Looking forward, a combination of revival in non-oil investment spending in 2017[ii] and the benefits following the peak of the war effort should be a positive economic driver for the non-oil economy in the immediate term. The effects of the conclusion of the Mosul campaign are a mixture of cuts in military expenses and a pick-up in reconstruction activities with their associated multiplier effects. While each on its own might be small, the whole of the parts will be greater than the sum of the parts as they will re-enforce each other.
The immediate effect of the peak in military activities will be the sharp cuts in spending on weapons and ammunition, estimated annually at USD 2.5 bn[iii] or 1.5% of GDP, but likely to be higher given the intensity of the Mosul campaign. A similar peak would be in the number of IDP’s and the costs of aid provisions for them.
Concurrent with the peak in military sending should be a multi-month reduction in the number of the Popular Mobilisation Units (PMU) as its members would seek a return to civilian life (annual bill estimated at USD 2.5 bn[iv] or 1.5% of GDP).
These cuts in expenses will be accompanied by the efforts to stabilize the liberated areas starting with clearing the wreckage of war, re-installing basic services, repairing and rebuilding of homes, businesses re-opening and all efforts at return to normality which crucially is coupled with an accelerated and unprecedented foreign aid led by the UN.
The immediate term benefits should be felt over the next few months as the economy is gradually liquefied, while in the medium-long term the country will benefit from the expansionary effects of the reversal of the forces that crushed it over the last three years.
The economic revival would gradually build momentum until the major post-conflict reconstruction process starts.
[i] Internally displaced Persons (IDP’s). Data on IDP’s from UNHCR, the UN Refugee Agency.
[ii] While it was planned for 2017 as a whole, it will likely unfold over the second half of 2017. Such capital spending will take time to move from the planning stage to the implementation stage given the chronic structural and institutional challenges that Iraq suffers from while at the same time all resources were focused on the battle to liberate Mosul.
[iii] The figure of USD 2.5bn was provided during a presentation by Iraqi government advisors in a recent conference. Data from the Stockholm International Peace Research Institute (SIPRI) for 2016 shows total military equipment spending at USD 6.2 bn but notes that data is highly uncertain.
[iv] As above the figure of USD 2.5bn was provided during a presentation by Iraqi government advisors in a recent conference.
Note: All economic data is from the IMF through the Iraq country report and WEO and REO databases.
Mr Tabaqchali is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets.
His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.