.
The fragility of the Iraqi economy was exposed during that crisis clearly and clearly, and according to the International Monetary Fund, the blow to both the public and private sectors caused the country's GDP to shrink by 11% during the year 2020, and the poverty rate rose amid the worsening unemployment problem.
The Financial Times reports that this scenario, represented by the country's severe deficit of the country's treasury caused by the collapse in oil prices and the lack of demand for it, is not an emergency situation for the outbreak of the Corona epidemic, but rather the future that oil-producing countries will face when the world depends, within the next few decades, on alternative renewable energy sources .
The collapse of the oil trade last year coincided with an unprecedented focus by global governments, companies and public bodies on their pledge to reach zero emissions to burn fuel by 2050. For oil-producing countries, a global trend towards cleaner fuel sources will compound those challenges they faced this year. The past, and it raises questions about which countries are rich in those alternative energy that will emerge through this transition process.
For its part, the International Energy Agency warned of the violent impact that may result from the planned goal of reaching zero gas emissions by the year 2050, noting that OPEC's share of global oil production will increase to more than half of total production, as oil and gas supplies will be restricted. On the smaller, smaller countries, indicating that annual per capita income from oil sales may fall by nearly 75% over the next two decades.
Finance Minister Allawi said, "We are facing a possible decline in the market in terms of the volume of exports, and a possible decline in prices and demand for oil by our partners and our main allies in the market from the industrialized countries of the world, with the need for us to remain committed to the terms of the Paris climate agreement."
Allawi added, "If Iraq continues to depend on oil in its economy, that may be catastrophic," noting that sweeping economic reforms at the state level may help avoid this scenario, and that he made an effort towards this change.
For decades, the recovery and decline in oil prices caused shocks to producing countries, which highlighted the fragility of their economic policy and that there is an urgent need to develop other economic sectors for them to reduce their dependence on energy resources. The countries affected the most by this problem are those that depend in their economies on oil and gas sales only.
According to the World Bank, among the oil-producing countries unprepared for this scenario are Iraq, Libya, Venezuela, Guinea, Nigeria, Iran, Ghana, Algeria, Azerbaijan and Kazakhstan.
The World Bank says that these countries have not diversified their exports or diverted their sources of income to non-oil industries. Most of these countries have lived in wars with widespread poverty or unable to secure international investment to achieve a transition away from energy fuels. All of these countries are also vulnerable to climate change that will affect life.
Iraq has not only struggled to recover itself to recover after decades of wars and instability, but it is currently facing the consequences of global climate change represented by desertification, scarcity of water resources and the impact of high temperatures on the daily life of citizens who already suffer from continuous power cuts.
The World Bank says that what the consequences of the Corona epidemic revealed to these countries is an important warning to them that they must diversify the sources of the economy and not rely on oil exports only.
Minister Allawi had hoped that last year's trauma would pave the way for implementing sweeping and draconian reforms. But this warning did not last long at a time when oil prices began to recover again, as oil prices have now reached nearly $ 70 a barrel, after it was around $ 38 a barrel last October.
Allawi says that instead of the state moving towards reducing salaries, financing investment, and comprehensive reform of the economy that are considered essential, it has instead turned to address unemployment by adding more college and university graduates to the state employees' payroll.
Allawi added, "The shock of last year was a call and a call for awakening and the need for economic reform, but as oil prices rose again, the requirements of public spending pressure increased again."
Source: Financial Times
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