Iraq’s economy gradually recovering from twin shocks of pandemic, oil price collapse
The World Bank pointed out that this rebound was mainly driven by the non-oil sector, which grew by 6% in just nine months, partially due to strong performance in the high contact sectors such as transport, accommodation, and retail.
ERBIL (Kurdistan 24) – Iraq’s economy is gradually recovering from the debilitating effects the pandemic and the simultaneous collapse in oil prices had on its economy in 2020, according to a World Bank report published in April.
“Oil and non-oil growth are on track to reach their pre-pandemic levels as oil production increases and the easing of COVID-19 restrictions restores domestic economic activity,” read the World Bank report. “Fiscal and external deficits are back to surpluses as oil prices continue to surge.”
The report noted that medium-term growth “is projected to be driven by the oil sector as OPEC+ production cuts are phased out.”
“The outlook remains subject to significant risks including uncertainties relating to the impact of geopolitical tensions, the ongoing pandemic, security challenges, and climate change,” it added.
For now, Iraq’s economy is making a gradual rebound “following the deep economic strains of the COVID-19 pandemic,” and real gross domestic product (GDP) “is estimated to have edged up by 1.3% in 2021, after a sharp contraction of 11.3% in 2020.”
The World Bank pointed out that this rebound was mainly driven by the non-oil sector, which grew by 6% in just nine months, partially due to strong performance in the high contact sectors such as transport, accommodation, and retail.
“However, agriculture and construction contracted by 17.5% and 36.8%, respectively, following severe droughts, energy outages, and the rising global price of inputs,” the report noted.
The report also revealed that the turnaround in oil markets has significantly improved Iraq’s economic outlook in the medium term and that the overall growth in 2022 is now forecast at 8.9% as OPEC+ quotas end and Iraq’s production surpasses its pre-pandemic level.
“Growth in the outer years is projected to remain modest at 3.7% on average as oil production moderates,” the report said. “Non-oil GDP growth is projected to converge to its long-term potential growth trend in part aided by higher investments that would be financed through the oil windfall.”
“However, growth is forecast to remain constrained by the economy’s limited absorptive capacity and other inefficiencies,” the report warned.