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Why will the growth rate in Iraq rise and what are its repercussions?

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Why will the growth rate in Iraq rise and what are its repercussions?

Thursday 21 July 2022 - 18:34
Good morning
Economic Researcher

The International Monetary Fund recently released a report on "real GDP growth".

In it, he touched on his expectations for the current year 2022 all over the world. The growth rate will be 3.6% in the US and 3.7% in Germany. While the contraction will reach 8.5% in Russia and 35.0% in Ukraine.

As for Iraq, it will achieve a growth of 9.5%. This is about three times the global average. It is also the highest rate in the Arab countries, including the Gulf.

There are other estimates by the World Bank that also put Iraq in the first Arab rank in terms of growth for the year 2022.

Iraqi officials took advantage of this report and that to praise the soundness of their economic policies.

They estimate that this percentage of growth is evidence of the correctness of the measures taken on the financial and monetary levels.

To discuss this topic, it is necessary to know how to calculate growth. The calculation is done by GDP.

This is the most important economic indicator in all countries. It consists of the values of goods and services produced during a year. Growth for 2022 is simply the rate of increase in output compared to the previous year.

We put the following equation to simplify the calculation: (values of goods and services for the year 2022 - values of goods and services for the year 2021) x (100 รท values of goods and services for the year 2021) = growth rate for the year 2022.

Thus, when the values of goods and services are low in 2021, the growth rate will be high in 2022.

This is what happened in Iraq, which is mainly dependent on oil. Crude prices were lower in 2021 compared to 2022. Iraqi oil production was also low.

And since the Russian war on Ukraine will continue at least until the end of this year, oil prices will not drop and Iraqi oil production will not decline. Quite the opposite. Which leads to higher growth.

But how do we explain the increase in growth in Iraq by (9.5%) higher than the high growth rate in other oil-producing countries such as Saudi Arabia (7.6%)?

There are important manufacturing industries in Saudi Arabia in various civil and military fields. The values of these industries are equivalent to 12% of GDP (2019).

While Iraq lacks manufacturing industries, which represent only 2% of the gross domestic product.

On the other hand, despite Saudi Arabia's global oil position, its extractive materials, including oil, represent only 28% of the gross domestic product.

While these materials in Iraq amount to 45% of the gross domestic product.

That is, the relative value of oil in Iraq is much greater than the relative value of oil in Saudi Arabia.

Therefore, if its prices rise in the global market, the GDP in Iraq will rise by a rate that exceeds the rate of its rise in Saudi Arabia. Therefore, Iraq achieves higher growth than Saudi Arabia.

The International Monetary Fund expects a rise in the growth rate of Iraqi oil production at a rate of (13.1%), roughly equivalent to the growth rate of Saudi oil production (12.8%) in 2022.

But as we mentioned, when Iraqi oil contributes to the GDP at a rate equivalent to double the similar Saudi contribution, the rate becomes Growth in Iraq is higher once oil prices rise.

From another angle, Iraq suffers from the most serious economic and social crises, which is the increasing number of poor: 12 million Iraqis live below the poverty line, or about a third of the population.

This situation stems from widespread unemployment and high consumer prices for goods and services.

There is no real government initiative to curb this scourge.

This is clear evidence of mismanagement of economic affairs.

If the administration was sound, it would automatically improve the standard of living of the citizens due to growth.

When growth does not lead to increased job opportunities, lower prices, a decline in poverty, an improvement in the exchange rate of the dinar, and a reduction in the weight of public debts,

this simply means that there are other problems that prevent reaching these results

foremost of which is financial corruption and the absence of appropriate financial, monetary and investment policies.

Add to this the other intractable problems that have become a basic feature of the Iraqi economic and political situation: abhorrent sectarianism, multidimensional dependency on Iran, and persistent and violent political and partisan conflicts.

Iraq will achieve a high rate of growth due to its dependence on oil, the price of which is currently witnessing a significant increase.

Since the economic and social policies have failed, the Iraqi will not find in this growth an opportunity to improve his condition.

Next year, 2023, the opportunity will be missed because crude prices will tend to fall.

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