Raheem Salman Baghdad
In the past month, bombs exploding down the street from Fawzy Hassan’s snack shop in central Baghdad have frightened away many customers, and those who do still come are spending less than before.
The 73-year-old Hassan said: “People are suffering financially because year after year, making a living gets more difficult.”
Such gloom underlines a deterioration in Iraq’s economic prospects over recent months. A year ago, many Iraqis were optimistic that a long, oil-fuelled boom would raise living standards and, over the next decade, narrow the prosperity gap between Iraq and its wealthy Gulf Arab neighbours.
Now, rising political and sectarian violence is forcing businessmen to scale back investment plans and economists to cut growth forecasts.
“The security situation has killed the economy, investment, reconstruction and public services in Iraq,” legislator Nahida al-Dayani, a member of the economic and investment committee in parliament, said.
Analyst Maijd al-Swari from the Iraqi Economic Forum said prices were fluctuating chaotically and money was not being properly invested by the state.
He thinks one of the main problems is personal consumption, which should be a motor for the economy but has remained relatively sluggish even as economic output has grown – perhaps because worried Iraqis are saving instead of spending. Some savings are sent abroad for safety.
The country has one of the biggest reserves of crude oil and production has increased rapidly over the decade since the US invasion in 2003, causing gross domestic product (GDP) per capita to more than quadruple to $6 300 (R64 500) in 2012, according to the International Monetary Fund (IMF).
Partly because of the security crisis, economists have gradually scaled back estimates of Iraq’s future growth. In April last year, the IMF predicted Iraqi GDP growth of 13.5 percent this year and 11 percent next year; it now forecasts rates of 9 percent and 8.4 percent for those years.
Oil exports mean the country’s external position is comfortable enough to avoid heavy pressure on its currency; the IMF estimates Iraq’s foreign reserves at about $70bn, covering 10 months of imports – much higher than levels of three or four months for struggling states such as Egypt and Tunisia.
So even if security continues to worsen, Iraq may avoid the balance of payments and state budget crises suffered by other, resource-poor Arab countries caught up in political unrest.
But the violence may hurt Iraq’s long-term prospects by preventing wealth from spreading through society. – Reuters