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The Iraqi economy is facing severe and pressing challenges. The decline in oil prices and the financing needs associated with the ISIS insurgency have contributed to a sharp deterioration of economic activity, public finances and the balance of payments. Macroeconomic risks remain elevated due to Iraq’s continued exposure to a volatile oil market. The government is facing the challenge of maintaining macroeconomic stability, undertaking structural reforms to improve the delivery of public services, and reconstructing core physical infrastructure amid ever-present risk of conflict relapse.
Iraq’s GDP per capita was estimated at US$6,147 in 2014, putting Iraq in the category of upper-middle-income countries. However, economic and security conditions in Iraq worsened since mid-2014, leading to increased poverty, vulnerability, and unemployment. The GDP per capita is estimated to contract to nearly US$5,000 in 2015. Economic growth is estimated to have contracted by 2.4% in 2014 and is projected to barely expand in 2015 (by 0.5%). Weak growth is mainly attributed to the non-oil economy which contracted by 7% in 2014 and is expected to decline by an additional 7% in 2015. The oil price and ISIS crises, combined with political instability in 2014, impacted private sector consumption and investment, and limited government spending, particularly on investment projects. The oil sector—critical to Iraq’s economy—has, however, continued to expand mostly thanks to the southern oil fields, which constitute 90% of production.
The severe decline in oil prices since the second half of 2014 caused oil export revenues to decline sharply. The fiscal deficit is estimated to increase from 5.3% of GDP in 2014 to 16% in 2015. The government introduced a fiscal adjustment plan in 2015 to address this situation, and the 2015 budget law contains a combination of revenue and expenditure measures. In the medium-term, fiscal performance will be driven by the structural fiscal reforms the government is undertaking.
Moreover, Iraq also faces severe security challenges. As a result of the ongoing conflict with ISIS, 17,168 civilians were killed in Iraq during 2014, according to Iraq Body Count. The number of civilian casualties continues to climb in reaching 7,899 civilians through the end of June 2015. It is estimated that 134,303 civilians were killed due to violence between 2003- 2014.
The population remains extremely vulnerable to the ongoing security problems and reduction in oil prices. Poverty levels have increased and now stand at 22.5% in 2014. The number of people living below the poverty line increased by an estimated 2.8 million by end-2014.
The 2014 crisis has led to an additional 800,000 people becoming unemployed. The displacement of more than three million Iraqis and some 250,000 Syrian refugees have further disrupted local economic conditions. The public distribution system provides the only safety net for the vast majority of the poor, and is currently being stretched to its limits in much of the country, and is not available in some governorates. IDPs are receiving cash grants of US$842 per month, but the 2.8 million new poor are left largely uncovered by any public safety net.
Source: World Bank Updated: September 2015
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