Crude gains and easing Covid rules boost Iraq’s economy

Iraq’s economy is recovering from last year’s sharp contraction on the back of higher oil prices and the easing of Covid-19 restrictions, the International Monetary Fund has said.

The country’s non-oil real gross domestic product is expected to rebound by 12 per cent this year while the fiscal and current account balances are projected to improve significantly, the fund said.

Its officials held an online meeting with Iraqi authorities on recent economic developments in the country and policy priorities moving forward.

“Inflation has reached 7.2 per cent in September and is projected to ease in the coming months,” the IMF said.

“The fiscal and external current account balances are expected to improve significantly in 2021 from double-digit deficits in 2020, mainly due to higher oil prices.”

Oil prices defied Omicron concerns to trade higher at the end of the week on hopes that the new variant will not derail economic recovery plans.

Brent, the benchmark for two thirds of the world’s oil, is up more than 34 per cent since the start of the year and was trading at $69.88 a barrel when markets closed on Friday. West Texas Intermediate, the gauge which tracks US crude, has gained about 37 per cent this year to trade at $66.26 a barrel.

“Higher oil revenues present an important opportunity to tackle Iraq’s significant underlying vulnerabilities, strengthen resilience to future climate and other challenges, and advance key socioeconomic priorities,” the fund said.

However, the multilateral lender urged the country to focus on strengthening its public finances “while creating the fiscal space for much-needed investment and social safety nets and promoting private sector development”.

“To this end, key priorities include a civil service reform aimed at increasing the public sector’s efficiency and containing the wage bill, reducing inefficient energy subsidies, diversifying fiscal revenues, stemming losses in the electricity sector [and] strengthening governance,” the IMF said.

Iraq should also prioritise the restructuring of large state-owned banks to revitalise the financial sector and ensure the private sector’s access to finance, the fund said.

The country’s economy is expected to grow by 3.6 per cent this year and by 10.5 per cent in 2022 after a contraction of 15.7 per cent last year, according to the IMF’s World Economic Outlook published in October.