Iraq Current Economic Profile and Future Predictions

Iraqi NewsImproved security conditions and the foreign investment are helping the Iraq to get out from the hurdles, and to spur the economic activities, especially in the energy sector, the construction, as well as in the retail sector. The long-term fiscal health, the broader economic development, the sustained improvements in the modern living standards, and the way of life still relies on the government’s steps and passing the major policy reforms.

Oil is the major industry of the Iraq, and Iraq depends on the oil production economically. Oil sector provides more than 90% of the revenue while remaining 10% comes from the Textile, the Foreign Exchange Earnings, and the Foreign Investments, which help the government to run its operations, setting the new strategies, and achieving the fiscal goals. The rise in the oil prices have given the direct benefit to the economy of the Iraq, the revenues of Iraq have increased.

By keeping the historic review of the oil production of the Iraq, the production of the Iraq was on the highest level of the production in the 30 years i.e. 2.6 million barrels per day oil production, and this production was an average increase in a production of the oil in 2011 i.e. 2.2 million. Government of the Iraq has set out the new contracts with the large oil producing companies, which will help the Iraq to yield the more oil and the revenues. The contracts with these companies do not mean that the Iraq will achieve its all goals at once, but the Iraq needs to improve its infrastructure to improve the oil production, networking of the new pipelines, and the export infrastructure to process the exports in future.

These are the steps, which are the need of time, and Iraq needs to understand the importance of time to achieve its all of the goals. The provincial government of Iraq i.e. Autonomous Kurdistan Regional Government has set out a new law in 2007and directly signed more than 50 contracts with the international companies to develop the IKR energy resources. The federal government has raised the objections on majority of these contracts, and these disputes are still going on, because some of the areas are yet disputed, and boundaries need to be set out yet by the government.

In addition, progress of Iraq in solving these issues is very slow, which is directly affecting the economic progress of the country. Iraq needs to develop such institutions, which could implement the economic policies, maintaining the social stability, and to act like a bridge between the province and the Federal government. These are such issues; Iraq needs to think over it rapidly. There are still Lush Corruption, Insufficient essential services, Archaic Commercial Laws, Skilled Labor, and Potential Constrains the foreign investors to make investments in this country.

Iraq should not think over about oil sector; there are many other sectors, which could help Iraq to bring double increase in its revenues i.e. banking sectors, Telecom Sector, Textile Sector, and many other sectors. Therefore, for this, Political reforms, new policies, and new ideas are needed to moderate investors to come in Iraq and invest in the large available sectors, but, when these sorts of steps are considered, there is always some sort of mishap or incident, which sabotages the entire peace process.

There are many examples before us in this regard, Conflict between Baghdad and Erbil on appointing the new governor in November 2012, this standoff remained for number of months, and this damaged the interest of the foreign investors a lot. No doubt, government of Iraq I eager to attract the foreign investment from all around the world, and for this Iraq is considering a package of laws to establish a modern legal framework for the oil and gas production, and procedure to divide the revenues equitably within the nation; however, these steps are under contentious and intermittent negotiation. If we look at the Iraqi Constitution, then it tells us that some competencies under the foreign investment are shared either by the central government, central regions, or these are decentralized solely to the regions. Investment made in the Kurdish Region will operate within the framework of KRI Investment Law (Law 4 2006), and KRI Board of investment is designed to provide the incentives to help economic development in areas under the authority of the KRG. Therefore, these are easily understandable clauses of Law, but despite of involvement, which is meaningless in the matters, takes our thinking to third sided direction.

Inflation rate of Iraq looks under the control, which is a good sign for the economy of Iraq since the security conditions remained under control since 2006. However, Iraq’s largest sectors and leaders remained under pressure to meet the financial goals, and translate the macroeconomic gains into an enhanced average of living for the Iraqi public. Though the government is overcoming the issues, but the major issues, which is, yet an issue is unemployment present in Iraq. Lots of graduates and master degree holders have no job to do, those having capacity are shifting abroad to work and study, and those who have not capacity are forced to live from hand to mouth. This is an important matter for the government.

Government needs to build such strategies, which could facilitate the students in all manners, and government should arrange the job of these students who complete their education and want to support their families soon. For this issue to be resolved government should encourage the private sector and enterprises through regulation process; this process will help the people of Iraq and foreign investors to start new businesses and this will lead to the creation of the job opportunities in all over the Iraq. Implementations of the reforms and rooting out the corruption are the need of time for Iraq, as these developments will lead the Iraq towards progressive approach. Government needs to restructure the banking sectors, business legislations, and private investment perspectives in order to save and encourage the investors.

Central Bank Gold Investment Impacts Iraqi Dinar Revaluation

A move of the Central Bank of Iraq, which surprised the economists in all over the world is the purchase of 36 ton gold reserves worth $ 1.36 billion to help and stabilize the economy of Iraq and to make the Iraqi dinar stronger against the other currencies. This purchase is only the purchase, which has placed the Iraq on the 15th rank of top gold buyer’s nations. Iraq stands on the top buyers of the gold in all 2013 than other nations, which buy gold against their foreign reserves. This is only the purchase of Iraq, which has distinguished the credibility of Iraq from the other nations. Now, this news will lead you to scratch your head when you will come to know that the purchase of gold by the Iraq for the month of March 2014 has doubled up from 36 tons to 67 tons, which will jump to the economy of the Iraq and it will pave the way of increase the economic conditions of Iraq. Here is an amazing thing about the value of the Iraqi dinar, despite of buying the heavy quantity of gold reserves, there is no positive response on the value of Iraqi dinar; this value still lying on the same level as before the purchase of gold reserves, and same after the increase in gold reserves. It has been almost two years and three months, when the value of Iraqi dinar still persists on the same level, which is not far for the investors and even though for the people of Iraq, who have been in waiting to get the good news of Iraqi dinar revaluation to get rich quick.

Now the question is that how the CBI has purchased the Gold reserves if purchase of gold is not “Supposed” to stabilize the Iraqi dinar. Nevertheless, the matter of concern is that CBI uses the currency auctions to virtually fastener the value of Dinar as depicted in the above-mentioned graph. Therefore, it is the need to stabilize the value of Iraqi dinar and if gold reserves are increased then its impact should come to value of Iraqi dinar, for this, the central bank of Iraq must be up to something.

Future of Long Awaited Dinar Revaluation- Near or Hope:

Since 2009, many have anticipated the talk on cut down three zeroes from the basic value of Iraqi dinar. Should it happen, these steps will lead to the immediate revaluation of the dinar by inflating its basic value overnight. This will go beneficial in vast interest of the nation in accumulating their wealth, which had ended since the 2003 war. This will think to be a good move for the investors who have invested their values in Iraqi dinar to get rich.

These are only vast oil and gas reserves, owing to which confidence of investors have increased in a move to invest in Iraqi dinar, though the dinar persists on the same value, despite of all this, investors are happy to invest in dinar. Economic figures for Iraq are quite satisfactory and remarkably quick:

GDP rate of Iraq has grown averagely 6.625% per year since 2005, this rate reached to 8.78% in 2011, and a Stellar 10.2% in 2012, which is the 14th highest in the world (According to the figures provided by the World Bank). Since the World War II, the economic recoveries since Japan and Germany, Iraq is also on the way in mounting one of the greatest economies. This is making the Iraq in a good position and encouraging to the investors from all around the world.

Iraqi Dinar Revaluation

Many financial experts believe that Economic growth and Rate of Iraqi dinar are reciprocal to each other. Because the rise in the economic growth rate has direct impact on the local currency of any country, that is the reason, it is being thought that value of the Iraqi dinar has been kept artificially at low rate, but this is yet to be evaluated about the facts behind this move. Little investigations have been mentioned in the graph, in which it is clearly mentioned that the CBI has given a good raise to the value of Iraqi dinar from the end of June of 2006 to the end of 2008, but after 2008 to present, it is clearly understandable that value of Iraqi dinar has been kept will-fully Curbed.

Now the question is that why the CBI has purchased the gold. Is there any motive to strengthen the currency of its country as everyone is expecting in this country? The answer will probably go in “no”.

Accumulating the foreign reserves through acquiring more U.S Dollars, the U.S. treasury bonds, Gold will strengthen the currency. However, if Iraq has ten years of good economic progress that has yet to be converted into IQD, then there left no need to buy more foreign reserves to increase the value of the money. Ten years of oil wealth are sufficient to prove the strength of Iraqi dinar, which is quite good and suitable for the rising economy of Iraq. Ten-year wealth will not make a problem for the CBI to reevaluate the Iraqi dinar. This is the need of time for the government of Iraq to take the necessary actions to revalue the Iraqi dinar. This is the suitable time for the revaluation of this currency as it has been more than two decades, since this currency is facing troubles, down slumps and international ban from trading, but this is not a big deal at all for the CBI.

Iraq Inflation Rate

AS the given persistent pressure on the dinar by CBI for so many years, it is improbable to change the value of Dinar anytime. There are many benefits of cheap currency; it makes business activities cheaper, good for business investors, attractive for the foreign investors, creates jobs for unemployed people, increases the value of money, and lubricates the gears of an economy. In addition, the same has been followed by the western nations since the 2008-2009 crises in this world.

Interest Rate

So, still we are asking- if CBI doesn’t want a stronger dinar, then why the extra gold and what is the motive of CBI behind this? Now the gold reserves are enough to help the CBI to give rise to the value of the Iraqi dinar anytime. The CBI has been taking steps steadily to promote the supply of currency and the extra gold reserves will add to the efforts of the CBI to do so further more. However, CBI needs to think the importance of Iraqi dinar revaluation by keeping in view the quality and quantity both, so supply could not affect with the qualitative revaluation of the Iraqi dinar.

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