By Ali Mamouri, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
Iraq’s economic crisis is about to get worse. The government, which relies on oil for 90% of its revenue and 80% of foreign exchange earnings, faces plunging oil prices combined with rampant corruption and the exorbitant cost of battling the Islamic State (IS). Iraqi officials must come up with solutions that take all those circumstances into account.
The country's economic problem is influenced particularly by two factors. The first is related to Iraq's socialist economic system and its absence of an economic infrastructure and free active market correlated with global markets. The Iraqi infrastructure is significantly damaged as a result of long-term wars and sanctions.
The economic system was mostly controlled by the government for more than half a century. Although the private market has significantly grown since 2003, it remains weak. Moreover, the local private market does not contribute to the global market.
The second factor is linked to the general political and social situation of the country, which experienced years of dictatorship, from the military revolution in 1959 until 2003 and under several regimes, the last being that of Saddam Hussein. The country also suffered sanctions imposed following Iraq’s invasion of Kuwait in 1990. The sanctions were gradually lifted beginning in 2003.
Various institutions have studied potential solutions to the crisis affecting all of Iraqi society. For example, the Washington-based Consultative Group to Assist the Poor suggests potential solutions in a blog series covering different parts of the Arab world. The organization noted that comprehensive solutions become difficult to achieve in countries plagued by conflicts and vulnerable economic structures. But it said microfinance — "providing credit, savings, payments and insurance to low-income households and small businesses — is one intervention poised to promote local economic activity and help manage economic shocks."