Iraq Economic Monitor, Spring 2021 : Seizing the Opportunity for Reforms and Managing Volatility
Recognizing the severity of the crisis, the GoI devised a national reform plan (the white paper) that sets out a old blueprint of structural reforms to achieve sustainable medium-term growth through economic diversification and boosting private sec...
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| Format: | Report |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/552761621369308685/Iraq-Economic-Monitor-Seizing-the-Opportunity-for-Reforms-and-Managing-Volatility http://hdl.handle.net/10986/35625 |
| Summary: | Recognizing the severity of the crisis,
the GoI devised a national reform plan (the white paper)
that sets out a old blueprint of structural reforms to
achieve sustainable medium-term growth through economic
diversification and boosting private sector growth and
private sector job creation. The GoI has also devised an
implementation and governance framework for the white paper
in which it proposed a detailed reform matrix and launched a
High Reform Council headed by the Prime Minister to
accompany the implementation. Actions have already been
realized starting with the reforms adopted in the 2021
budget law and other areas including in the business
environment and the financial sector. The ultimate success
of the reforms though depends on the political will and
public support to implement the proposed measures and lead
the country out of a long-standing fragility trap.
Iraq's economic outlook hinges on global oil markets
prospects, the implementation of the white paper reforms,
and on the evolution of COVID-19 (coronavirus). The economy
is forecast to gradually recover on the back of rising oil
prices and rising OPEC+ production quotas. GDP is projected
to grow by 1.9 percent in 2021 and 6.3 percent on average
over the subsequent two years (Table 1). Non-oil GDP is
forecast to recover in 2021, growing by 5.5 percent before
converging to historically low potential growth trend in
2022–23. The currency devaluation is estimated to push
inflation to 8.5 percent in 2021 due to limited capacity for
import substitution. This will present an additional
pressure on Iraqi households' wellbeing. The fiscal
stance remains expansionary with only limited reform
measures being included in the 2021 budget law after an
extended deliberation in the Parliament. Higher oil revenues
in tandem with the devaluation effect on those receipts are
projected to narrow the fiscal deficit to 5.4 percent of GDP
in 2021. Financing needs are forecast to remain elevated
compared to pre-COVID-19 levels, averaging at 13.7 billion
Dollars per year (7.5 percent of GDP) in the outlook period
(2021–2023). The 2021 approved budget includes limited
reforms such as new consumption taxes and better targeting
of PDS transfers which are in line with the GoI white paper.
If implemented they could help moderate the fiscal deficit
and exchange rate pressures. However, more structural issues
such as public wages and pension rigidities remain unaddressed. |
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