Much like its neighbours the Iraqi economy is based on and driven by its oil sector. During the early 1970s the economy enjoyed the boom in the oil prices. Furthermore Saddam Hussein's development programs improved the status of the Iraqi economy during the same period. However Saddam's invasion of Iran on September 1980 produced a massive burden on the Iraqi economy. Expecting a quick win over the weakened post revolution Iranian army, Iraq's economy had to support the war costs for the next eight years. The cost of conflict on Iraq's economy increased even further due to Iran's attacks on Iraq's oil and heavy industries infrastructure. However the burden of financing the war against Iran was made easier by generous loans and grants from the Kuwaiti and Saudi governments who had a vested interests in keeping the Iranian government's political ambitions in the area in check. Furthermore generous credit packages offered by French and Soviet governments for the purchase of weapons from them also assisted the Iraqi war effort. At the end of the war in 1988 , the Iraqi economy was left with a bill close to $150 billion USD of damages caused against its economy.
The reconstructions efforts only lasted for 1.5 years before the Iraqi economy found itself having to finance the new war imposed by Saddam's regime, this time against Kuwait. This conflict caused a severe damage to the Iraqi economy due to the heavy US bombardment of Iraqi economic facilities, high toll of Iraqi casualties, as well as sanctions placed by the UN and US against Iraq's economy. Unable to fully re-start the export of oil until 1996, Iraq had to import food and medicine and to export oil in a clandestine manner through Syrian and Iranian ports, which charged high prices for their services. It wasn't until the UN oil for food programme of 1996 when Iraq became fully able to start exporting oil through its own ports again. Under the terms of the UN oil for food program Iraq was allowed to sell US$2 billion of oil every 6 months to buy food and medical item. However despite the ability to export oil the economy still suffered due to sanctions placed by the US and also the absence of demand from Gulf countries, especially Kuwait and Saudi Arabia. Furthermore the downturn in price of oil in the year 2000 – 01 caused further problems for Iraq's economy in terms of loss of revenue. Reduced export capability, a large cost of subsidy programme for the country's citizens and crippling debt lead the Iraqi economy into a state of contraction and high inflation. In the year 2002 alone the economy is estimated to have contracted by as much as 6% whilst inflation reached the 65%.
The US invasion of Iraq in 2003 caused a virtual shut down for the Iraqi economy. However it is interesting to note that the invading forces were careful not to cause damage against Iraq's oil infrastructure. Since the invasion, due to absence of security and loss of economic activity, it is estimated that Iraq's economy contracted by as much as 21% for the year 2003.
The following two factors
1.end of Saddam's internationally isolated regime
2.The Coalition and new Iraqi government's plans to reconstruct the economy as fast as possible as means of restoring economic and political stability in Iraq have both provided new impetus and optimism for the future of the Iraqi economy.
This optimism is confirmed by the following factors: The UN lifting of sanctions against Iraq following the passing of UN Security Council Resolution (UNSCR) 1483 in May 2003. This was an important step in allowing the reconstruction programme to start In October 2003, international donors pledged more than $33 billion toward the $55 estimated total costs required for rebuilding Iraq's economy. In other words 60% of the reconstruction needs has already been financed which in itself is a very important milestone. It is expected that the boost in oil prices during 2004 will assist the reconstruction program even further. Write off of 80% of Iraq's debts by the Paris club group of creditors The World Trade Organisation opening membership talks with the new Iraqi government
Although lack of security in the country is a major impediment for the reconstruction programme, nevertheless the sheer importance of this task for the stability of the newly elected government and that of its backers will mean that every effort will be made to reduce the security risks to the country's economic reconstruction. Furthermore the newly Iraqi government has also pledged to start the privatisation programme of the economy as an important lessons learned from Saddam's heavily bureaucratic and inefficient state controlled economic system. The government's commitment to improving the macroeconomic environment is confirmed by such measures as the the introduction of a new currency and new banking and tax laws.
The recent IMF growth forecasts for the Iraqi economy which consist of 52% expected growth for the year 2004, 17% for the year 2005 and average 10% a year for the years 2006-9 confirm the international community's confidence in the future of Iraq's re-born economy.
By: Meir Javedanfar Back |
