Overview

  • Iraq’s overall security situation improved after the defeat of ISIS on Iraqi territory in 2017, but recovery since has been slow. The defeat of ISIS in Iraq left the government with the daunting task of rebuilding infrastructure, re-establishing security and stability, and providing services for the return of the displaced. The toll of four years of intensive combat on Iraq’s civilian population was enormous. The conflict had claimed the lives of over 67,000 Iraqi civilians before casualty figures started to decrease at the end of 2017. 

    A period of higher oil prices offered Iraq an opportunity to rebuild and tackle longstanding problems by improving some basics services. The country’s economy is gradually recuperating, with GDP expected to grow at 4.8 percent in 2019, reversing the contraction of the previous two years. Growth has relied mainly on a rise in crude oil production and a rebound in non-oil economic activity, underpinned by better rainfall, an improvement in electricity production, and an expansionary fiscal policy—linked to a growing public wage bill and rise in public consumption. But the slowness of the reconstruction program, problems in the execution of public investment, and the rise in the imports bill are all preventing the country from achieving its full potential growth.

    Iraq’s 2019 budget presents a significant increase in recurrent spending, notably in public sector wage bills and subsidies, overshadowing non-oil related public investment and critical spending to boost human capital and move forward with reconstruction. With a projected deficit exceeding 4% of GDP, irreversible public spending, and limited efforts to boost non-oil budgetary revenues, such pro-cyclical fiscal policy makes little room for fiscal buffers and increases the vulnerability of the country to shocks to oil prices. The security and energy sectors still dominate budgetary allocations at the expense of education and health, while allocations for governorates directly affected by war damage remain below reconstruction’s needs. External financing for the budget has been less urgent, with Iraq’s government capitalizing on reserves built from oil windfalls from 2018. Fiscal loosening puts downward pressure on growth over the medium term.

    Outlook 

    Growth is projected at 5.1 percent in 2020 but 2.7 percent in 2021, mostly due to the outlook of the oil markets, where prices and exports are expected to weaken with lower global demand and uncertainty over the renewal of the OPEC+ agreement. Non-oil growth is expected to remain positive as long as investment to rebuild the country's damaged infrastructure continues, though this falls far short of the needs. Higher spending together with lower oil prices will result in a fiscal deficit projected at 3.3 percent of GDP in 2020 and remain in a similar range in 2021. Lower oil prices and increased imports will cause the current account balance to remain in deficit and international reserves to decline. Volatility in oil prices remains the main risk, reflecting a lack of diversification and budget rigidities. These factors reduce Iraq’s financial buffers and increase its vulnerability to external shocks. Volatility could also reverse the outcomes of recent positive government reforms, especially in the electricity and agriculture sectors. 

    Last Updated: Oct 01, 2019

  • The World Bank Group is currently preparing a new Country Partnership Framework for Iraq. The CPF aims to offer solutions to support Iraq’s transition to a more resilient and inclusive economy and will also support engagement to help de-risk the private sector, mobilize finance for development, and create markets through innovative financing tools and public-private partnerships. The framework is aligned with Iraq’s five-year National Development Plan, and is organized around two focus areas:

    i) Improving service delivery through better governance, and ii) Creating an enabling environment for private-sector led growth and diversification. A draft of the proposal will be made available online, in addition to the timeline for consultations across Iraq. 

    The following have been the main areas of the Bank’s engagement in Iraq since 2015:

    • Fiscal Stabilization:

    The World Bank approved in December 2015, a US$1.2 billion and in December 2016, a US$1.44 billion Development Policy Financing loan (DPF) to help Iraq weather the fiscal crisis and advance reforms in three areas: improving the management of public finances; securing a more stable and sustainable supply of energy; and supporting more efficient and transparent state-owned enterprises.

    • Emergency Operations for Development (EODP):

    In July 2015, a US$350 million financial package was approved by the Bank to support the reconstruction of damaged infrastructure and the restoration of public services in targeted municipal areas recaptured from ISIS, including health, electricity, water, transport, education, and agriculture. As an urgent response to the enormous reconstruction needs in Mosul, the Bank’s Board of Directors approved additional financing to the EODP of US$400 million in 2017.

    • Social Fund for Development:

    A US$300 million Community Driven Development project to improve access to basic services and increase short-term employment opportunities has seen good progress in the first three targeted governorates of Salahuddin, Muthanna, and Duhok. The project is targeting communities in the 18 governorates of Iraq over 5 years. 

    • Other projects include:

    - Iraq Emergency Social Stabilization and Resilience Project:

    A US$200 million loan aims to increase livelihood opportunities in liberated areas; increase access to psychosocial services; and strengthen the systems to expand the provision of social safety nets. The project includes cash for work, social support, and livelihood opportunities; and resilient social safety nets.

    - Transport Corridors Project:

    A US$355 million project to improve road transport connectivity and safety on selected road sections along Expressway 1 and the North–South transport corridor in Iraq. 

    - Baghdad Water and Sewerage Improvement:

    A US$210 million project to improve the quality of drinking water and wastewater services in Baghdad, with the objectives of improving utility management and creating an enabling environment. 

    - Modernization of Public Financial Management Systems:

    Financed by an IBRD loan of US$41.5 million and implemented over 2017–2021 in the federal Ministry of Finance and Ministry of Planning and the KRG Ministry of Planning. The project aims to improve financial information management and transparency, cash management, public investment management, and public procurement modernization at selected federal and governorate agencies. 

    - Electricity Services Reconstruction and Enhancement Project:

    A sub-national project of US$200 million to improve the reliability and enhance the operational efficiency of electrical services in Basra Governorate, including operations efficiency that could foster increased private sector participation in the medium-term and support two broader government objectives of decentralizing services. The project agreement was signed in July 2019. 

    - Iraq EITI Implementation Support:

    A recipient-executed grant through which the Bank supports the government in using Extractive Industries Transparency Initiative as a tool to enhance transparency in Iraq's extractives sector through the government.

    - Promoting the Inclusion of Conflict-Affected Iraqi Youth:

    A recipient-executed grant to promote the social and economic inclusion of at least 3,000 conflict-affected Iraqi youth (ages 15-29) through engagement in entrepreneurship and youth-led community development activities. 

    - Mashreq Gender Facility:

    The main objective of the facility, the first of its kind designed specifically for the Mashreq region, is to enhance women’s economic empowerment as a catalyst toward more inclusive, sustainable, and peaceful societies, where economic growth benefits all. The 2019–2024 facility provides technical support and funding for strategic regional activities and country-level priorities organized under three, interconnected pillars: (i) Dialogue & Participation (ii) Data and Knowledge (iii) Innovating for results.

    - Iraq Reconstruction, Reform and Recovery Fund (I3RF):

    In partnership with the government, the World Bank has launched I3RF to improve the effectiveness and sustainability of public investments in recovery and reconstruction, and to promote targeted economic and financial reforms. Its work is aimed at complementing the UN’s Recovery and Reconstruction Fund. A multi-donor platform, with the United Kingdom and Germany as founding partners, the I3RF enables coordinated financing, strategic dialogue, and catalytic support to reform, reconstruction, and development in Iraq. Its activities will be executed by both the Government of Iraq and the World Bank under three priority areas: (i) Socio-economic recovery and reconstruction, (ii) economic diversification and private sector-led growth, and (iii) strengthening coordination, institutional arrangements, and monitoring of reform and reconstruction agenda. 

    International Finance Corporation (IFC) 

    IFC's committed portfolio in Iraq has grown considerably over the last five years to exceed US$1.5 billion diversified both geographically and across sectors, in power, telecoms, manufacturing, agribusiness, logistics, and services. In FY16, it committed US$375 million to MGES Power, the leading, local, private investor in power. In FY18, IFC committed US$269 million to Zain Iraq, the leading mobile operator, to support the rehabilitation of their network in territory newly secured by the government. In FY19, IFC committed another US$6 million to a new mall and entertainment complex in northern Iraq. IFC’s investment pipeline consists of potential investments in healthcare (hospital), ports, digital financing, and power. 

    IFC is closely collaborating with World Bank teams to apply Maximizing Finance for Development (MFD) principles across strategic areas. Besides infrastructure and energy, transport and water have been identified as potential sectors. The Financial sector has been selected as another critical sector that would require support.

    IFC has also contributed towards food security through its investment in Al-Safi Danone (US$18 million). The project increases the manufacturing and distribution of high-quality dairy products and supports job creation through supply chain linkages with MSMEs. Additionally, IFC’s special focus in the power sector is helping address an electricity gap caused by influxes of refugees/IDPs. In the banking sector, through its global trade financing program, IFC is supporting trade and market access for Iraqi SMEs and private banks. Lastly, it is using its Business Edge program to provide direct training to IDPs, in partnership with local NGOs.

    Multilateral Investment Guarantee Agency (MIGA) 

    MIGA’s outstanding gross exposure in Iraq stood at US$8 million. MIGA signed its first contract in Iraq in FY11 for a project that supported a Turkish investment in a water bottling plant in Baghdad. In FY14, MIGA provided a guarantee for a project in the telecom sector in the Kurdistan autonomous region of Iraq; and in FY2015 it supported a port logistics project in Umm Qasr. 

    Last Updated: Oct 01, 2019

  • Restoration of basic services in the areas of Iraq affected by the 2014–2017 conflict:

    • About US$257 million has been disbursed for reconstructing damaged infrastructure and reinstating key services;

    • To date, over 5 million Iraqis living in 5 governorates have benefited from the reconstruction program;

    • About 1 million people in 18 communities have benefited from key municipal services through the replacement of damaged municipal equipment, with drinking water restored through the repairing of damaged water purification and wastewater treatment plants, and the replacing of damaged water and sewage conveyance pipes;

    • 39 ambulances have been replaced and 14 mobile clinics supplied to improve essential primary health care services in several cities, towns, and villages in Diyala and Salah ad-Din governorates;

    • Over 5 million people in 5 governorates have benefited from restored access to markets, jobs, and services, following the reconstruction of 23 bridges and rehabilitation of 300 km of damaged roads;

    • Over 500,000 people have benefited from reinstalled electricity through the replacement of damaged electricity substations, generators, transformers, and cables. 

    Social Protection and Jobs Support

    The SFD and ESSRP projects are designed to reach over 3 million Iraqi households or approximately 15 million poor and vulnerable Iraqis by 2023. More specifically, they  will provide: (1) essential local social services to more than 1.5 million households through community driven development projects; (2) targeted social assistance, which includes both unconditional and conditional cash transfers, through the development of a resilient social protection system designed to reach more than 1.2 million poor households; (3) emergency income support to more than 150,000 households through cash-for-work opportunities; (4) psycho-social support services to more than 150,000 households in conflict-affected areas, and (5) access to micro-finance opportunities for more than 12,000 individuals. This social protection response includes support for the establishment of an independent and autonomous Social Fund for Development (SFD), which will ensure the provision of effective, efficient, relevant, and well-governed social services throughout Iraq. 

    Last Updated: Oct 01, 2019

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LENDING

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

*Amounts include IBRD and IDA commitments

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