By Dr. Ali al-Rawi, for the Al-Bayan Center for Planning and Studies. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.
Urgent Monetary and Fiscal Reforms Amid Iraq's Oil Export Crisis and the Inflation of Operational Expenditures
Iraq is going through an economic phase that is one of the most sensitive stages in many years, not only because of traditional financial challenges, but also as a result of the coincidence of several complex crises at the same time, some of which are internal resulting from economic and administrative accumulations that have lasted for years, and some of which are external linked to the escalating geopolitical tensions in the region, which are directly affecting the stability of energy markets and the movement of global trade.
Over the past decades, the Iraqi economy has been built on one resource, almost the main source of the state's financial life: oil. Although this resource provided Iraq with huge financial flows in periods of high prices and political stability, excessive dependence on it has made the economy highly sensitive to any political, security or economic turmoil that may affect global energy markets. Countries that rely on a single resource often seem strong in times of abundance, but they become more fragile at the first real test.
Today, as regional tensions escalate and the potential for disruption or restriction of oil exports through the Strait of Hormuz, Iraq faces the exceptional challenge of fearing a decline in financial flows on which it almost completely depends for the financing of salaries, operating expenses, projects and public services. This scene is increasingly sensitive in light of the inflation of government spending, the high number of employees, and the accumulation of deferred financial commitments, in addition to the pressures that accompanied the delay in the formation of the government and the resulting slowdown in economic and reform decision-making.
The most dangerous thing for rentier economies is not only the decline in revenues, but also the loss of maneuverability in the event of crises. When the State becomes responsible for financing the bulk of economic activity and for the direct or indirect maintenance of millions of citizens, any disruption in revenue quickly turns into monetary, social and psychological pressure that extends to the market, the citizen and the investor.
Hence, the current stage not only requires temporary solutions or real-time solutions, but also a balanced reform vision that combines the protection of monetary stability on the one hand, and the start of real economic steps that reduce the fragility of the Iraqi economy in the medium and long term on the other. The major crises, while severe, can sometimes turn into a historic review moment that reorders priorities and pushes for a more stable and sustainable economic model.
Accordingly, this paper seeks to provide a realistic reading of the current monetary and financial challenges, with a set of urgent and applicable reform measures, with the aim of helping the new government to cross the current stage with the least possible losses, and to maintain economic and social stability in a highly volatile regional and international environment.
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