Overview

  • The Iraqi economy is facing severe challenges. The decline in oil prices in 2015 and 2016 and the ISIS insurgency have contributed to a sharp deterioration of economic activity and has rapidly increased the fiscal and current account deficits. Macroeconomic risks remain elevated due to Iraq’s exposure to a volatile oil market. But the medium-term outlook seems more favorable.

    The double shock has severely dented growth, diverted resources away from productive investment, and increased poverty, vulnerability and unemployment. Private consumption and investment remain subdued due to an unstable security and political situation, and a poor business environment.

    The non-oil economy contracted by almost 14 percent in 2015 following a 5 percent fall in 2014. After slowing at 0.1 percent in 2014, Iraq’s economy grew by 2.9 percent in 2015 on the back of a 19 percent increase in oil production, as the vast majority of Iraq's oil fields are beyond ISIS’ reach. Growth in 2016 is expected to rebound to 11.0 percent, sustained by a further increase in oil production, but non-oil GDP is expected to further contract by 8.1 percent, due to low demand driven by continued fiscal consolidation and remaining insecurity. Inflation rate is expected to remain low at 0.4 percent in 2016, with the government subsidizing electricity, food and fuel, but is likely underestimated in ISIS-occupied areas.

    The shocks have also undermined fiscal and external balances in 2015 and 2016. Despite the government’s efforts to prioritize expenditure, low oil revenue coupled with high humanitarian relief and security spending have rapidly widened the budget deficit, which reached 13.5 percent of GDP in 2015.

    The current account marked a deficit of 6.1 percent of GDP in 2015, down from a surplus of 2.7 percent of GDP in 2014. Due to persistent low oil export prices in 2016, the fiscal deficit is estimated at 12 percent of GDP in 2016. Weak oil exports and large imports needed to develop the oil infrastructure further widened the current account deficit to 7 percent of GDP in 2016.

    Given Iraq’s severe challenges and substantial financing needs, the IMF approved a three year Stand-By Arrangement in July 2016, for US$5.34 billion. In parallel, the World Bank launched a series of three Development Policy Financing programs to span three years, the first (US$1.2 billion) delivered in December 2015, the second, amounting to US$1.44 billion approved in December 2016, (including US$443 million guaranteed by the governments of the U.K. And Canada) and the third is expected to be approved by December 2017. On July 20, 2016, a donor conference co-hosted by the US Government pledged a total of US$2.1 billion for 2016-2018, with the aim of securing financial support for Iraq’s humanitarian crisis.

    Iraq continues facing severe security challenges. Casualty figures remain large, reaching 16,360 in 2016. The widespread insecurity since 2014 has created a major humanitarian crisis with 10 million people in need and over 3 million IDPs. The standard of living has deteriorated and a noticeable share of the population has fallen into poverty or is extremely vulnerable to falling into poverty. Poverty, as estimated by the Iraqi government, reached 22.5 percent in 2014 nationwide; and in the ISIS-affected governorates, the direct impact of economic, social and security disruptions are estimated to have doubled poverty rates to 41.2 percent.

    Last Updated: Apr 01, 2017

  • The Performance 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; address the country’s critical fiscal situation; and increase opportunities for private sector investment.

    As of March, 2017, the World Bank’s portfolio for Iraq consisted of four operations for a total net commitment of US$2.19 billion. The current portfolio includes a Transport Corridor Project being implemented in the northern and southern parts of the country; an Emergency Operation for Development which repairs key infrastructure and restores public services in municipal areas liberated from ISIS; and a Public Financial Management project to automate the budget process, support the procurement reforms and the Public Investment management process. In December 2016, the Bank provided a Development Policy Financing operation for US$1.44 billion to help Iraq weather the fiscal crisis and advance reforms in the following areas: (i) Improving the management of public finances and expenditure rationalization; (ii) Securing a more stable and sustainable supply of efficient energy; (iii) Supporting more efficient and transparent state-owned enterprises.  Part of the loan (US$1.44 billion) was provided through guarantees made available by the UK and Canada.

    The Iraq Systematic Country Diagnostic was finalized in February of 2017 and the FY18-23 Country Partnership Strategy is under preparation and is expected to be approved in September 2017. 

    International Finance Corporation (IFC):

    IFC has played a strong counter-cyclical role in Iraq over the last several years. Between FY11-16, IFC investments have totaled a little over US$1 billion. In FY15, IFC committed (i) 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 (ii) total of US$18 million in an agribusiness company to support job creation in the non-oil sector as well as assure food security.

    Despite the difficult environment, in FY16 IFC committed (i) US$375 million in MGES Power to support leading local private power investor help meet the critical infrastructure needs of the country; and (ii) US$25 million for the expansion of the Karbala cement plant with Lafarge. Other projects in the pipeline include investments in health, telecom, manufacturing, and services sectors.

    IFC's committed portfolio in Iraq has grown considerably over the last five years, and currently stands around US$448 million in 11 companies across 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 program has focused in the areas of capacity building (including SME banking, dairy farming), corporate governance, Business Edge trainings, public private partnerships (PPPs), and investment climate reforms. In partnership with a local NGO, IFC has been providing Business Edge trainings to IDPs and refugees. The challenging environment however has affected IFC’s advisory portfolio with delays in implementation.

    Multilateral Investment Guarantee Agency (MIGA):

    Iraq has been a member of MIGA since October 2008. As of March 2017, MIGA’s outstanding gross exposure in Iraq stood at US$8 million. MIGA signed its first contract in Iraq in FY2011 for a project that supported a Turkish investment in a water bottling plant in Baghdad. In FY2014, MIGA provided a guarantee for a project in the telecom sector in the Kurdistan autonomous region of Iraq and in FY2015 MIGA supported a port logistics project in Umm Qasr. As an FCV country, Iraq is eligible for projects to be supported by MIGA’s Conflict-Affected and Fragile Economies Facility, a multi-donor trust fund aimed at enabling MIGA to assume higher risk and insure more investment projects in FCV.

    Last Updated: Apr 01, 2017

  • • Work is in progress to repair bridges, roads, electricity, water, and wastewater networks and deliver health services in the 7 municipal areas that have been liberated from ISIS by the government forces. Already, 5 bridges and 65 kilometers of roads have been  repaired; electrical transformers, substation and cables are being procured; 60 municipal waste compactors and 2,200 trash bins have been supplied in addition to 120 water tankers, loaders, and similar equipment have been supplied; and several water and wastewater subprojects are under  procurement. Furthermore, 280 kilometers of Expressway No. 1 in the Southern Iraq are currently being maintained by qualified international contractors.

    • 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. Also support to the Economic Reform Unit at the Prime Minister Office is ongoing with financing made available by the Government of Japan.

    • 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 development of the poverty reduction strategy, preparation of Iraq 2030 vision and support to the statistical offices in Baghdad and KRG are ongoing. In addition, TA is being provided in Public Financial Management, Energy, doing business indicators, Central Bank payment system, Anti Money laundering capacity building and social safety nets. For KRG the Bank supported the preparation of a reform road map, which proposed short, medium and long term reforms under 10 sectors.

    Last Updated: Apr 01, 2017

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LENDING

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

*Amounts include IBRD and IDA commitments

MULTIMEDIA

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Additional Resources

Country Office Contacts

Baghdad, +964 07801964557
British Embassy, International Zone
mziade@worldbank.org