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Surviving Daesh, Iraq is grabbed by debt spiral

Business | 2018-08-05 11:01:00
Surviving Daesh, Iraq is grabbed by debt spiral
   With 150 billion barrels of oil reserves, Iraq ranks third among world’s top oil producers
Already fragile and is largely dependent on oil revenues, Iraq’s economy has sustained a great damage after the rise of the Daesh terrorist group and simultaneous falling oil prices. 

As a result, Iraq’s debts have almost doubled for the past four years. 

With its 150 billion barrels of oil reserves, Iraq ranks third among the world’s top oil producers. Despite violence that is taking place in Iraq, the country’s oil production is now three times more than that of 2003. 

In addition to its oil reserves, Iraq has some 3.744 billion cubic meters of natural gas, according to OPEC. 

The International Monetary Fund (IMF) believes that Iraq’s oil-dependent economy has not made much progress due to insecurity and difficult work environment. Baghdad uses approximately 80% of its oil revenues, obtained through exports, to pay salaries. 

Compared to other oil-exporting countries, basic services such as health, education and electricity in Iraq are below average. The violence and challenging working climate have adversely affected the development of the private and financial sectors.

An earlier report by the World Bank cited power cuts, political instability, corruption and access to fiscal sources as the most prominent reasons preventing Iraq from developing. 

Iraq's debt history starts in 1980 

In 1980, former Iraqi president Saddam Hussein launched war against Iran, which lasted for nearly eight years and brought both economic and humane destruction upon both countries. 

According to official estimates by both Iraq and Iran, more than 500,000 have been killed during the war. 

With $35 billion in cash, Iraq, before the war, was one of the countries that provided loan for other countries. But the country’s economy began to plummet as a result of the war. The heavy cost of war and falling oil prices back then further weakened Baghdad. 

Paris Club, an informal grouping of creditor nations, provided credit worth $21 billion, but the amount grew to reach $40 billion in 2003 as a result of the interest rates. In addition to the Paris Club, Saddam Hussein also borrowed from banks and countries with the amount reaching $41 billion. 

Having lost $35 billion as a result of the war, Iraq's debt to international creditors, Paris Club and Gulf states reached $80 billion in 1990. 

Figures, however, did not give a clear picture about Iraq’s debts during the country’s war with Iran. 

A letter sent by the now-defunct Baath Party to the UN in 1990 pointed out that Iraq had a debt of $42 billion. 

IMF data, however, showed that Iraq’s war with Iran, the Iraqi occupation of Kuwait and war reparations have cost the country some $120 billion as of 2003. 

Following the 2003 U.S. invasion of Iraq, the Paris Club wiped off 90% of Iraq's debt; but, the other debts remain to grow even after 2003.

Current debt stands at $122 billion 

A 2017 Iraqi financial report showed that the country’s debts reached $122 billion, noting that the debt could reach $132 billion by the end of 2018. 

The report suggests that war-weary Iraq has $74 billion of external debt, which could be examined under four different points. 

Firstly, Iraq owes $41 billion to the Gulf countries, which was given to the Saddam Hussein regime during the Iraqi-Iranian war. 

Secondly, Iraq owes $6 billion to the Paris Club and this debt is restructured to be paid within 28 years. 

Thirdly, between 2006 and 2017, Eurobond provided $4.7 billion worth of loan to Iraq in three phases. 

Fourthly, Iraq, after 2014, got $22 billion worth loan from IMF, the World Bank and other creditors. 

In 2014, the Iraqi economy suffered from two issues: The emerge of Daesh terror group and the falling oil prices, which dropped from 102 dollar per barrel to 45 dollars. These developments have caused to increase Iraq's external and internal debt, which jumped from $74 billion in 2013 to $122 billion in 2017. 

According to the UN, five million Iraqis have been internally displaced since the rise of the Daesh and the number of needy Iraqis in the country reached 11 million.

Iraq’s GDP decreases 

According to estimates by the Iraqi government and IMF, Iraq’s GDP was roughly $234 billion before Daesh seized one-third of the country’s territory. 

The Iraqi GDP, however, regressed to only $192 billion in 2017 as a result of Daesh attacks and falling oil prices. 

The per capita income in 2013 was $7,000 while it hit below $5000 in 2018. 

Fourth in oil reserves 

According to OPEC data, with its 150 billion barrels of oil reserves, Iraq ranks fourth as of oil reserves, after Venezuela, Saudi Arabia and Iran. 

Iraq also ranks third when it comes to easy oil extraction after Kuwait and Saudi Arabia, thanks to the country’s soil structure. 

According to the IMF and World Bank, the lowest oil production in Iraq was recorded during the country’s occupation of neighboring Kuwait in 1991. Due to the UN-imposed embargo, Iraq was capable of producing less than a million barrels per day.

On the other side, the same reports suggest that, following the ouster of Saddam Hussein, oil production in Iraq gradually increased, reaching nearly five million barrels per day in 2018. 

Today, Iraq exports 3.8 million barrels via pipelines and tankers.

Corruption

Among 180 countries that face corruption, Iraq ranks 12th, according to the Berlin-based Transparency International organization, which monitors corruption worldwide. 

The organization claims that the Iraqi government is grabbed by corruption in almost every sector. Hence, even the provision of basic needs can't be conducted properly, posing a great threat to national security. 

According to the World Bank, one in every five Iraqis live on the breadline despite that Iraq achieved financial development between 2008 and 2012. 


Anadolu Agency
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