Iraqi Economy

Challenges and Options Economic policies and future scenarios of economic performance

Sarmad AL - Jamil
About

PhD, College of economic and administration


Table of Contents

Executive Summary

Introduction

Chapter One: An overview on the Iraqi economy and its main features and components

Section One: The Iraqi economy between 1921 and 1958:  establishment and development strategies

Section Two: Economic transformations in Iraq between 1958 and 2003: the dependency of the economy on politics

Section Three: The Iraqi economy after 2003, structural incompatibilities, security and financial risks and tragic crises

Chapter Two: performance indicators and trends of the Iraqi economy after 2003 (challenges)

Section One: GDP and its trends

Section Two: Balance of payments indicators in Iraq

Section Three: The general budget of the government and changes in oil prices

Chapter Three: Iraq's economic policies (options) and future scenarios in the next two decades of the 21st century

Section One: Financial crisis and security disasters: future implications and commitments

Section Two: Oil (missed opportunities and minimum loss options)

Section Three: Iraq and the corruption indicators

Section Four: Iraqi economy among debtor nations – Public debt is the government’s choice to finance its economy to make it face the financial crisis

Section Five: the Iraqi economy and the predicted scenarios

Conclusion and recommendations

References


List of Tables

Table 1: GDP and GDP per capita, annual growth and statistical figures

Table 2: GDP and GDP per capita, growth percentage between 2004 and 2015 and some statistics

Table 3: Structure of Iraqi exports for the years 2004-2020 (billion dollars)

Table 4: Some balance of payments indicators

Table 5: Government and private imports in Iraq (billion dollars)

Table 6: Iraqi exports between 2010 and 2018 in billions of dollars

Table 7: Income and expenditure in Iraq

Table 8: Iraq expenditure structure index (billion dollars)

Table 9: Iraq's foreign exchange reserves expectations (billion dollars)

Table 10: Estimated and actual revenues, estimated and actual expenditures, deficit and surpluses in Iraq for the years 2006-2016

Table 11: Distribution of government budget expenditures to sectors (billion dollars)

Table 12: Allocations of the three presidencies in the general budget of the Iraqi government for some years from 2006 to 2013

Table 13: Operational and investment expenses of the Iraqi budget for the years 2006 – 2016

Table 14: The volume of imports, total oil revenues and the volume of dollar sales of the Central Bank (in billion dollars)

Table 15: Percentages of Import, oil revenue and dollar sales / GDP

Table 16: Total oil revenues and dollar sales volume of the Central Bank (billion dollars)

Table 17: Prices of Brent Crude Oil and Dubai Crude Oil between 2004 and 2017 in dollars

Table 18: Global predictions of crude oil prices in dollars

Table 19: Oil price predictions of Chul-Yong Lee and Sung-Yoon Huh

Table 20: Value of the corruption perceptions index for Iraq and its ranking at the level of the participating states

Table 21: Number of complaints received by the Integrity Commission and cases referred to the courts for the period 2004-2016

Table 22: The volume of funds allocated for corruption by the Integrity Commission for the period 2005-2016 (billion dinars)

Table 23: Total corruption money in the cases of the Office of the Inspector General of the Ministry of Finance for the period 2009-2016 (billion dinars)

Table 24: Total amounts of corruption monitored by the Integrity Commission and the Office of the Inspector General / Ministry of Finance

Table 25: Corruption Rates in Iraqi Government Sectors

Table 26: Total revenue, expenditure, deficit or surplus of Iraq's budget for the period 2003-2016 (million dinars)

Table 27: Total public debt in Iraq for the years 2015 - 2021 (billion dollars)

Table 28: Iraqi internal and external debt for the years 2004-2016

Table 29: Ratio of external debt to GDP in Iraq for 2004-2021


Executive Summary


This report examines the reality of the Iraqi economy and its economic development from the perspective of the challenges and options it may have to deal with. The discussion of some aspects in relation to the nature and origin of the Iraqi economy is necessary to understand the reality and the future that await it, and this is reflected in the title of the report, 

“Iraqi Economy: Challenges and Options

Economic policies and future scenarios of economic performance”. 


The aim of this report is to identify the scenarios that are expected for the Iraqi economy in light of the complex crises that have been going on for decades, especially after 2014 and what followed it. This report consists of three chapters, divided into sections that include detailed studies of indicators, performance and predictions. 


The first chapter and its first section focus on the Iraqi economy between 1921 and 1958, the strategies of establishing and building institutions, including financial, political, economic and others, and reviews the performance of the Iraqi economy during those years.

The second section deals with the economic transformation in Iraq from 1958 to 2003 and how the economy was so dependent on politics to the extent that, during that period of transformation, the Iraqi government issued the reform laws that, in their general form, contributed to the destruction of the structure of the economy. The section also deals with how institutions were structurally reconstructed according to the ideology adopted by the ruling parties and their relation to the economic performance of the period from 1959 to 2003, thus reaffirming the dependence of the economy on politics that politicians created. 

The third section, however, addresses the Iraqi economy after 2003, which is described as the period of structural disparities and financial and security risks. It was also the period of crises and disasters that affected the Iraqi economy, and special focus is put on corruption and the financial and economic crisis.

The second chapter deals with the performance indicators of the Iraqi economy and their trends after 2003 given that these were the challenges that the Iraqi economy had to face. The first section focuses on the GDP and its trends for the years 2005 until 2021 according to the United Nations predictions, and the potential it holds. 

Some of them were found to be correct while some others failed in some respects. This section also focuses on the GDP per capita as well as other predictive data and the expected growth rates of the Iraqi economy. The second section of this chapter presents some indicators of the balance of payments and its structural imbalances. As for the third section, it deals with the general budget of the government and the changes in oil prices due to the nature of the relationship built by Iraq for decades between budget revenues and oil revenues. 


The third chapter discusses the economic policies of Iraq (options) and the future scenarios for the next two decades of the 21st century through a number of sections. The first section focuses on the financial crisis and security disasters given their repercussions as well as their ensuing commitments. It also presents expected changes in oil prices for the coming years and how Iraq has become part of the debtor countries through the growing internal and external public debt until it reached unprecedented levels. It also displays the scenarios that are expected for the Iraqi economy in the next three decades. The fourth section, then, unveils a series of corruption indicators in Iraq. The fifth section looks into the pessimistic and optimistic data related to the Iraqi economy. The report is concluded with the most important recommendations.

Introduction 

Financial and economic opportunities for countries might happen just once and seizing them means achieving great benefits for the country and its people while missing them might engender real losses for the community as a whole. What happened starting from 2004 up until 2014 was a precious opportunity in which Iraq received hundreds of billions of dollars from oil resources. However, the prices of oil declined overnight to reach 25 dollars, after they had reached 147 dollars per barrel in 2008. That period was described as a golden one without the Iraqi leaders and their successors realizing it. They did not realize that the source of these funds does not come from any productive economic sector, but rather from oil market fluctuations. When the price of oil rises in the market, Iraq earns revenues and when it falls, it just leaves nothing but big losses. 

The government budget, the balance of payments, the economic activity, and the community have tied themselves to oil prices. Overnight, Iraq found itself facing a large deficit in its budget and balance of payments, and its reserves declined. It was no longer able to pay its debts. This crisis coincided with a security crisis following the occupation of one third of Iraq and the disruption of its economic structure and resources. Iraq was faced with millions of displaced people along with a defeated army and armed military forces aiming at dominating Iraq and that came following calls from internal and external religious and political background. 

Economic activity in Iraq, in various aspects, has been halted and the people concerned could not agree on a unified term that would describe what happened. Was it a poor management from the government in relation to money and currency? Was it rather a financial, economic and security crisis? Questions started to be raised concerning where the country’s resources have gone? Where’s the money that Iraq received? It turned out that all of that vanished and that corruption was the cause. 

After years, Iraq finds itself immersed in debt and bound by contracts, pledges and guarantees, where is the Iraqi economy heading? What are its options for economic development? So where is this going to lead the Iraqi economy? This is what the report will attempt to discuss and answer in three successive chapters.

This report is based on original data sources  from international institutions such as the International Monetary Fund, the World Bank and the United Nations, as well as reports issued by Iraqi institutions, including the Central Bank of Iraq, Ministry of Planning and Development Cooperation, the Central Statistical Organization, the Ministry of Finance and a number of other institutions. The report adopts a simplified presentation methodology and does not rely on any quantitative analysis model it relies instead on tables after it has processed the data in order to clarify the theoretical content and make it easier for the readers to grasp.


Chapter One

An overview on the Iraqi economy and its main features and components


Section One

The Iraqi economy between 1921 and 1958: Establishment and development strategies 


Iraq was founded on the ruins of the three ottoman states in 1921 after the whole world came out of a war that lasted for years during which the three Ottoman states lived through some hard times. The resources were eroded and people’s craftworks stopped. The warring forces imposed their control over most of the resources including human resources through dragging them to battles. Iraqi cities suffered from famine and from disasters. The new government had to deal with an inactive society in its most important economic sectors: grazing, agriculture and the artisanal sector. Iraq did not have its own currency. Thus, it used Ottoman, Indian, and British currencies. This was clear through the currency in circulation and the boredom people felt when using these currencies. (1)

The first decade after Iraq was founded in 1921 was characterized by a state of economic instability. There were also signs of primitive economy and features of a great shift from a non-state to a state. This was characterized by unemployment, reluctance to work and poverty, which was widespread among the Iraqi people; add to that the absence of institutions. Therefore, the government was focused on the political side and on establishing sovereign institutions, and solving problems, such as the problem of Mosul and the problem of borders with neighboring countries, as well as on imposing sovereignty over all parts of Iraq. This is what a number of documents that some historians concerned with Iraq tackled with shows. 

According to a consensus conducted by the British occupying authorities, the Iraqi population reached 2.85 million people in 1920. Mosul was ranked first in terms of population, which reached around 350 thousand people. The military institution was established at the beginning, the constitution was written; the parliament was established; education, health and services institutions were established as well. This period was regarded as the one in which the foundation stones of the governmental structure and other state institutions were laid. After that, Iraq started establishing the newborn state. This was followed by the 1930s and the establishment of government institutions despite the political changes, including the death of King Faisal II, and the inauguration of his son, Ghazi. This was accompanied with government instability especially when it comes to ministerial and structural changes and the figures that dominated the political decision-making.

The period was marked by some economic breakthroughs. Some companies were established, and some economic transformations in the business sector started to appear. Since it was founded in 1921 and until the end of the British mandate in 1932, Iraq used the Indian rupee, which was the official currency of Iraq. In the same year, and after the end of the mandate, the Iraqi dinar was issued under Law No. 44 of 1931. One dinar was an equivalent of one pound at that period, and it was linked to the pound as it was the international currency at that time. The features of building a financial, banking, accounting, balance, regulations and investments systems appeared. 


The economic performance of Iraq 1921-1958: Vision, strategy, and results

The years 1950-1958 were characterized by the formulation of economic policies as a model stage that was based on several objectives: economic development, raising the standard of living, creating jobs, conducting comprehensive studies about exploited and unexploited resources, and starting the implementation of investment projects according to its importance in order to prevent hazard in the economic sectors: irrigation, improvement of irrigation and drainage systems, development of extractive and transformative industries sector, the establishment of modern transport and the focus on performance and results. 

Focusing on investment in infrastructure and economic sectors, including the industrial sector, agricultural, irrigation, transportation and services was based on a genuine partnership between the public and private sectors. On the basis of this partnership, the mixed sector was established, which is considered as a leading model in the world, as Iraq was the second country to use this model after Mexico. The share of the Reconstruction Council of oil revenues amounted to 23 million dinars in 1952, which increased to 39 million in 1954, then to 42 million in 1955 and continued to rise. 


Section Two

Economic transformations in Iraq between 1958 and 2003: the dependency of the economy on politics


1958 was a major turning point in the Iraqi economy at the level of approach, behavior, thought and application. Several social and economic titles and problems were raised, such as feudalism, public ownership of the means of production, exploitation of capital and others. Some of them can be identified, and these played a major role in the transformation of the Iraqi economy, including the issuance of the law of the agrarian reform, nationalization of business and of foreign oil companies, as well as the restructuring of state institutions and the industrial sector and moving towards the socialist sector and confirming the government intervention.


Economic performance for the period from 1959 to 2003: Variations and dependency:


The economic performance of this period was characterized by variation and disparity in the structure, vision and strategy, which was reflected in economic performance in all its indicators, including GDP, balance of payments and the general budget of the government and its revenues and expenses. This was a natural reflection of the political differences and radical changes that Iraq experienced for four decades: 

1. The applications of agrarian reform laws in 1961 and 1971 had direct and indirect negative effects on the agricultural economy.

2. The intervention of the government has had negative consequences on the economy through the disruption of economic mechanisms. The beginning was in 1964 when the decision to nationalize a number of leading Iraqi companies was issued.

3. Destroying the values of work in society and creating a new type of values related to the function of government. On the other hand, this was the beginning of the widespread of corruption.

4. The process of transformation in the economic sector and its institutions continued during the 1960s and the 1970s. The situation became clearer as the government became dominant in all activities. Thus, it expanded, and the private sector was reduced to be nothing more than an agency sector for government institutions. 

5. In the 1960s and 1970s and after that, the economy became dependent on oil to fund its budget. This was due to the significant increase in oil prices after 1973. Consequently, there was a large flow of foreign exchange currency, mainly the dollar. Thus, Iraq became a renter state that relies on oil revenues to finance its operating and investment budgets. 

An accurate assessment of the economic situation during a period of political instability in terms of coups and wars led to negative consequences for the Iraqi economy. This period was characterized by destruction, corruption, and the collapse of human resources as the main economic task force in the light of the absence of an objective economic rhetoric, which became an unhealthy cliché in an environment dominated by the noise of politics and the vagueness of its horizons, as well as the difficulty in defining its future features. 

In spite of all of this, there were partial treatments here and there on the material and human levels, but that was amidst a continuous collapse of the financial and economic systems!



Section Three

The Iraqi economy after 2003

Structural incompatibilities, security and financial risks and tragic crises


An introduction into the features of the Iraqi economy and restoration and reconstruction efforts

After the collapse of the political, economic, financial, administrative and security systems, the occupier tried to rebuild these systems. Hence, several legislations that formed the basis on which the post-2003 systems were built have been issued. To do this, the occupier adopted laws that have been issued on purpose, such as the State Administration Law and the Financial Administration Law, and it ignored the republic of Iraq’s eight-decade legacy. This created disparities between social groups and marginalized others. Social equality has thus vanished, and religious, sectarian and ethnic conflicts were brought to the surface. Patriotism thus disappeared, and the concept of the homeland was substituted for group loyalty, which led to failure in all areas. This emerged clearly after the US army withdrew in 2011, mainly in the distribution of wealth between individuals, groups and provinces, as well as the standard distribution of ethnic and sectarian wealth, which was reflected, directly and indirectly, on the structure and performance of the Iraqi economy. In fact, Iraq had undergone significant changes during that period, including:

1- The rapid growth of oil prices in the world market, especially between 2004 and 2008:

Oil prices had witnessed a steady increase since 2004 to reach a peak in 2008, $ 147 per barrel, and then fell to nearly $ 60 a barrel, and after that started to rise again until mid-2014 to fall again significantly, which was a shock to the world and to the Iraqi economy. 


Those increases in oil prices led to more oil revenues for Iraq. Besides, their decrease in 2008 and 2009 did not have a significant impact on Iraq, as prices started to rise again, especially between 2010 and 2014, but the big shock was in mid-2014 as the prices fell down again significantly and continued to decline, which was a major blow to the Iraqi economy, according to the description of the International Monetary Fund in its report for 2015. The repercussions of this shock started to appear in 2016 and 2017. There was a joint management of the crisis Iraq witnessed by the Iraqi Ministry of Finance, the Central Bank of Iraq, the IMF and its advisors.

2- Iraq no longer under Chapter VII

On August 6, 1990, the Security Council issued a decision that considered Iraq as a threat to world peace. Iraq was added to Chapter VII under this decision and was accordingly subjected to an all-inclusive economic blockade. All transactions were stopped and all Iraqi assets were frozen in different countries. Different countries all over the world started to impose sanctions on all financial, economic, commercial, telecommunications, information and scientific transactions. Iraq continued this way until 2013, for 23 years exactly. 

Many people understood the apparent aspects of the problem, but very few realized its implications. Perhaps in the years after 1996, when the memorandum of understanding called Oil for Food was started, , certain humanitarian aspects were addressed; and perhaps the year 2003, which marked the fall of the former Iraqi regime and the beginning of the occupation era, as well as the establishment of the current regime may have been understood as a significant year of changes at the political, military, and perhaps economic levels in monetary terms, and perhaps the increase in oil prices from 20 dollars in 2002 to 140 dollars in 2007 had a major impact on commonsense understanding that the embargo meant nothing but checking  oil exports and then exportation of oil was reactivated and secured by a fund that had been established for that purpose, , which is to collect oil revenues under the protection of the United States for fear of judicial decisions that most countries of the world and so many different institutions and individuals who owed Iraq something according to previous agreements have done what they could to take the utmost advantage out of them.  Added to all this were the frozen cash balances in a number of countries, which included what Iraq owed to other countries and what other countries owed Iraq as well. However, the problem has gone far beyond all that.


The implementation of the United Nations resolutions  and subjecting Iraq to Chapter VII with all its inclusive and multidimensional articles, including the formation of alliances against Iraq considering it was a threat to world peace and the cutting of economic ties, including the cessation of economic links and railways, sea, air, postal, telegraph, radio and other means of transportation and telecommunication either partly or in fully, and the cutting of diplomatic relations and other aspects. What should be stressed, however, are the economic, financial and monetary aspects caused by the decision to disrupt the Iraqi payment system with the outside world, which isolated Iraq from the international payment system. This hindered foreign trade, finance, and international investment, and suspended all kinds of activities that related to these sectors. During the period between 1990 and 2017, Iraq operated in isolation from the world. This period was characterized by the development of an informal and illegal system to sell part of its oil through the smuggling operations led by people who worked in organized networks led by individuals to provide goods, especially food. This also led to the emergence of private banks in Iraq under covers of various family and internal stock companies and contributed to the construction of informal systems of relations with a number of Arab banks whereby cash circulation increased together with the printing of Iraq cash currency (Iraqi dinar), even though its value kept decreasing. (2)


The Iraqi economy after 2003

Various features characterized that period, among which was starting to establish a financial and banking system as well the restructuration of the Central Bank. Iraq knew some attempts to control the management of the exchange rate of the Iraqi dinar and the issuance of a number of laws regulating the financial and banking systems. There was a kind of relative stability in the exchange rate of the Iraqi dinar, and Iraq tried to overcome serious problems in transferring money. Most importantly, all this was nothing but a sign for the spread of financial corruption and the emergence of a phenomenon that dominated and slowed down the development and progress in light of high oil revenues and a significant development in the size of Iraqi budgets for the years 2008 - 2013.

Freeing Iraq from the restrictions of Chapter VII was very important, and it laid great burdens on Iraq. For this, Iraq had to face great challenges, both internally and externally, and once it has freed itself from that unfair chapter, it meant that Iraq was back to the international community and this had nothing to do with politics, for politicians can thoroughly study and discuss it, but what mattered was how to build the Iraqi payment system.

The system of payments in Iraq had stopped for more than 27 years and it was no longer in place. By system was meant the different payment institutions and their infrastructure that made it unable to activate payment processes, for neither the tools to do that were available nor communication and information networks were. More importantly, formal and informal networks have been able to build their informal structure for two and a half decades, and they somehow continued until after 2003 and have evolved over the last few years to make Iraq at the top of the list of corrupt countries, where subcontracting, smuggling, forming networks of real and shell companies in Iraq and abroad became rife. Very complex work procedures were adopted by these companies that could not  be easily dismantled because the shielded themselves within legal and illegal names and forms, and this is what we will address later. 


Increased vulnerability to security, financial and economic risks:


After the fall of the regime in 2003 and the looting of banks, as well as the occupation of Iraq by the United States, the banking system in Iraq was suspended for just a few months. This system consisted of commercial, specialized and investment banks, along with the Central Bank, the intermediary companies and the Iraqi stock exchange market. The occupation forces started by reopening the Central Bank and trying to address a number of problems that people suffered from due to the suspension of financial and banking services. 

The value of the Iraqi dinar was volatile against other currencies. On September 19, 2003, the Banking Act was issued by the American Civil Governor (3). This was followed by issuing the central Bank Law, specifically on March 6, 2004, by the Civil Governor of Iraq (4). Moreover, the law of Islamic banks was also issued. Since then, there were no other laws concerning the Central Bank and the Iraqi banks by the legislative authority. This is an argument that can be used against the regime, as it is still working under the laws put by the occupier. Those laws have many deficiencies, and most importantly, those cannot even be called laws. 

In 2013, the International Monetary Fund noted that high risks and significant indirect effects would affect Iraq in a medium-term run, including inefficient implementation of economic policies, deteriorating security and political conditions, lower oil prices than expected, as well as a delay in developing the oil sector and the export potential. This risk was reflected on the oil revenues, and it eroded the financial situation in Iraq and created pressure on the reserves that the Central Bank kept in order to support the economy, mitigate the expected negative effects, reduce the dependence of the economy on oil, try to strengthen financial institutions, activate the monetary policy, reduce the dependence on fiscal policy, trying to strengthen the Iraqi economy in order to reduce the risks, and to work on achieving the objectives. (5)

The International Monetary Fund (IMF) report issued in 2015 identified two major shocks that led Iraq to an unprecedented situation in its modern and contemporary history. Whereas the first shock was internal and was triggered by the events of June 10, 2014, the fall of Mosul and the occupation of a third of Iraq by the terrorists, the second was rather external and consisted in the collapse of oil prices and their continued decline. It is noteworthy to mention that rarely can such occurrences happen simultaneously in the world. The IMF report exposed these internal and external shocks and how they affected the GDP and led to a financial and economic crisis.


Chapter Two

Performance indicators and trends of the Iraqi economy after 2003 (challenges)

Section One: GDP and its trends


Macroeconomics works with a large number of variables, through which it seeks to achieve economic objectives such as economic growth, operational efficiency and economic stability, as well as to reduce inflation etc. This can be done through macroeconomic, monetary and financial policies. The Iraqi economy has actually been dealt with by a large number of researchers since the 1940s. The focus was on the GDP as the most important indicator. 

Iraq's GDP between 1950 and 2000 was estimated on the basis of constant dollar prices in 1980. Iraq's gross domestic product (GDP) in 1980 was $ 53.9 billion and then fell to 26,9 billion dollars in 1989, and continued to decline to reach 6.5 billion dollars in 1994, but with the entry of Iraq in the “oil for food and medicine” program and its implementation since early 1996, there was a marked development of GDP to reach 46 billion dollars at the end of the 1990s, despite the fact that inflation was extremely high.

Other studies have estimated Iraq's gross domestic product (GDP) to be $ 10.8 billion in 1996, which was further boosted to reach $ 31.8 billion following the memorandum of understanding on food and medicine. In 2002, it decreased to reach $ 26.1 billion, others estimated it by $ 9.2 billion dollars in 1996, and then it increased to $ 14.8 billion in 2002. Despite all these estimates, in the absence of official data and information to be issued by the official government systems concerned, all these estimates are still subject to a large margin of error and inaccuracy in estimation and measurement.

Table 1 indicates the average and standard deviation of three measurements of GDP, per capita GDP and real annual growth rate. The timeline included actual data from 2004 to 2014, the data from 2016 to 2020 included predictions by the IMF from 2013 to 2016. These were far from accurate because they are based on inaccurate oil price predictions, which varied between $ 50- $ 60 per barrel. However, the lowest oil price for more than 12 years has ranged between 20 and 30 dollars per barrel. Hence, it is possible to say that the estimates since 2015 were accurate, which led the Iraqi government to be more critical to its entitlements. The table has shown these indicators and changes during the period 2004 - 2020.


Table 1

GDP and GDP per capita, annual growth and statistical figures

Annual growth rate of GDP

Billion dollar

GDP Per capita

Billion dollar

Gross Domestic product

Billion dollar

Year

48

1391

36,6

2004

2,8

1849

50,1

2005

6,2

2350

65,1

2006

1,5

2125

88,8

2007

9,8

4513

131,6

3008

7,7

3725

111,7

2009

5,9

4487

135,5

2010

8,6

5839

180,5

2011

2,7

6650

212

2012

0,1

6882

232,5

2013

-1,8

6420

223

2014

-24,1

4900

172,4

2015

-5,3

4940

172,2

2016

8,4

5602

207

2017

4

6086

231

2018

2,7

6528

254

2019

1,6

6922

276

2020

4,7

4777

163,7

Average

13,6

1872,3

73,8

Standard deviation

185,4

3505711,8

5449,7

Variance

1,56

-0,631

-0,335

Skewness

7,45

-0,954

-1,052

kurtosis

 

Source: IMF publications, 2008; 2013; 2015; 2016

GDP and GDP per capita have behaved similarly in the period between 2005 and 2016, particularly what happened in 2014 and 2015 and continued until 2016. However, it has been shown that the large variation in data, GDP, and the IMF predictions were not so accurate, including the predictions of the period between 2016 and 2020, which were based on predicting oil prices to be between 50 and 60 dollars. However, the oil prices fell to 30 dollars and fell even more in the first two months of 2016 to generally range between 20 and 30 dollars. This indicates the inaccuracy of the IMF predictions, which also affected revenues, expenditure, GDP and other data.


GDP Per capita for the period from 2004 to 2020

Per capita gross domestic product (GDP) grew steadily for the years 2004 to 2013 to reach $ 6882 in 2013 and then fell to reach its lowest levels in 2015 and 2016 and is expected to rise slowly in the upcoming years until 2020.


Growth rate in GDP for 2004-2020

The GDP growth rate fluctuated over the period from 2004 to 2020, with the exception of the period from 2016 to 2020, which is expected to decline significantly, indicating a crisis in the Iraqi economy. The change in the percentage exceeded 10% in the years 2014, 2015 and 2016, which clearly shows the aforementioned danger. 


Three indicators of financial and economic shock in Iraq:

Three indicators were adopted: GDP, per capita GDP and real annual growth rate of GDP, excluding the years 2016-2020. The phenomenon was described by means of a number of descriptive indicators. Table 2 shows the large fluctuations in the three variables. Table 2 also shows the standard deviation of the indicators, which represents a major economic threat facing Iraq; in other words, an expected economic risk was not considered by the government. Thus, it was stuck in a financial crisis.



Table 2

GDP and GDP per capita, growth percentage between 2004 and 2015 and some statistics


Economic growth rate

GDP Per Capita (dollars)

GDP (billion dollars)

Year

48

1391

37

2004

3

1849

50

2005

6

2350

65

2006

2

2125

89

2007

10

4513

131

2008

8

3725

111

2009

6

4487

135

2010

9

5839

180

2011

3

6650

212

2012

1

6882

232

2013

 - 2

6420

223

2014

- 24

4900

172

2015

4,9

4313

139,6

Average

15,6

1898,1

66,1

Standard deviation

245,4

3602772

4373,7

Variance

1,389

-  0,217

-  0,159

Skewness

5,599

- 1,309

-  1,27

kurtosis

 

Source: IMF 2013, 2014, 2015, 2016


A simple display of the basic variables of the Iraqi macro-economy, including the interest rate, shows certain stability during the period between 2004 and 2016. Some minor changes have not really affected the course of the economy. As for the exchange rate, the Central Bank has adopted a strategy to control the exchange rate of the Iraqi dinar against foreign currencies, especially the dollar, through auctions to sell currency, and through keeping a small margin of maneuver. As for the savings, investment, and consumption, as well as expenditures and revenues, these show a thorough diagnosis of the crisis. 


Section Two

Balance of payments indicators in Iraq


A simple review of the balance of payments in relation to its current account and capital would show that the first and most important aspect in Iraq is the balance of trade (import and export). As for the capital account, there was no capital inflows and outbound. Thus, the focus will be on the balance of trade in both export and import; it is also noteworthy to mention that during the years 2004 to 2016, domestic and international reports have failed to structure Iraqi exports due to their absence and unavailability. 

The exports mentioned are limited to oil and other minor things that are not worth mentioning. As for the implementation of the Herfindahl–Hirschman export index, it appears that under the absence of any exports within the Iraqi exports structure and the dominance of oil as the main commodity exported, the index could be closer to the integer, which means the absence of full diversification in exports, and this is what table three has shown.


Table 3

Structure of Iraqi exports for the years 2004-2020 (billion dollars)

HH index

Percentage

Non-oil exports/total exports

Non-oil exports

Oil Exports

Total Exports

Year

0,96

0,02

0,4

17,3

17,7

2004

0,96

0,03

0,6

18,4

19

2005

0,96

0,02

0,6

26,6

27,2

2006

0,96

0,02

0,7

37,2

37,9

2007

0,98

0,01

0,9

61,1

62

2008

0,96

0,02

0,8

45,6

46,4

2009

0,98

0,01

0,8

51,2

51,4

2010

0,98

0,001

0,2

79,4

79,6

2011

0,99

0,003

0.3

93,8

94,1

2012

0,99

0,004

0,4

89,4

89,8

2013

0,99

0,004

0,4

83,5

84

2014

0,99

0,006

0,3

46,2

46,4

2015

0.99

0,005

0,3

59,1

59,4

2016*

0,99

0,003

0,3

77,0

77,4

2017*

0,99

0,004

0,4

87,8

88,2

2018*

0,99

0,005

0,5

95,5

96

2019*

0,99

0,005

0,6

101,6

102,1

2020*

 

Source: IMF, Country Report IRAQ, 2010, 2015, 2016.


*Figures for the years 2016-2020 are IMF estimates in the 2015 and 2016 reports


An in-depth reading of the balance of payments clearly shows the dominance of oil exports over export activity, for oil exports exceeded 98% of total exports. The rest of the exports ranged between 1% and 2 % of the total exports, which means a near absence of this activity. On the other hand, importation focused on consumer goods with the absence of productive goods and production needs. This reflects the absence of local and international direct investment in Iraq as there has been no internal flow or an accumulated FDI balance. (8)

The Iraqi balance of payments for the mentioned period shows a highly risky, almost complete, dependence on oil revenues. The growth in the mentioned GDP represents a growth in oil revenues, and this is the result of profound economic indications, the most important of which is that the Iraqi economy has become subordinate to the oil market. This has already been proven since mid-2014 because as soon as oil prices fell, Iraq then faced a financial crisis.

The absence of financial resources, except oil, to finance the economy in all its activities, has made all economic activities and events in Iraq dependent on oil price. Since oil prices became an indicator of market variables and daily and annual fluctuations, or market cycles, revenues fluctuated and became volatile in the short, medium and long runs, which means that Iraq will have to face a twofold condition:  The first is fluctuating income and fixed obligations and receivables, which would lead to a deficit in the budget; while the second situation is the accumulation of deficit, which may lead to a problem of liquidity and to t Iraq being unable to pay its obligations and dues day by day and month by month and year by year. There would also be a weakness in the relationship between GDP, growth rates and the price of oil; and what justifies the steady increase was the increasing production as well as the increasing price of oil.


As for the absence of a strategy for economic diversification, whether in production or foreign trade, and the absence of foreign direct investment, it can be explained by many political, security and economic reasons that the government has not been able to address. As for imports, the balance of payments data are symptomatic of the situation of the trade balance of exports and imports and the situation of the external balance, which has a negative index. (Table 4)


Table 4 

Some balance of payments indicators


 

Year

Trade Balance

Exports

Imports

Foreign Balance

2013

9,9

38,3

-28,4

-1,3

2014

11,2

40,6

- 29,4

-10,3

2015

0,1

31,1

-31,5

-7,1

2016

-0,3

30,4

-29,0

-3,5

2017

-0,8

32,8

-30,5

- 2,3

2018

1,3

32,6

-28,8

-3,3

2019

2,2

29,7

-27,3

-0,3

2020

2,8

28,9

-25,9

-0,1

2021

3,2

28

-24,8

0,9

Source: IMF Reports 2013, 2015 and 2016


Table 5 shows Iraq's import structure for the period between 2010 and 2018, the actual one and the predicted one, and its distribution between government imports and private sector imports, and how private sector imports dominated government imports. (Table 5)


Table 5 

Government and private imports in Iraq (billion dollars)

 

Year

Import

Governmental

Public Sector

2010

-42,4

- 14,7

-27,8

2011

-45,7

 -16,1    

- 29,6

2012

-62,8

 -23,3

-39,3

2013

-  72,6

 -30,3

-72,6

2014

-79,1

 -31,7

-79,1

2015

-86,6

 -36,6

-86,6

2016

-94,2

 -39,0

-94,2

2017

-104,5

 -41,0

- 104,5

2018

-113,2

 -44,9

-113,2

Source: IMF Reports 2013, 2015, and 2016.


The export structure is illustrated in Table 6 and consists of oil and non-oil exports, which constitute only a small amount, indicating that exports concentrated on crude oil and how they developed during the period 2004-2018 (Table 6)

Table 6

Iraqi exports between 2010 and 2018 in billions of dollars

 

Year

Export

Crude Oil

Other exports

2004

17,7

17,3

0,4

2005

19

18,4

0,6

2006

27,2

26,6

0,6

2007

37,9

37,2

0,7

2008

62

61,1

0,9

2009

46,4

45,6

0,8

2010

51,4

51,2

0,2

2011

79,6

79,4

0,2

2012

94,1

93,8

0,8

2013

101,6

101,1

0,5

2014

109,1

108,8

0,5

2015

118,1

117,5

0,6

2016

127,6

127,0

0,6

2017

139,9

139,2

0,7

2018

152,6

151,7

0,9

Source: IMF and Central Bank of Iraq reports, 2016

Section Three

The general budget of the government and changes in oil prices

A reading of the Iraqi budget with its revenues and expenditures shows two important aspects: first, that oil revenues occupy the largest proportion of the total budget revenues, and secondly, the salaries and wages, called the expenditures of personnel working in the budget, constitute the largest and most important part of the expenditures. To discuss these two issues, we must take a look into the structure of revenue and expenditure of the Government's general budget as shown in Table 7.


Table 7

Income and expenditure in Iraq

 

Year

Revenues (million dollar)

Expenditures (million dollar)

Surplus / deficit (billion dollars)

2004

29,8

45,2

- 15,4

2005

40,4

26,6

- 13,8

2006

58,3

50,3

8

2007

54,9

31,7

23,2

2008

80,6

56

24,6

2009

55,1

54,6

0,5

2010

73,6

80,3

-6,8

2011

104,6

94,3

10,3

2012

119,4

109

10,4

2013

115,4

131,2

-15,8

2014

104,4

119

-14,6

2015

61,6

90,7

-29,1

2016

81,7

103,1

-21,4

2017

104,6

113,7

-9,1

2018

119

113,8

5,2

2019

129,9

119,6

10,3

2020

138,9

125,3

13,7

Source: International Monetary Fund, Country Report IRAQ,  2013 ,2015, 2016.

Some indicators of the general budget of the Iraqi government:

1. Financial indicators:

Table 7 shows the revenues and expenditures for the year 2015 until 2020 in the Iraqi budget and the size of the expected deficit. The table also shows the aggravation of the problem in 2015, which was a reflection of what Iraq went through after the fall of Mosul and also the repercussions of the decline in oil prices and their direct impact on revenues and expenditures. A deficit in the budget amounted to nearly 35 trillion Iraqi dinars. The government then moved to address the effects of these shocks by reducing expenses and trying to get more revenue.


Table 8 shows the expected expenditure structure of the Iraqi government, which is divided between current expenditures, with salaries accounting for 46% of GDP in 2014 and 44% in 2015. Pensions accounted for 12.2% in 2014 and 11.7% in 2015. Investment expenditure slowed down in its growth for the years 2014 and 2015, and the rest of the expenditure also distributed on goods and services as two chapters of the general budget of the Iraqi government.


Table 8

Iraq expenditure structure index (billion dollars)

 

Expenditures

2012

2013

2014

2015

2016

2017

2018

Current

75.5

83.7

68.8

74.0

77.9

74.5

76.6

Investment expenditures

33.6

47.6

49.4

43.9

45.2

48.0

54.2

Total expenditures

109,0

131,2

118,2

117,8

123,1

122,5

138,8

Salaries

28.5

32.5

31.8

32.6

33.0

34.0

35.0

Retirement

6.4

8.6

8.4

8.7

8.8

9.0

9.3

Goods and services

17.4

16.3

9.1

11.4

11.7

13.1

14.5

Investment expenditures

33.6

47.6

49.4

43.9

45.2

48.0

54.2

Source: International Monetary Fund, Country Report IRAQ,2015.

It is clear from the above table that the problem lies in cash and cash management as a result of the budget deficit, and since the work in the budget is based on cash inflows and outflows, that is to say the control of the currency in circulation, i.e., the problem had to do with local currency itself rather than with the availability of foreign exchange, what the government faces today is its inability to pay off obligations because of the limited amounts of cash available. With the availability of foreign exchange (the dollar), the government can sell more dollars to get cash to pay its obligations, which is not available. This means that the problem the government faces lies in liquidity, i.e., its inability to pay off its obligations, and this is due to two reasons. The first is the problem of managing cash within Iraq, and the second is the lack of available foreign currencies due to the drop in oil prices, which in turn leads to the decline in the balance of foreign exchange in the Central Bank, hence solutions were sought following these two directions. Table 9 shows the continuous decline in actual and predicted foreign exchange reserves in Iraq and how they began to decline from 2013 and what is expected in these years until 2021.


Table 9

Iraq's foreign exchange reserves expectations (billion dollars)

 

Year

Reserves from foreign currency

Percentage of reserves of currency / GDP

2013

77,8

2014

66,7

2015

50,4

2016

41,5

2017

41,5

2018

39,0

63%

2019

35,0

2020

31,0

2021

36,0

53%

 

Source: IMF, IMF Country Report No. 16/379, p13.

The government has sought to obtain more revenues domestically, and this was reflected in its quest to increase the fees for electricity. This enabled the government to reach 2.5 trillion dinars of revenues in 2015. It also improved its expenses strategy to achieve 9 trillion dollars in revenues. However, it also failed to implement the customs tariff, which is the most important in its quest. Hence, the government has reduced expenditures to reach 58% of GDP in 2015, which is 4% lower than that of 2014, as the ratio of spending to GDP reached 62% in 2014. All this amounts to a budget deficit of 17% of GDP [9].


There have been efforts and attempts to work on increasing funding sources. The first action it took, accordingly, was to borrow from government banks supported by the Central Bank. This was through deducting bonds amounting to 9% of GDP in 2015. The government also followed other directions, including withdrawing 830 million dollars from the Iraqi Special Drawing Rights, and it also has plans to issue Eurobonds worth 6 billion dollars, at least two billions of which were to be issued by 2015. (10) 


The World Bank has contributed $ 350 million in an emergency loan in a $ 1.5 billion loan package. However, all of these funds were not enough to meet the government's financial need, and there will always be a gap of 7 percent in gross domestic product. Therefore, the government is seeking to issue national bonds. The government is however failing to reduce the current expenditure of the budget, along with its failure to implement trade tariff systems and its failure to collect its dues, the simplest of which are electricity bills and public services that are considered primary debts. Still, the issue is political rather than economic. Hence, the government's hand is manacled as it cannot enjoy its assets and public dues because of its failure to develop its public services programs.

Performance and Rights Indicators:


After a comprehensive review of the general budgets of the Iraqi government for the years 2006 to 2016, one can highlight the weakest spots that resulted in a major imbalance in the Iraqi economy. The people of Iraq are now paying the price for mistakes they had nothing to do with and that were the result of miscalculations and mismanagement, namely: 

1. Budgets available and documented for the years 2006 to 2016 except for 2014 when the parliament did not ratify and which were illegally implemented were based mainly on oil revenues, the proportion of oil revenues was close to 90% of the structure of total revenues, and oil prices were rising steadily. The growth of total revenues led to significant growth during the years 2006 through 2013, up to 10% per annum.

2. The expenditures clause showed a significant and steady growth at the level of the budget estimations of the annual growth rate of approximately 10% per year for the same year. What can be noted, in fact, is the gap between the estimated and actual expenditures as estimated expenditure was far greater than the actual one, especially after 2010 until 2014.

3. The budget, with its expenditures and revenues, showed a deficit from 2006 until 2016 as shown in table 10. So does the comparison between actual revenues and actual expenditures until 2012 and how the surplus was converted to deficit between 2013 and 2015, which indicates a significant imbalance in the budget preparations and a failure to implement them. (Table 10) 

Table 10

Estimated and actual revenues, estimated and actual expenditures, deficit and surpluses in Iraq for the years 2006-2016

 

Year

Estimated revenues as in the budget

Actual revenues

Expenses

Actual expenses

Deficit or surpass

Deficit or actual surpass

2006

45,4

58,4

50,9

49,7

-  5,5

8,7

2007

42,1

59,8

51,7

52,9

 - 9,6

6,9

2008

50,8

86,4

59,9

77,7

-  9,1

9,4

2009

50,4

Not available

69,2

76,3

-   18,8

Not available

2010

61,1

73,6

84,7

80,3

- 22,9

6,7

2011

80,9

104,6

96,7

94,3

-  15,7

10,1

2012

102,3

119,4

117,1

109,0

- 14,8

10,4

2013

119,3

115,4

138,4

131,2

- 19,1

-15,8

2014

135,8

104,4

129,3

119,0

 5,5

-14,6

2015

94,1

61,6

114,5

90,7

 -25,4

-29,1

2016

81,7

-

105,9

-

  -24,2

Source: Iraqi budget for the years 2006-2016 - IMF 2013; 2016

The assessment of the general budget of the Iraqi government for the years 2006 to 2016 can be analyzed in relation to the economic policy through which we can assess the economic and financial situation in Iraq. Table 11 shows the distribution of expenditures on different sectors, which indicates the where the government was heading to.


Table 11

Distribution of government budget expenditures to sectors (billion dollars)

 

Year

Security and defense

Education

Energy

Environment and Health

Social services

Water and  sewage

Transportation

Agriculture

Industry

Habitation

Culture

2011

14,1

9,4

3,6

6,2

12,3

0,2

1,1

1,9

2012

17,1

11,4

20,4

5,7

15,5

3,8

1,1

2,4

1,4

1,1

2,3

2013

19,7

12,7

29,4

6,8

17,7

4,2

1,8

2,7

1,7

1,6

2,3

Source: Iraqi General Budget; 2011-2013

Evaluation of some of the concepts that are related to the Iraqi budget:

There are misconceptions such as the ones that revolve around the concept of social benefits. For example, in the budget of 2008, article 29 states the following: The social benefits for the three presidencies (the Council of Representatives, the Ministers and the Presidency) are divided according to the following regulations, and it mentions details about the rewards, treatment, charity and civil society organizations... In this case, the legislator of the budget has fallen into a serious misconception in terms of what is meant by Social Benefit. In this context, the legislator means by this concept the rewards that the three presidencies grant for their employees and their health care. This is out of the context of the governmental administrative work. In addition, the legislature permitted the three presidencies to establish and support the civil society’s organizations that work under those authorities. This is against the law, because those rewards would direct those organizations to work for the benefit of the three presidencies. This is contrary to the most basic values and legal principles where the public funds are directed to private interest. This is a corruption itself, knowing that all of that is legal and provided by the Parliament, which is the highest legislative party in Iraq. In addition to that, through articles 32 and 33 of the Budget Law of 2008, the legislator works on implementing and facilitating the compliance with this law and this means legislating for corruption and legal misappropriation of the concept of social benefit. Therefore, the legislator took this into account, and cancelled the social benefits of the three presidencies in the budget law of 2011 in Article 22 (11).

After counting the presidential allocations for the three presidencies, we found that they constitute 4 - 5% of the estimated and actual expenditures budget for the years from 2011 to 2013. This means that there is an average of 5 billion dollars allocated to the three presidencies. In contrast, how these allocations are distributed and the number of beneficiaries still remains unclear. This is a very risky matter in terms of the distribution of income, since just a small group of Iraqis get a very big share of this money given that they work in one of the  three presidencies and given that this distribution as a whole distinguishes Iraq from all other nations in the world because of the absence of clear governmental administrative and organizational structure, knowing that there is an intentional distinction between different  ministries and government institutions in the budget items. Most importantly, these presidential allocations appear to be larger than the expenditures that Iraq allocates for agricultural, industrial, construction and housing sectors, which did not reach a total of 5% of the government’s total expenditure budget for the years 2011 to 2013 (12).


Table 12: Allocations of the three presidencies in the general budget of the Iraqi government for some years between 2006 – 2013

 

Year

Presidency of the Republic (million dollars)

Prime Ministry (million dollars)

Parliament

(million dollars)

Total (million dollars)

The budget’s expenditures (billion dollars)

Percentage of the total / the total of expenditures in the budget

   2006    

 

 

 

 

50.9

 

   2007    

 

 

 

 

51,7

 

   2008    

130

1833

400

2,363

59,9

4%

   2009    

 

 

 

 

69,2

 

   2010    

 

 

 

 

84,7

 

   2011    

201

3350

822

4,373

96,7

5%

   2012    

120

4050

893

5,063

117,1

4,3%

   2013    

195

4322

808

5,325

138,4

4%

Source: The Iraqi general budgets for the years from 2006 to 2016

Through the budgets of the years from 2011 to 2013, it is noticeable that there was a lack of strategy for the government’s budget. This is reflected in the fluctuations of numbers and allocations. The security and defense sector had a large portion of the allocations, in addition to the energy and education sectors. For example, the security and defense sector’s allocations for the years from 2011 to 2013 reached around 51 trillion dinars (about 42 billion dollars). The energy sector’s allocations for the same period reached around 34 trillion dollars (about 30 billion dollars). Through a simple comparison of the results of these allocations, one can notice several challenges including Mosul’s fall under the control of ISIS in 10 June 2014 along with the third of Iraq, and the continuous degradation in education in terms of performance, the number of schools, the low education quality, and the serious lack at the level of their infrastructure. What does this mean? And how could the government’s work and activity be evaluated, while it did not take into consideration the simplest future matters did not take the necessary precautions and did not possess or acquire the minimum basics for governmental administration?

The budget and the large inequality between operational expenses and investment expenses:

Another remark that can be made on the budgets from 2006 to 2016 is that investment was overlooked. Allocations to investment were considered to be lower than the operational expenses. This indicates that the government’s attention was totally directed towards the operational side without focusing on investment which is normally a key element of any economy. It was only by 2014 and the years that followed that the government started to realize that it committed a huge mistake against the Iraqi people’s financial and material resources and future.  

Table 13 shows that the operational and investment expenses of the Iraqi budget reached around 900 trillion dinars, except for the budget of 2014 whose bill was not ratified by the Parliament. Henceforth, the operational expenses reached 625 trillion dinars (around 600 billion dollars), while those on investment were 272 trillion dinars. Therefore, investment expenses constituted 30 percent of the total expenses, while the operational expenses constituted 70 percent of the total expenses (Cf. Table 13).

Table 13: Operational and investment expenses of the Iraqi budget for the years 2006 – 2016

Year

Operational expenses (billion dollars)

Investment expenses (billion dollars)

Total (billion dollars)

Percentage expenses / the total of expenses

  2006    

41

9

50

18%

  2007    

39

12

51

24%

  2008    

44

15

59

25%

  2009    

54

15

69

22%

  2010    

60

24

84

29%

  2011    

66

39

96

40%

  2012    

80

37

117

32%

  2013    

83

55

138

40%

2014   *

 

 

 

 

  2015    

78

41

119

35%

  2016    

80

25

105

24%

Total

625

272

897

30% (average)

 

Source: The Iraqi general budgets for the years 2006 to 2016

* The budget bill did not go through the Iraqi Parliament and therefore was not legal.

The Discussion of the issue of spending and its impact on the economy is very important in economic literature and theories. The question to ask here is why was this fruitless during the years from 2006 to 2016 in Iraq? Where did all of those investments in the different sectors go if they were really spent in investment projects? And where are these investments’ direct and indirect tangible and intangible revenues? If we take into consideration the fact that every investment shall generate a revenue, and that the money you invest now is meant to bring you more money in the future, this would ultimately entail looking for around 250 billion dollars that were spent on investment projects and that did not generate any output or revenue. This might be odd and strange, and it is not possible to create a model out of a phenomenon whose variables are not known. What one can actually know is that those investment expenditures should have generated revenues if they were really spent. Therefore, the question has to do with whether they were really spent or whether they have disappeared somewhere.

Concerning operational expenses, they consist of the expenses of the employees including salaries, allocations and similar expenses that are stated in the first chapter of the budget law. There are services, commodity, and maintenance requirements, and they formed around 600 billion dollars. Most of these expenses are spent on employees and workers in the Iraqi government to provide services. . They also play a vital role, among other factors, in stimulating demand in the economy, since most of these expenses are either spent in the market or saved. The expenses that are spent in the market constitute a very huge portion because there is an amount of money that companies and individuals save in savings companies and similar companies. Where have those savings gone? And if we concede that they consist of deposits and savings in the banking sector, here, it is crucial that this sector be checked and in particular, it is important to examine the amount of savings in it. Contrary to that, those savings were transferred to be banked in markets and companies that are outside Iraq. This would require an examination of the amount of foreign remittances, but these remittances were in fact transferred via clandestine economy channels.

Based on the aforementioned, this matter requires the examination of the expenses budget, the volume of imports, and the volume of dollar sales executed by the Central Bank which it sold in the currency auction. This is shown through table 14, whose data reveal a comparison of the volume of imports, total oil revenues and the volume of dollar sales for the years from the years 2010 to 2015, and the correspondence between the dollar sales and the volume of imports which implies that most oil revenues go to imports. 

Table 14: The volume of imports, total oil revenues and the volume of dollar sales of the Central Bank (in billion dollars)

 

Year

Volume of imports

Total oil revenues

Dollar sales

  2010    

42

59,9

36

  2011    

46

93,4

40

  2012    

63

109,4

49

  2013    

67

105,7

52

  2014    

67

98,5

53

  2015    

50

55,1

44

An accurate interpretation of those numbers shows the huge risk that the Iraqi economy might have had to run. One can say that those numbers cannot reflect these economic risks, for the economy has its own laws, codes and dynamism. It is possible to respond to that by saying, let’s get back to the percentages with which most economists deal and which are shown in table 15 and the percentages of the central bank’s dollar sales compared to oil revenues. (Table 15)

Table 15: Import rates, oil revenue and dollar sales / GDP

 

Year

Import rate / Domestic Product

Oil revenues / Gross Domestic Product

Percentages of dollar sales / total oil revenues

  2010    

32%

38%

60%

  2011    

26%

44%

43%

  2012    

29%

44%

45%

  2013    

29%

39%

50%

  2014    

30%

38%

54%

  2015    

29%

36%

80%

 

Source: The Iraqi Central Bank’s reports of the years 2009 to 2016.

The increase of the import or export rates in relation to the gross domestic product in an economic openness criterion, since when the trade balance bases the import on oil, which is the most important constituent, and which reaches 98 percent of the volume of exports, and when most of the import consists of consumer and food products, then, the trade issue, its relation with the domestic product, and the issue of openness are nullified; they rather become an issue that hinders the country’s economic activities and make it dependent on import to meet up with its requirements, including its food requirements. Henceforth, a circle is formed that consists in bringing in oil revenues to Iraq and bringing them out through import. Any other economic mechanism thus becomes absolutely valueless and stale especially the issue of investment, saving, profit margins, employment, etc.  

The corruption phenomenon is the Iraqi economy’s most serious challenge

Iraq’s political history during the previous six decades has been characterized by violence, instability, and radical changes, especially after the occupation in 2003. Violence and racial and sectarian polarizations have emerged. In spite of the Constitutional Democratic Union Federal System agreement, reality has shown that there is conflict, especially when the Prime Minister gathered all different powers in his hands, particularly the military and the general intelligence, to build the state himself. Even though the years from 2003 to 2011 where full of violence, the occupier has been the objective and the tool at the same time, and has been always subjected to control and accusations. As soon as the occupier left the country, the prime minister took over decision making and put all the issues at stake under the umbrella of his regime that was then called the Office of the Prime Minister.

In 2003, the occupation worked on creating a suitable environment for corruption and provided more chances for the corrupt in a way that exceeded what has been prevailing before 2003 (Foreign Policy 2012). In addition, it created a huge gap between the regulatory institution and spending, which facilitated the expansion of the unregulated system in the economy, and the oil price has been a favorable factor in light of the disintegration of  the regulatory system was witnessing and the prime ministry’s infringement of the legislations, financial laws, and appropriation of national banks to cover corruption and its channels (13).

The failure of the Iraqi government’s economic policies during the years from 2003 to 2014 was reflected in two shocks that shook the Iraqi economy. This failure consisted in the absence of any investment of financial, economic, human, and natural resources that Iraq possesses. All what happened was that the financial resources of the oil revenues were deployed within the government’s general budget, ongoing operational expenses, and governmental investment expenses in a conventional pattern. The failure was reflected in several fields that have been documented by local and international reports:

1.     The government has failed in restructuring the public, private and mixed economic sectors in a way that would support the productive commodity economy. Problems that Iraq has been facing for years have remained, including the huge expenses of the public sector and its institutions that have been a burden on the government since the 1980s. In addition, the government has failed in activating the mixed sector and ensuring its role in the economy with no consideration for the private sector and its organization.

2.     The government has failed to form sovereign investment funds to take advantage of surplus financial resources at a time that was considered as an opportunity for Iraq because of the steady increases in oil prices for the period 2005-2014. The government has failed to regulate accounting and monitoring and reports that disclose the financial and governmental performance were absent in light of the political interferences that affected the status of independent institutions, on top of which is the Iraqi Central Bank.

3.     The government has failed to document its financial and real estate resources, while it has failed in implementing the two laws of customs tariffs and taxes on income, real estate and legacies. In addition, the Iraqi government has failed to control its border passages that link Iraq with neighboring countries and through which most of Iraq’s imports pass.

4.     The government has focused on governmental use of the young people’s human resources to an extent that it became a burden on the government’s general budget, in light of the total absence of any production activity of goods or services, and this was limited to governmental service institutions which were burdened with huge numbers of employees, in addition to a total regression in the basic governmental services. At the same time, there was a lack in the technology used, especially in the basis of government services. In addition, corruption and illegal practices have spread.


Chapter Three

Iraq's economic policies (options) and future scenarios in the next two decades of the 21st century

Section One

Financial crisis and security disasters: future implications and commitments

The great increase in the oil revenues, raised the Iraqi people’s optimism and hope after painful years of the siege. However, these hopes have quickly vanished, the Iraqi citizen has faced a shocking financial crisis and did not notice any improvement in public services which, instead, got worse. In addition, the level of living standards has decreased and the level of poverty has increased and huge variations between the social classes’ salaries emerged. These variations surpassed individuals to reach variations in the level of living standards from one province to another.

The Iraqi government’s financial performance is considered to be weak during the years from 2009 to 2014. Iraq has not been able to establish a financial system through taking advantage of the great increase of oil prices during around one decade and a half, knowing that oil has generated unprecedented huge revenues. In contrast, the government has spent more money, which made it face fiscal deficit of 5.8 percent of the GDP after recording little surpluses in some years that reached 4 percent of the GDP; this was in 2012. In return, oil needs of foreign companies with which the government has signed undisclosed contracts have increased. This forced the government to pay 6.8 billion dollars, in the first half of 2015, to those foreign companies and to pay 2.3 trillion dinars to local contractors, this formed 1 percent of the GDP (14).

The financial pressures that Iraq has been facing, and that have been clear in 2005, within continuous expectations of an increase in the oil revenues as a result of it decreasing prices, taking into account the government’s limited ability to reduce governmental expenses, along with the government’s increasing need for more military and security expenses, in addition to the urgent need for humanitarian governmental aids for the immigrants and displaced people, all of these factors made the government’s deficiency reach 17 percent of the GDP in 2015. As for the percentages of current account to the GDP, it has continuously decreased. It reached 6.7 percent in 2012, 1.3 percent in 2013, 2.8 percent in 2014, and 8.6 percent in 2015. This percentage is yet to decrease even more until the end of 2017 and the years after.

The International Monetary Fund has indicated that the decreasing oil prices, and the nature of the Iraqi economy which is characterized by the total reliance on oil revenues, in concurrence with the biggest security problem that Iraq has been facing, which is ISIS’s occupation of one third of Iraq, all of these factors led to more financial pressures, and caused a severe financial crisis, and there is no sign that Iraq might soon overcome it. What is the nature of these pressures? And does is represent a financial crisis that might be really called financial liquidity crisis? Despite of the treatments that the Iraqi government has undergone through imposing the procedures and increasing the public debt, they are still barely efficient as the International Monetary Fund indicated. The reason for this most often lies in the application of the procedures and not the procedures themselves, for the government is unable to apply its procedures and programs for security and political reasons on the one hand, and for structural reasons that are related to the structure of the political and economic system in force in Iraq on the other hand. Hence, the Iraqi financial crisis appeared to be complex in terms of its structure and ethical in terms of its characteristics, in light of the lack of full disclosure and the decreasing of external reliability before the internal one, taking into account that the management of the financial crisis is carried out in cooperation and discussions with the International Monetary Fund (15).

The Iraqi economy after 2003:

The Iraqi economy after 2003 can be summarized according to the following features:

First: since 2004 till 2017 Iraq has not adopted a precise economic policy that has a clear goal and specific paths. On the level of monetary policy:

If the International Monetary Fund has warned Iraq of a security risk in 2013, what this country has witnessed in 2014, including Mosul’s fall under the control of terrorism, the expansion of the terrorism that affected one third of Iraq, as well as the fall of six provinces and the government’s loss of control over them, were all indicators that the risk (the incident) has actually materialized, and this is what the International Monetary Fund had talked about and described as high risk. This downfall had huge repercussions on the financial sectors, including:

1.     One of the Iraqi Central Bank’s branches in the northern area was taken over by terrorism with everything it included, which has not been precisely determined but was estimated by one billion dollars. In addition, 78 banks in Northern provinces including the governmental banks that are affiliated to Rafidain Bank and Rasheed Bank, and the branches of Industrial, agricultural and real estate banks, in addition to a huge number of branches of private banks, all fell under the control of terrorism. The sums of money that terrorism has stolen are estimated by five billion dollars or more. What is even worse is that the regions’ citizens, who were either displaced, have immigrated, or have been caught under the control of terrorism, have become unemployed, including government officials and those who worked in the public sector or even the private sector.  Adding to that, professionals and small business owners were displaced. Agriculture, trade, industry and services have also witnessed a regression, and so the Iraqi society has become unemployed, displaced and split. Everybody lost their bank savings and all deals and businesses were disrupted. All of this indicated that the economic activity in one third of Iraq has been hindered, which caused a very tragic disaster that affected macroeconomic indicators in the GDP, the expenses budget, and the government’s general budget (16).


2.   Estimations of financial costs that the economy and society have borne in the occupied territories varied. The government quickly cut all the salaries and financial aids for the occupied territories’ residents under the pretext that they were financing terrorism. All the bank accounts of individuals, companies and organizations in the occupied territories have been deactivated. Here, it seems that all the estimations were not precise, especially those that the International Monetary Fund has mentioned in its reports. How would it be like if about one third of citizens, one third of the country and one third of its human resources were all obstructed; if a good deal of the infrastructure, the residents’ houses, the government departments, and the public and private factories were all demolished; if terrorists robbed all the money to finance their activities here and there? All of this was not mentioned in the reports of the International Monetary Fund of 2014, and it later started to be clear in the Fund’s reports of 2015 and 2016, and so the estimations have consecutively changed. A period of time has passed after the crisis, and the International Monetary Fund has ignored the Central Bank’s failure to apply the controls and standards that are considered to be binding in their implementation even after these cities and regions were liberated.

3.     The Central Bank has failed to reconstruct the governmental banking sector, especially in defining the type of ownership. Government banks still hold more than 90 percent of the banking sector’s assets and liabilities, and still have no legal form of ownership that proves the ownership of the capital, since they are neither companies nor government work departments. This requires reconstructing them to become companies and to issue money notes that prove their ownership of the capital, through which it would be possible to estimate the value of these banks and only then would it be easy to capitalize and recapitalize them to become companies which would gain their clients’ trust. In addition, the Central Bank has failed to increase the capital of private banks or integrate them to overcome the disadvantages that the clients suffer and to gain their trust and move from family banks to banking companies that separate management from ownership. Adding to that, the Central Bank has failed to establish an information system, to move towards information technology, and to develop techniques that contribute to improving services and linking banks to practical networks in settlement, clearing, payments, receipts, discount and acceptance via the Internet or mobile phone or other modern developments that provide citizens with easier services.

4.    The public and private banks have failed to gain communal trust including individuals, companies and economic departments. This affected the financial structures of these banks. The banks have also failed to apply the law of economies of scale, and so the dealing cost has increased. At the same time, the banks, especially the private ones, have turned into currency markets through the currency selling auctions and the networks they have established. As a result, the banks have turned from financial intermediation and services companies to currency selling channels, which provided them with adequate profit margins.

5.   The management policy of the exchange rate of the Iraqi dinar adopted by the Central Bank was successful in reducing inflation and checking the decrease of the value of the Iraqi dinar. This policy has succeeded in maintaining minor marginal changes in the currency value. However, subsequently, it caused some corruption channels to emerge. On top of these were some private banks that participate in the currency auction in the Central Bank. These banks managed to form networks to empty Iraq from foreign currencies, to impose high margins of selling currencies in the local market that reach 10 percent, and to smuggle interesting amounts of these foreign currencies (the dollar) outside of Iraq, under the pretext of covering the import credits (table 16).

6. The percentage of the dollar sales has varied compared to oil revenues, but there has always been an average of more than 50%. In other words, half of the currencies that enter Iraq are sold in public auction. In the years 2014 to 2017 very large sums of money were sold that way due to lack of liquidity of the Iraqi dinar. These private banks have served as channels to provide liquidity (Iraqi dinar) for the government in exchange for its acquisition of the dollar from the central bank auction. (Table 16)

Table 16: Total oil revenues and dollar sales volume of the Central Bank (billion dollars)

 

Year

Total oil revenues

Dollar sales

Percentage

Oil revenues /GDP

         2010    

59,9

36

60%

38%

         2011    

93,4

40

43%

44%

         2012    

109,4

49

45%

44%

         2013    

105,7

52

50%

39%

         2014    

98,5

53

54%

38%

         2015    

55,1

44

80%

36%

         2016    

 

 

 

 

Source: Iraqi Central Bank’s reports for years 2009 to 2016

Second: At the level of the financial policy and its instrument, the government’s general budget, the second section of the report and after a comprehensive exposition of the Iraqi government’s general budgets for the years 2006 to 2017 and their content, one can deduce some important points that caused a major imbalance in the Iraqi economy. Today, the Iraqi people are paying a high price as a result of these miscalculated and undervalued mistakes.

Third: Concerning the expenses balance that allows us to know the volume of import and the volume of savings in the banking system. The third matter requires knowing the volume of the Central Bank’s dollar sales in the currency auction, since it is not possible to explain the increase of the percentage of import or that of export from the GDP following any economic openness criterion. Henceforth, a circle is formed that consists in bringing in oil revenues to Iraq and bringing them out through import. Any other economic mechanism becomes thus absolutely valueless and stale especially the issue of investment, saving, profit margins, employment, etc. The International Monetary Fund predicted that the balance of payments would again achieve a certain surplus in 2021. The IMF also said that everything is just mere speculation, and every speculation depends on the oil market and oil prices (17).

Section Two: Oil (Missed opportunities and minimum loss options)

The period from 2004 to 2017 could be divided into two sub-periods: one spans from 2004 to 2008 and another one that spans from 2009 to 2017. During the first period, the oil price has increased to reach 147 dollars for one barrel in 2008 and then has suddenly decreased to reach 60 dollars. As for the second period, the oil price has remained fluctuant, and then in 2014 it has decreased and then reached its lowest level at 20 dollars for one barrel in 2015. Oil price kept fluctuating between 40 and 50 dollars in 2017. (Table 17)

Table 17: Prices of Brent Crude Oil and Dubai Crude Oil between 2004 and 2017 in dollars

 

Year

Brent Crude

Dubai

         2004    

38,3

33,4

         2005    

54,4

49,3

         2006    

65,4

61,4

         2007    

72,7

68,4

         2008    

97,6

93,7

         2009    

61,8

61,7

         2010    

79,6

78,0

         2011    

110,9

106,0

         2012    

111,9

108,9

         2013    

108,8

105,4

         2014    

98,9

96,6

         2015    

52,3

51,1

         2016    

44,0

41,2

         2017    

54,0

54,0

Source: BP Statistical Review of World Energy Prices, June 2015.

* The stated numbers represent annual prices, what has been mentioned in the analysis was based only on daily prices.

In order to elaborate scenarios for the future of the Iraqi economy, it is crucial to take into account the oil market’s estimations. The Iraqi economy is a revenue-generating one that depends on oil in light of absence of investment and production. Hence, we will focus on the estimations of the oil market, through which it would be possible to elaborate on an economic policy that adopts investment to address the imbalance of the Iraqi economy in light of its revenue-generating nature, unilateral production, exportation, and budget funding.

A simple review of reports from a number of research centers about long-term estimations of oil prices, and basing on trusted data that are available according to the methodologies that are adopted by estimation experts of oil market which  are often based on international economic indicators, the production movement, demand and supply, and oil stocks, all of these are indicators of the continuous recovery of the international economy that would lead to an increase in global demand for oil, whose signs have started since 2017 and is expected to grow steadily.

The estimations of the US Energy Information Administration that the prices of crude oil, based on Brent Crude indicator, in accordance with Spot Market, would be around 75 dollars for one barrel in 2020. (table 18)

Table 18: Global predictions of crude oil prices in dollars

 

Year

2020

2025

2030

2035

2040

2050

Oil price (Brent Crude)

74.82

86,23

94,52

102,15

109,37

116,8

Source:  HYPERLINK "https://www.eia.gov/outlooks/aeo/data/browser/"https://www.eia.gov/outlooks/aeo/data/browser/#/?id=1-AEO2017 

Chul-Yong Lee and Sung-Yoon Huh have predicted the oil prices for the long term using scientific prediction methods (Bayesian Model), and put up the prediction’s results as follows:

Table 19: Oil price predictions of Chul-Yong Lee and Sung-Yoon Huh

 

Year

2020

2025

2030

2035

2040

Oil price prediction

62,6

89,3

116,0

142,6

169,3

Source:

Chul-Yong Lee and Sung-Yoon Huh, Forecasting Long-Term Crude Oil Prices Using a Bayesian Model with Informative Priors, MDPI, sustainability. 2017, 9, 190.

Regardless of whether the predictions were optimistic or pessimistic, and whatever the error ratio might be, and they are the same institutions that have predicted that the prices of crude oil would increase to reach 200 dollars per one barrel, others predicted more and others had optimistic predictions before the prices regress and decrease in 2014, all of this indicates that the market had, still have, would continue to have debated and controversial movement, rituals and mechanisms. This means that Iraq, until 2025 would still be under pressure of oil prices in spite of the huge increase of production, which represents Iraq’s strategic reservoir for future generations.

Section Three: Iraq and the corruption indicators

First: Iraq is a failure and a spot in the international corruption map:

Transparency International (TI) publishes an annual report on corruption in the world and its prevalence in societies and institutions according to known standards. The organization’s experts give each country a score of 1-10. The closer the country’s score to 10 is, the less corrupt the country is, and vice versa the more countries move away from the score of 10 and the closer to one the more corrupt they are.

The results of Transparency International show that countries that face long-term conflicts and the lack of some good governance mechanisms are the same countries where corruption is widespread. When state institutions are weakened or absent, corruption becomes uncontrollable and then public resources are wasted. This situation leads to instability and the spread of a culture of impunity. The organization adds that the spread of corruption also leads to a decline in the people’s confidence in the state’s institutions and emerging governments, which are supposed to preserve the state’s continuity and stability. This situation largely applies to Iraq, especially after 2003, which is at the bottom of Transparency International's corruption index, and so, it is one of the world's most corrupt countries and is expected to remain so for a longer period.

Table 20: Value of the corruption perceptions index for Iraq and its ranking at the level of the participating states

 

Year

Value

Rank

participating states

         2003    

2.2

115

133

         2004    

2.1

130

145

         2005    

2.2

141

159

         2006    

1.9

160

163

         2007    

1.5

178

180

         2008    

1.3

178

180

         2009    

1.5

176

180

         2010    

1.5

175

178

         2011    

1.8

175

183

         2012    

1.8

169

174

         2013    

1.6

171

174

         2014    

1.6

170

174

         2015    

1.6

161

167

         2016    

1.7

166

176

Source: Transparency International, Corruption Perceptions Index 2003-2016.  HYPERLINK "https://www.transparency.org/"https://www.transparency.org

Second: the level of corruption in Iraq:

The monitoring operations of corruption cases in Iraq are carried out by a group of regulatory authorities (Commission of Integrity, the Inspector-General's Office, the Judiciary, the Office of Financial Supervision, and the Parliament).

Commission of Integrity:

The Commission of Integrity is one of the most important anti-corruption institutions. It was established in 2004, in order to apply anti-corruption laws, apply public service standards and propose additional legislation when necessary. One of this commission’s duties is investigating all corruption notifications it receives and then refer them to the judicial courts as shown in Table 21:

Table 21: Number of notifications received by the Integrity Commission and cases referred to the courts for the period 2004-2016

 

Year

Complaints

Referred to the courts

2004 - 2005

576

26

                          2006    

2780

296

                          2007    

4993

95

                          2008    

1184

382

                          2009    

7797

889

                          2010    

8958

2322

                          2011    

12520

4365

                          2012    

8639

4278

                          2013    

2700

3486

                          2014    

1488

2879

                          2015    

1418

1404

                          2016    

2001

2057

Source: Commission of Integrity, annual report, 2006 - 2016

Thanks to the cases that were investigated by the Commission of Integrity and referred to the courts, it was possible to identify the amounts of money that were detected in corruption operations and were calculated by the Commission of Integrity according to the following table:

Table 22: The amounts of money detected in corruption by the Integrity Commission for the period 2005-2016 (billion dinars)

 

Year

Funds that the commission retrieved to the State Treasury

Funds on which judicial decisions have been issued

Funds returned during checking operations

The value of funds detected in corruption

2005

 

 

 

36.36

            2006    

            2007    

            2009    

12.23

2.256

0.935

15.42

            2010    

19.58

30.77

4.327

54.68

            2011    

0.41

3.467

58.32

62.2

            2012    

0.289

91.07

11.62

103

            2013    

1.054

4.923

0.344

6.321

            2014    

2.795

5.708

1.026

9.529

            2015    

37.53

63.28

1068

1169

            2016    

28.53

570.4

0.116

599

2005 - 2016

102.415

771.834

1145.187

2055.779

Source: Commission for Integrity, annual report, 2006-2016

Column 4 contains the total of what is included in the table from 2005 to 2016, calculated by the research team.

The detected amounts of money came from corruption operations that took various forms, including: deliberate damage to public money, negligence, exceeding the job’s limits, bribery, embezzlement, forgery, violation of orders, instructions, etc. Table 21.

Inspector-General's Office

The Inspector-General's Office was established in 2004. It is aimed at adopting an effective program to push the ministries’ to conduct a review, audit and investigation to raise levels of responsibility, integrity and supervision and to reduce the occurrence of acts of waste, fraud, misuse of authority, identification of unlawful acts and the fight against administrative corruption. Based on the corruption cases that have been reported to the Inspector-General’s office, it is possible to make an inventory of the volume of corruption funds through tables 23 and 24.

Table 23: Total corruption money in the cases of the Office of the Inspector General of the Ministry of Finance for the period 2009-2016 (billion dinars)

 

Year

Total funds of corruption cases against which judicial verdicts were issued

Funds that have been retrieved to the State’s Treasury

Total funds of corruption cases which are investigated or still under investigation

Total corruption funds

              2009    

15.082

2.963

14.535

32.580

              2010    

0.350

41.901

675.732

717.983

              2011    

364.860

4.545

65.506

434.912

              2012    

34.392

8.293

47.484

90.170

2014

1.242

308.093

121.497

430.833

              2015    

1,967.678

510.896

41.695

2,520.270

              2016    

187.607

55.887

163.193

406.688

2009 - 2016

2571.211

932.578

1129.642

4633.436

Source: annual report, Ministry of Finance, Inspector-General's Office, reports of 2009 – 2016.

2013: unavailable

Column (4): the content is calculated by the research team.

Table 24: Total amounts of corruption money detected by the Integrity Commission and the Office of the Inspector General / Ministry of Finance

 

Total funds of corruption detected by the Commission of Integrity

Total funds of corruption detected by Inspector-General's Office / Ministry of Finance only

Total detected corruption funds

2055.779    billion dollars

4633.436 billion dollars

6689.215 billion dollars

About 1.7 billion dollars

About 3.7 billion dollars

About 5.4 billion dollars

Source: calculated by the research team based on the previous two tables.

A United Nations report on corruption in Iraq indicated that there were deals of an estimated sum of 17 billion dollars that were stolen through oil smuggling, fake companies and contracts that have never been realized (18). The 2005 World Corruption Report also pointed to the corruption of the CPA and the Ministry of Commerce of embezzling 40 million dollars that were spent in oil-for-food allocations (19). All of these factors led to the spread of corruption in all the state’s sectors, especially security, service, health, education and political sectors, and to the smuggling of antiquities, paying for positions and fraud in all its forms, and even what is related to the citizen’s food. Table 25 shows corruption rates in government sectors:


Table 25: Corruption Rates in Iraqi Government Sectors

 

Sector

Corruption rates

Services sector

80.32

Security sector

75.56

Justice Sector

75.04

Foreign Policy sector

72.73

Economy sector

71.24

Healthcare sector

71.13

Agriculture sector

69.62

Social and Cultural sector

67.51

Education sector

66.96

Tourism and Religion sector

64.46

Source: Hassan Fares Abboud, 2014, evaluation of the level of corruption in Iraqi government institutions, Iraqi Anti-Corruption Academy.

Third: Iraq as Safe Harbor for Laundering Corruption Money:

After the occupation in 2003, Iraq was characterized by a complete absence of governmental control over all of its institutions, in addition to the subsequent destruction of the infrastructure and the total exposure of the Iraqi market to risks. Iraq became a favorable environment for corruption money laundering by protecting the members who were involved in this process and exempting them from legal accountability.

The stages of the money laundering process in Iraq are not complicated as the funds enter easily without going through the usual adopted stages because of the deterioration of the security situation and the inefficiency of the governmental control bodies, which makes the Iraqi economy susceptible to sabotage. Thousands of cases have been registered by some censorship bodies in central and southern Iraqi provinces, where people practice money laundering activities easily. The financial and banking sector contributed to this phenomenon by accelerating fraud, in addition to the automated cash transfer system, which facilitated the completion of suspicious money laundering transactions. The use of the Internet has also led to the expansion of fraud, for it was used by money laundering gangs to take advantage of the quick speed of cash transfers across the world, or between the accounts in one country. It has been found that 25% of emails sent between banks and people do not include detailed information about these remittances. The laundered money in 2006-2014 was estimated at 360 billion dollars (20).


Fourth: Corruption and Budget Mismanagement:

The size of the government's annual investment and operational budgets has increased. However, it seems that it has not borne any fruit on the ground. When calculated and juxtaposed to the implemented projects, it is has been noted that only 25% of these were spent and the rest were completely wasted. It was found that despite budget deficiency recorded in the last three years as a result of the decline in oil prices, it has achieved large financial surpluses for the years 2004-2013. This surplus could have been better exploited in various areas away from the channels of corruption, and these surpluses are a form of corruption in a revenue-generating economy such as the Iraqi economy represented by. See Table 26.

Table 26

 

Year

Total Income

Total Expenditure

Deficit or Surplus Value

Deficit or Surplus

 

2003

4096500

9232200

-5135700

D

 

2004

32982739

32117491

865248

S

Fiscal Surpluses between 2004/2013  130690446  Billion Dinars

2005

40502890

26375175

14127715

s

2006

49055545

38806679

10248866

S

2007

54599451

39031232

15568219

s

2008

80252182

59403375

20848807

s

2009

55209353

52567025

2642328

S

2010

70178223

70134201

44022

S

2011

99998776

69639523

30359253

s

2012

119466403

90374783

29091620

s

2013

113767395

106873027

6894368

S

2014

113840076

119127556

-5287480

D

 

2015

72546345

82813611

-10267266

D

 

2016

54409269

67067433

-12658164

D

 

 

Source:

1.    Central Bank of Iraq (CBI), database http://www.cbi.iq

2.    Central Bank of Iraq, Statistical Abstract of the Central Bank of Iraq, Special Issue, 2003.

3.    The Central Bank of Iraq, Annual Bulletin, various years.

4.    Central Bank of Iraq, the annual economic report of the Central Bank of Iraq for 2003 and early 2004, 2004 version.

5.    Ministry of Finance.


Section Four

Iraqi economy among debtor nations

Public debt is the government’s choice to finance its economy to make it face the financial crisis

After Iraq witnessed two shocks, the decline in oil revenues on the one hand and the terrorist occupation of one-third of Iraq on the other, the government put a number of measures to control expenditures and reduce the financial corruption that the government has been suffering from. These procedures continued to be implemented for the years 2015-2017. Deficit in accounts is expected to be funded through increasing indirect cash funding from the Central Bank of Iraq and the adoption of the withdrawal from the financial reserve and domestic and external borrowing. The total public debt rose significantly to reach more than 100 billion dollars. The ratio of public debt to gross domestic product rose to about 70% in 2016, 56% in 2015 and it is expected to rise to a higher rate in 2017(21) and 85% in 2018(22).  The Iraqi government has started to rely on public debt to finance its working budget as a result of the crisis it is experiencing and there has been considerable growth in the size of foreign and domestic public debt. See Table 27.


Table 27

Total public debt in Iraq for the years 2015 - 2021 (billion dollars)

 

Year

Public Debt

PubliC Debt Percentage/GDP

2015

137,5

55,0

2016

143,5

63,1

2017

167,3

61,9

2018

173,3

63,0

2019