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Political paralysis in Iraq hampers economic growth

A year since Iraq’s last elections, it remains without not only a new government but a budget too, obstructing much-needed reforms and infrastructure projects in the oil-rich but war-ravaged country.

Iraq has raked in huge revenues from oil exports this year, but the profits are locked up in the central bank’s coffers, which have amassed a colossal $87 billion in foreign exchange reserves.

The government can’t invest that money without an annual state budget — which Prime Minister Mustafa al-Kadhemi is not authorised to submit to parliament in his capacity as caretaker.

“Infrastructure projects require years of steady financial planning by government,” said Yesar al-Maleki, Gulf analyst at the Middle East Economic Survey (MEES).

“The political situation has caused a massive disruption that has further weakened Iraq’s poor standing with investors.”

Iraqis voted on October 10, 2021 in an early election triggered by a wave of protests that began two years earlier, condemning endemic corruption, rampant unemployment and decaying infrastructure.

The country has been mired in a seemingly impenetrable political deadlock since then, with rival Shiite factions in parliament vying for power and the right to select a new prime minister and government.

The impasse pits the powerful cleric Moqtada Sadr, who wants snap elections, against the Iran-backed Coordination Framework, which has been pushing to appoint a new head of government before any new polls are held.

Tensions boiled over on August 29, and more than 30 Sadr supporters were killed in clashes with Iran-backed factions and the army in Baghdad’s fortified Green Zone, which houses government buildings and diplomatic missions.

“The situation remains highly volatile,” the United Nations envoy to Iraq, Jeanine Hennis-Plasschaert, told the Security Council on Tuesday.

“Too many Iraqis have lost faith in the ability of Iraq’s political class to act in the interest of the country and its people.”

While the World Bank has offered projections of average annual growth of 5.4 percent between 2022 and 2024, it has also warned of the many challenges ahead.

“Further delays in government formation and in the ratification of the 2022 budget could restrict the use of the country’s revenue windfall from oil,” it said in a report issued in June, stressing that “new investment projects are put on hold”.

Without a budget for 2022, the government is bound by the provisions and rates set out in the 2021 budget, meaning public spending is extremely limited.

An emergency finance bill totalling 25 trillion Iraqi dinars (about $17 billion) was approved by parliament in June to ensure gas supplies and purchase grain for “food security”.

But the ongoing deadlock hinders “the creation of opportunities for economic growth”, Mazhar Saleh, the prime minister’s financial adviser, told AFP.

Still, some gas flaring projects launched by the oil ministry together with foreign companies are “moving at a slow pace”, economist Maleki said.

A $10-billion contract signed last year with French giant TotalEnergies is still in its early stages.

“The government is working to accelerate the work and remove obstacles” for the project, which includes processing facilities for flared gas and a solar power plant, said a source close to the project. Former finance minister Ali Allawi, who had prepared a reform plan that never materialised, blamed the “political framework” for obstructing progress.—AFP

Laure Al Khoury, "Political paralysis in Iraq hampers economic growth," Business recorder. 2022-10-09.
Keywords: Economics , Economic growth , Central bank , Political situation , World Bank , Economic survey , Mustafa al-Kadhemi , Yesar al-Maleki , MEES

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