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Overview

  • The volatility of oil prices and the impact of the pandemic have both amplified Iraq’s economic woes, reversing two years of steady recovery. These twin shocks have also deepened existing economic and social fragilities, adding to public grievances that existed pre-COVID-19. The Government of Iraq’s (GoI’s) ability to provide a stimulus package for an economy highly dependent on oil exports for growth and revenue has been limited by this absence of fiscal space. As a result, the country has experienced the largest contraction of its economy since 2003.

    Indeed, Iraq’s GDP posted a sharp contraction of 10.4% in 2020. Growth was stymied by depressed global demand for oil and Iraq’s adherence to OPEC+ production cuts. Its non-oil economy has undergone a 9% contraction, with religious tourism and the service sectors suffering the most from COVID-induced lockdowns. But weak domestic demand and cheaper imported goods have kept inflation pressures low, with headline inflation only edging up to 0.6% in 2020.

    In response to the severity of the crisis, the government devised a national plan in a White Paper that sets out reforms for sustainable, medium-term growth. These address some of the impediments standing in the way of private sector-led diversification—as discussed by the government and World Bank Group in October 2019—related to: (i) fiscal stability, economic governance, the financial sector and business environment; and (ii) agriculture, gas, electricity, social protection and labor. The ultimate success of these reforms—which are transformative in nature—depends on political will and public support for leading the country out of its fragility trap. Meanwhile, popular perceptions of corruption, as well as Iraq’s weak public service delivery could give rise to more social tensions and undermine their implementation. 

    The key challenge for Iraq will be to move ahead with its White Paper reforms amidst recovery in international oil markets, and to maintain a sustainable macroeconomic framework. Even with oil prices passing the US$60 a barrel mark, Iraq will need to take action to rebuild its fiscal space by cutting distortionary, inefficient spending; boosting domestic revenue mobilization; and strengthening the medium-term orientation of macroeconomic policies. Failure to narrow its twin deficits (fiscal and current account) and halt the rapid build-up of government debt will divert more resources away from productive investment and chip away at foreign exchange reserves and the economy’s resilience to shocks. Other priorities include limiting COVID-19 and ensuring a quick rollout of vaccines.

    As such, Iraq’s outlook will depend on global oil markets, structures for reforms (and their implementation), and the capacity of the Iraqi healthcare system to respond to COVID-19. As conditions ease, growth is projected to return from 2% in 2021 to 8.4% in 2022, with the non-oil economy projected to bounce back to an average of 4%. Amidst recovering oil prices, the fiscal deficit is expected to gradually decline, from 5.5% in 2021 to 0.6% of GDP in 2023. It is projected to remain in deficit, however, without reform to the public wage bill and pensions. Consequently, Iraq’s debt-to-GDP ratio is projected to remain elevated.

    Economic recovery and mass vaccination should gradually reverse a surge in poverty—projected to be 7 to 14 percentage points above the national poverty line—but the disproportionate impact that economic shocks have had on people in an informal sector already dominated by the poor and vulnerable is likely to result in increased inequality. A currency devaluation may push inflation to 8.5% in 2021, due to Iraq’s limited capacity for import substitution. This will present additional pressure on household well-being and could impede poverty reduction.

    Last Updated: Apr 05, 2021

  • The World Bank Group mobilizes financial and technical assistance in support of the Government of Iraq’s efforts to regain the trust of its citizens by stabilizing its economy, improving governance, and supporting the rebuilding of livelihoods. The World Bank works closely with partners in the international community to support economic reforms that strengthen the long-term economy. It released a Country Economic Memorandum on September 30, 2020. This analyzes the constraints and drivers of growth and recommends policies for more diverse and inclusive economic models. 

    The Bank is finalizing the Iraq Human Development Public Expenditure Review Report, with evidence‐based recommendations for urgently needed reforms to spur human capital development. The report examines three vital sectors: health, education, and the pension system. These will be in line with the reforms laid out in the White Paper and designed to support human capital in Iraq. 

    World Bank

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

    • Fiscal Stabilization

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

    • A Multi-Donor Trust Fund:

    The Iraq Reform, Recovery and Reconstruction Fund (I3RF) was founded in partnership with the Government of Iraq in 2018 and is funded by Germany, the United Kingdom, and Canada. It provides a platform for financing and strategic dialogue for reconstruction and development, with a focus on targeted national reforms and public and private investments in socio-economic recovery and reconstruction. It aspires to support gender equality, peace building and citizen engagement. In 2020, it mobilized support for adaptation to the Trust Fund amid a collapse in international oil prices and the COVID pandemic, updating its work plan to include four new projects to mitigate the impact of COVID. Its analytical work has played a key role in discourse on economic diversification, the Doing Business environment, poverty and vulnerability, the agri-food sector and the revision of the country’s education strategy. As it enters its third year, it will have gender integrated into its operations and be ready to move on with its remaining projects. I3RF is seen as a strategic tool to support the implementation of White Paper reforms.

    Modernization of Public Financial Management Systems (PFM)

    Financed with an IBRD loan of US$41.5 million, and implemented by the federal Ministry of Finance and Ministry of Planning and the Kurdistan Regional Government’s Ministry of Planning, this project aims to improve transparency and the management of financial information, cash, and public investments, and to modernize public procurement at selected federal and governorate agencies. 

    The World Bank Emergency Response includes:

    In July 2015, the World Bank approved a US$350 million financial package to Iraq to support the reconstruction of infrastructure and restoration of public services—including health, electricity, water, transport, education and agriculture—in and around municipal areas newly retaken from the Islamic State. In response to the need for more reconstruction in Mosul and other areas, it approved Additional Financing of US$400 million in 2017. 

    • COVID-19 Response. 

    The World Bank used its active program in Iraq to respond to the impact of COVID-19 pandemic through the reallocation and restructuring of the undisbursed portfolio. An amount of $7.8 million, held under the Emergency Operation for Development project (EODP), was restructured in July 2020 to procure COVID-response medical equipment. This was combined with a COVID-19 Response and Health System Strengthening Technical Assistance program, financed by the I3RF, to strengthen the government’s capacity to respond to the COVID-19 pandemic, and to develop innovative models to improve the financing, access and quality of healthcare services. Upon the request of the Government of Iraq, an amount of US$100 million is also being restructured from the EODP for vaccines and a vaccination plan program. 

    Other World Bank-financed projects include:

    A US$355 million project to improve connectivity and safety on selected road sections of Expressway-1, a 1,200 km-long highway serving traffic along Iraq’s East-West and South-North Corridors linking Um Qasr in the south with Jordan and Syria via Baghdad; and the North–South trade corridor in Duhok governorate towards the Ibrahim El-Khalil border crossing with Turkey.

    A US$210 million project to improve the quality of drinking water and wastewater services in Baghdad, with the objective of improving utility management and creating an enabling environment. The project aims at institutional strengthening for integrated urban water management and utility management, and to create an enabling environment for private sector management and investment in drinking water supplies and wastewater infrastructure.

    The US$300 million Community Driven Development project, launched in 2019 to improve access to basic services and increase short-term employment opportunities, has successfully completed the first phase in the first three governorates—Salahuddin, Muthanna, and Duhok—and is progressing to a second phase in eight governorates. The project is planning to work with communities in all 18 governorates of Iraq over a 5-year period. 

    A subnational project of US$200 million to foster increased private sector participation in the medium-term, this works to improve the reliability and operational efficiency of electrical services in Basra Governorate. In doing so, it supports broader objectives of decentralizing services.

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

    International Finance Corporation (IFC) 

    IFC has been engaged in Iraq for 15 years, mobilizing Foreign Direct Investment (FDI) and providing advisory services to support the expansion of the Iraqi private sector. Since 2005, cumulative, long-term financing (including by other financiers) has exceeded $1 billion for energy, telecoms, manufacturing, agribusiness, logistics, tourism, and banking. 

    IFC focuses its efforts on two sectors: reforms for private sector-led growth and economic diversification. The goal is to create a vibrant Iraqi private sector, underpinned by a good investment climate. And: promoting private sector participation in priority sectors to extend capital, mobilize it, and help Iraq diversify its economy away from oil, thus strengthening its resilience. Sectors include energy, infrastructure for utilities, the financial sector and agriculture. 

    IFC is collaborating with the World Bank and working with other development partners through the Prospects Partnership, which supports entrepreneurship, helping Foreign Displaced Persons and Internally Displaced Persons and vulnerable host communities.

    Multilateral Investment Guarantee Agency (MIGA) 

    MIGA’s outstanding gross exposure in Iraq stood at US$8 million as of February 2, 2021. MIGA signed its first contract of guarantee in Iraq in FY2011 for a project that supported a Turkish investment in a water bottling plant in Baghdad. In FY2014, MIGA provided another 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. Most recently, in FY2019, MIGA issued guarantees in favor of a Lebanese financial institution with operations in Iraq. 

    The Bank, IFC, and MIGA are working closely together to identify opportunities to support FDI for Iraq’s reconstruction and recovery, especially in the energy, transport, and financial sectors.

    Last Updated: Apr 05, 2021

  • - Restoration of basic services in the recaptured areas under the Emergency Operation for Development Project (EODP) (US$ 750 million)

    • Beneficiaries: Over 5 million Iraqis in five governorates—Anbar, Diyala, Kirkuk, Ninawa, and Salah Ad-Din—live within the areas reached by the reconstruction program;
    • Jobs: over 500,000 workdays of temporary employment have been generated to skilled and unskilled workers;
    • Health Services: 14 mobile clinics and 81 ambulances have been supplied to improve access to essential, primary health care services in several cities and towns in the five governorates;
    • Municipal Services: About 1 million people in 18 communities have regained access to municipal services since damaged municipal equipment was replaced, including water purification and wastewater treatment plants, and water and sewage pipes;
    • Transport Connectivity: the rehabilitation of 26 bridges and 500 kilometers of damaged roads, giving access to markets, jobs, and services.
    • Electricity Connectivity: Over 500,000 people have seen their electricity reinstated since the replacement of damaged substations, generators, transformers, cables, and so on. 
    • Restoring Basic Infrastructure: By working with 4 subnational governments to restore and rehabilitate civic centers and marketplaces in a number of cities in Anbar, Diyala, Ninawa, and Salah Ad-Din governorates. 

    - Improve Road Transport Connectivity and Safety under the Transport Corridors Project (US$355 million)

    • Beneficiaries: Iraqis living in the Southern Governorates, and the trading community;
    • Jobs: Over 850,000 workdays of temporary employment for skilled and unskilled workers, with an additional 100,000 workdays expected to be generated under two, remaining contracts (one under implementation and the second at final stage of design). 
    • Expressway No. 1: 220 km of road has been rehabilitated in Southern Iraq, and 20 km of greenfield link along the north–south economic corridor in the Kurdistan region has been constructed, facilitating the movement of goods and trade and access to services and jobs.
    • Road Safety: This project is saving lives. Traffic safety has been substantially improved along these corridors, reducing traffic-related fatalities from an estimated 450 to 25 during the last 4.5 years along the 200km segment of Expressway No. 1, and from 72 fatalities along the Kurdistan region of Iraq corridor to 0 fatalities.
    • Building institutional capacity: Over 30 staff of the Roads and Bridges Directorate in Baghdad and 10 staff of the Directorate General of Roads and Bridges in Dohuk have been engaged in overseeing the implementation of this project, gaining first-hand experience in planning, procurement, and overseeing the implementation of large works’ contracts with great attention to Occupational Health and Safety and social and environmental safeguards, all of which will contribute to improved sector management in Iraq.
    • Promoting use of ICT for traffic management. The engagement of international experts in developing traffic management systems is another step towards improving communications with the road users and improving mobility.

    Supporting the feasibility analysis of mobilizing private investments in the road sector. With funding of the roads sector unpredictable due to national fiscal constraints, other sources of funding are being explored with assistance of international experts. This will contribute to maintaining the quality of rehabilitated roads, and to longer economic yields on government’s initial investments.

    - Social Protection and Jobs Program: Iraq Social Fund for Development Project

    Implementation of the Social Fund for Development Project (SFDP) continues to progress. The completion of 62 community subprojects in three governorates (Muthanna, Salahuddin, and Duhok) gives about 63,000 households (or about 315,000 individuals) better access to basic services and will have provided short-term employment to over 1,000 Iraqi citizens. 

    The SFDP is expanding to new villages in the first three governorates and to eight new governorates in 2021. In all eight governorates, capacity building for project management teams, village outreach and awareness, and training community development groups to identify subprojects are underway. Sub-projects in new areas will lead to funding for 759 subprojects and result in an increased portfolio of 821 subprojects in education, water, health, electricity, roads and other community prioritized initiatives. Expansion to new governorates and the launch of new subprojects will create job opportunities and access to basic services for more Iraqis.

    Last Updated: Apr 05, 2021

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

*Amounts include IBRD and IDA commitments

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