The World Bank’s new Iraq Economic Monitor, titled “Harnessing the oil windfall for sustainable growth”, finds that Iraq’s economy is gradually emerging from the deep recession caused by the pandemic and the plunge in oil prices in 2020. After contracting by more than 11 percent in 2020, the economy grew by 2.8 percent in 2021 supported by the solid expansion of non-oil output, in particular services, as COVID-19 movement restrictions were eased. Oil GDP also started growing in the second half of 2021 as OPEC+ production cuts started to be phased out. Higher oil revenues pushed Iraq’s overall fiscal and external balances into a surplus in 2021, however, fiscal rigidities and high level of unaccounted arrears remain.
Iraq’s existing food security challenges have intensified with the recent surge in global commodity prices, while domestic food production fell short of demand from the country’s rapidly growing population. While subsidies and direct transfers can help mitigate impact in the short run, achieving food security calls for coordinated efforts to improve domestic food production and a more efficient management of existing water resources.
The Special Focus chapter of the report discusses how the pandemic worsened Iraq’s existing human capital crisis and led to substantial learning losses in Iraq. As a result of the school closures, the World Bank estimates that the learning-adjusted years of schooling (LAYS) decreased to between 2.6 and 3.0—a decline of 1.0 to 1.4 years of learning. This would translate into lifetime earnings for the affected students to be reduced by between 8.4 and 11.2 percent and economywide losses equivalent to more than one-third of Iraq’s total GDP in 2020. Addressing these challenges calls for an education reform path for better learning and skills development to improve human capital outcomes.
Looking ahead, the turnaround in oil markets has improved Iraq’s economic outlook in the medium term. The economy is projected to grow in 2022-24 by 5.4 percent on average per year in 2022-24 as oil production increases in line with production capacity and higher investments finance by the oil windfall drives non-oil GDP growth. In the absence of structural reforms, the llimited absorptive capacity of the economy remains a binding constraint on Iraq’s growth potential and macroeconomic stability.
- Iraq Economic Monitor, Spring 2022: Harnessing the Oil Windfall for Sustainable Growth (Full Report in a PDF Format)