Overview

The Iraqi economy is facing severe and pressing challenges. The decline in oil prices and the financing needs associated with the ISIS insurgency have contributed to a sharp deterioration of economic activity, public finances and the balance of payments. Macroeconomic risks remain elevated due to Iraq’s continued exposure to a volatile oil market.  The government is facing the challenge of maintaining macroeconomic stability, undertaking structural reforms to improve the delivery of public services, and reconstructing core physical infrastructure in the areas liberated from the Islamic State of Iraq and Syria (ISIS).
 
Iraq’s GDP per capita was estimated at US$6,147 in 2014, putting Iraq in the category of upper-middle-income countries. However, economic and security conditions in Iraq worsened since mid-2014, leading to increased poverty, vulnerability, and unemployment. The GDP per capita is estimated to have contracted to nearly US$5,000 in 2015. Economic growth is estimated to have contracted by 2.4% in 2014 and is estimated to have barely expanded in 2015 (by 0.5%). Weak growth is mainly attributed to the non-oil economy which contracted by 7% in 2014 and is expected to have declined by an additional 7% in 2015. The oil price and ISIS crisis, combined with political instability, impacted private sector consumption and investment.

The severe decline in global oil prices caused oil export revenues to decline by US$40 billion. Lower oil revenues, in addition to higher humanitarian and security-related expenditures, led to a fiscal deficit of 14.5% of GDP in 2015. Such deficit could have reached 18.4% had the government not implemented a number of fiscal consolidation measures to address the situation. The current account deficit increased from 0.7%of GDP in 2014 to an estimated 6.6%   in 2015. At the same time, imports remained unchanged during 2015, in part reflecting capital goods needed to expand oil-production. In light of pressing fiscal and balance of payment needs, the IMF supported Iraq through a one-off disbursement of US$1.23 billion in July 2015 under its Rapid Financing Instrument. In addition, to safeguard economic stability and basic service delivery, the World Bank provided US$1.2 billion through a Development Policy Financing operation in December 2015.   

Moreover, Iraq also faces severe security challenges. As a result of the ongoing conflict, 20,035 civilians were killed in Iraq in 2014, the highest number since 2007, and a further 17,080 were killed in 2015. It is estimated that a total of 151,383 civilians were killed due to violence between 2003- 2015.

The population remains extremely vulnerable to the ongoing security problems and reduction in oil prices. Poverty levels have increased and now stand at 22.5%. The number of people living below the poverty line increased by an estimated 2.8 million by end-2014.

The displacement of 3.2 million Iraqis and some 250,000 Syrian refugees have further disrupted local economic conditions.  The public distribution system provides the only safety net for the vast majority of the poor, and is currently being stretched to its limits in much of the country, and is not available in some governorates. Internally displaced persons (IDPs) are receiving cash grants of US$842 per month, but the 2.8 million new poor are left largely uncovered by any public safety net.

Last Updated: Apr 01, 2016

The Progress and Learning Review updated the Bank Group’s FY13-FY16 Country Partnership Strategy (CPS) for Iraq. The Strategy is now focused on delivering basic public services, especially in areas where the security threat has diminished, to reduce poverty and enhance citizens’ trust in government institutions; and to address and help manage the country’s critical fiscal situation and increase opportunities for private sector investment.

As of March 2016, the World Bank’s portfolio for Iraq consisted of three operations for a total net commitment of US$ 1.905 billion. The current portfolio includes a transport project implemented in the south of the country and an Emergency Operation for Development which supports reconstruction of the country’s conflict-wrecked infrastructure and restores public services in municipal areas liberated by the government. In December 2015, the Bank provided a Development Policy Financing operation, for US$1.2 billion to help Iraq weather the fiscal crisis and advance reforms in  improving the management of public finances, securing a more stable and sustainable supply of energy ,and supporting more efficient and transparent state-owned enterprises.

International Finance Corporation (IFC)

IFC has played a strong counter-cyclical role in Iraq over the past years. Between FY11-16, IFC annual investments have totaled around US$1 billion (including mobilization of US$361 million). In FY15, IFC committed around US$8 million equity to Ecocem to build a greenfield sanitary landfill and facility to process municipal household waste to be used as fuel for cement plants; and a  total of US$ 18million in an agribusiness company to support job creation in the non-oil sector as well as assure food security.

Despite the difficult environment, FY16 investment pipeline remains strong with a few sizable deals. So far in FY16, as part of the World Bank Group’s programmatic approach in the power sector, IFC committed $375 million (including mobilization of US$125 million) to support Mass Global Energy (Sulimaniya) Limited (MGES) Power, a leading local private power investor, help meet the critical infrastructure needs of the country.

Other projects in the pipeline for the FY16 include investments in the power, manufacturing (cement), and services sectors. IFC's committed portfolio in Iraq has grown considerably over the last five years, and stands around US$448 million across 11 companies, mostly concentrated in the power,  telecoms, manufacturing, agribusiness, logistics, and services sectors. IFC’s portfolio continues to hold well with no NPLs on the investment side, thanks to proactive portfolio management.

IFC’s advisory activities have focused on capacity building (including SME banking, dairy farming), corporate governance, Business Edge trainings, public private partnerships (PPPs), and investment climate reforms. The challenging environment however has affected IFC’s advisory portfolio with delays in implementation.

Multilateral Investment Guarantee Agency (MIGA)

The Multilateral Investment Guarantee Agency’s first engagement in Iraq was in FY11 when it signed a water bottling plant in Baghdad. In FY 2014, MIGA has also provided a guarantee for a project in the telecom sector in the northern region of Iraq. In conjunction with IFC, MIGA is supporting the construction of a 1,260MW greenfield natural gas fired, independent power plant, located in Zakho, in the Kurdistan Republic of Iraq.  

MIGA will issue guarantees (in respect of transfer restriction, expropriation, war and civil disturbance and breach of contract risks) of up to US$ 400 million to cover non-shareholder loans to a group of yet-to-be-identified lenders for up to 15 years.  IFC/MIGA submitted its joint Board Paper in late August 2015. MIGA’s total portfolio as of March 16, 2016 is US$8.7 million.   
Last updated: March 30, 2016.

Last Updated: Apr 01, 2016

Investments in water resource management resulted in improved quality of the drinking water to over 1 million people in Ghammas, Al-Nasr and Wasit. Work is in progress to repair bridges, roads, electricity networks and deliver water and health services in the 7 municipal areas that have been liberated by the government forces.

Technical Assistance and Analytic Work:  

The Bank has provided policy advice to the Iraqi government on fiscal policy and management issues and has supported the newly established state pension fund.

The deployment of the Social Safety Net (SSN) Information System in Baghdad and the rest of the governorates allowed for the processing of beneficiary payments using a central data base resulting in savings of over US$30 million to the SSN budget. Advice on the completion of the first Extractive Industries Transparency Initiative report for Iraq reconciled US$41.25 billion in oil revenues.

Analytic work supporting the first and second household income and expenditure surveys fed into Iraq’s poverty reduction strategy. Technical assistance is being provided in public financial management, energy, doing business indicators, Central Bank payment system, anti-money laundering capacity building and social safety nets.

Last Updated: Apr 01, 2016


LENDING

Iraq: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments