A Bigger Threat Than The Extremists: Iraq On Verge Of Economic Collapse?
The high cost of fighting the extremist Islamic State group, the worldwide decrease in oil prices, corruption and a lack of sensible economic forward planning mean that Iraq may be on the verge of major economic disaster.
Over the past week or so the Iraqi government has been busy discussing the state of the country’s economy. After a number of meetings with his new Cabinet, Iraq’s Prime Minister Haider al-Abadi announced that his government would be adopting a set of austerity measures. But the salaries of civil servants and the military were safe, he added.
Despite this though, many local economists and business people fear that an economic downturn is coming. There are several major issues with Iraq’s economy right now. The most important of these include fluctuations in world oil prices, the high cost of the current security crisis and the Iraqi military’s fight against extremists –plus the fact that the previous government, headed by former Prime Minister Nouri al-Maliki, never managed to approve 2014’s national budget.
International organisations also seem concerned. Last week the International Monetary Fund, or IMF, predicted that Iraq’s economy would shrink by 2.75 percent in 2014 – its first contraction since 2003and the US-led invasion of the country that wreaked major economic havoc.
Global oil prices have been declining for several months now and have dropped to around US$80 a barrel for Brent crude. Because most of the country’s income is provided by oil sales and the oil industry, Iraq is obviously impacted by falls in price.
Another problem lies in the way that the previous Iraqi government estimated its national budget. To come up with estimated incoming revenues, financiers would subtract US$15 off the real price of each expected barrel to be produced and sold.