Iraq economy looks positive in 2006

Experts predict that the formation of a new Iraqi government, following a year of political reforms, will help stabilise the country, revive its stagnant economy and pave the way for contentious measures such as privatisation.

Iraq's future depends on a consensus government
Iraq's future depends on a consensus government

Thomas Delare, counsellor for economic affairs at the US embassy in Baghdad, said: “Ordinary Iraqis, domestic entrepreneurs and foreign investors have all been waiting for stability, predictability and greater security.”

The 15 December general election “doesn’t guarantee any of those things, but it offers the promise that now we can put it in place,” he said.

That all depends on the smooth formation of the next government which – as various political factions dispute the results, march in the street and threaten to boycott the new parliament –  does not seem a certainty.

Final election results are not expected before next week.

“The economic prospects in 2006 will be good for Iraq, provided we have a consensus government”

Abbas Abu al-Timen,
director, Baghdad Economic Forum

Abbas Abu al-Timen, the director of the Baghdad Economic Forum, said: “The economic prospects in 2006 will be good for Iraq, provided we have a consensus government which includes all major groups in Iraq and they agree on an economic programme.”

Sanctions’ impact

The economist added that this was the key moment for the nation, and failure to reach consensus would be a disaster.

“This country cannot have any more of this chaotic situation,” he said, adding that if a strong government was not formed, the country would be in a “bleak dark long tunnel”.

The difficulties the country went through under sanctions in the 1990s, followed by the chaos and looting during and after the US-led invasion of March 2003, have had a devastating effect on the Iraqi economy.

Unemployment, officially about 28%, is estimated by some experts to be twice that, and small businesses are struggling to compete with the import of cheap, yet shoddy, goods now sold on the streets of the nation’s cities.
But US experts see a slow improvement, estimating 3 to 4% GDP growth in 2005 and increased consumer spending as witnessed by the rise in mobile phone use and car buying.

Debt relief

The best piece of economic news to hit the country in a while was last week’s decision by the International Monetary Fund to approve a standby arrangement for Iraq that paved the way for further debt relief.

Subsidy cuts for oil have sparked widespread protests

Subsidy cuts for oil have sparked
widespread protests

The decision, however, came at a price, and the government is now committed to cutting Iraq’s massive fuel subsidies which are disastrous for the budget, but much appreciated by Iraqis, a quarter of whom live below the poverty line.
The initial tripling of the price of petrol to the equivalent of 10 cents a litre is only the start of a price raise for what is currently the world’s cheapest petrol.

Already there have been riots and even attacks on petrol stations in protest at the subsidy cuts.

Another controversial issue is privatisation, which most economists consider a necessity for the moribund state industries. But while more private sector investment and competition would certainly help these industries, it could also be accompanied by layoffs.

A US official, who thinks the process may finally be accelerating, said: “The Iraqi government has identified two factories for privatisation … two and a half years after the process started, that’s pretty slow progress. 

“We think that in 2006 there is a commitment to finally get it started.”
Fossil fuels industry

Under Paul Bremer’s Coalition Provisional Authority, the issue of privatisation was mentioned repeatedly resulting in public outcry that the nation’s industrial patrimony was about to be sold off cheap to foreigners with disastrous effect, as happened in post-Soviet Eastern Europe. 

Paul Bremer’s  authority had discussed privatisation

Paul Bremer’s  authority had
discussed privatisation

“Privatisation is not an issue,” says the Baghdad Economic Forum’s Timen, maintaining there is consensus on the matter. “The debate is how to approach privatisation and how to confront the problem.”
“You have to look at the issue in Iraq in its context – the problems in Iraq are different,” said Timen, cautioning against a generic approach.
One sector that will not be put on the auction block in 2006, however, is the very sensitive fossil fuels industry which nationalist Iraqis have often said is a target of foreign entrepreneurs.
The IMF, the same organisation that pushed through the subsidy cuts has also stipulated that downstream services -such as retail sales of petrol and the fuel service sector -should be opened to private companies.

Source : AFP

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