LONDON: The turnaround in oil markets has significantly improved Iraq’s economic outlook, according to a report released on Thursday by the World Bank.
The country is gradually recovering from a severe recession, brought on by the COVID-19 pandemic and the drop in oil prices in 2020.
After contracting by more than 11 percent in 2020, Iraq’s economy grew by 2.8 percent in 2021 with the easing of COVID-19 movement restrictions, supported by a solid expansion of non-oil output, in particular services, according to the report.
The report also said that due to higher oil prices, the country’s total government revenues increased by 73 percent in 2021.
Despite the projected average annual growth rate of 5.4 percent between 2022 and 2024, the report cautions that Iraq’s economic outlook is subject to significant risks, including high dependence on oil, budget rigidities, and delays in the formation of a new government.
If continued, delay in government formation and the ratification of the 2022 budget could limit the use of the fiscal windfalls as the de facto ceilings from the 2021 budget are reached, which could reduce economic growth.
“Iraq has a unique opportunity to undertake urgent, wide-ranging structural reforms by drawing on fiscal space resulting from its recent oil windfall,” Saroj Kumar Jha, the World Bank Mashreq Regional Director, said.
Declining health and education outcomes, exacerbated by COVID-19 in recent years, have widened existing gaps in human capital in Iraq.
In the absence of an accelerated process of reforms, growth will remain constrained by the economy’s limited absorptive capacity and other inefficiencies.
The report has advised that reorienting government expenditure toward growth-enhancing programs in human and physical capital will be critical for diversification and job creation, as well as addressing the country’s human capital crisis.
However, the World Bank observes that the Government of Iraq’s White Paper outlining a comprehensive program of reforms toward economic diversification remains, for now, “a bold blueprint.”