Iraq advances in prosperity index as economic reforms bear fruit

Iraq has climbed the ranks on various economic indicators over the past decade as the government's fiscal reforms aimed at ensuring stability bear fruit, according to the 2020 Legatum Prosperity Index.

Iraq rose five places to 137th position out of 167 countries in 2020, up from 142nd place in 2010 when it was one of the least prosperous countries, the index shows.

It scored higher for its open economy – particularly economic quality, market access and infrastructure – as well as social inclusion, although its people empowerment fell by one spot.

"Prosperity is far more than wealth; it is when all people have the opportunity and freedom to thrive. Prosperity is underpinned by an inclusive society, with a strong contract that protects the fundamental liberties and security of every individual," the Legatum Institute's report said.

"It is driven by an open economy that harnesses ideas and talent to create sustainable pathways out of poverty. And it is built by empowered people, who contribute and play their part in creating a society that promotes well-being," the UK-based think tank said.

The World Bank estimates Iraq's economy will grow 1.9 per cent this year, and expand 6.3 per cent over the next two years, on the back of rebounding oil prices and rising Opec+ production quotas. Non-oil GDP is forecast to recover in 2021, growing by 5.5 per cent.

The Legatum Prosperity Index, now in its 14th year, assesses how well countries promote the economic and social well-being of their residents in three domains: inclusive societies, open economies and empowered people.

Iraq's score rose for two out of these three overarching categories that determine a country's prosperity performance.

The country rose three notches in the inclusive society category, which includes sub-divisions of safety and security, personal freedom, governance and social capital. It jumped seven ranks in the open economy category, which includes sub-divisions of the investment environment, enterprise conditions, market access and economic quality.

However, it dropped one rank in the people empowerment category that includes measures of living conditions, health, education and natural environment.

Iraq is poised to attract significant foreign investment into its energy sector, in tandem with expected higher revenues following the Opec+ decision to raise output that will help strengthen its weak fiscal position. Baghdad is a founding member of Opec and the group's second-largest producer,

"The recent recovery in oil prices provides an opportunity to push ahead with reforms," the World Bank said in its Spring 2021 Iraq Economic Monitor. "With oil prices trending above the US$60/barrel, Iraq could engage actively on the white paper reforms and use those windfalls to soften the potential repercussion of those reforms."

The country's economic outlook hinges on global oil market prospects, the implementation of reforms and the evolution of the Covid-19 pandemic, the Washington-based lender said.

The Covid-19 crisis, combined with a decline in oil revenues last year from low global demand and Opec+ output cuts, dealt a severe blow to the country's rentier economy. Like many countries affected by the pandemic, Iraq's economy contracted 10.4 per cent in 2020 after growing 4.5 per cent the previous year, according to the World Bank.

Iraq’s economy is expected to return to pre-pandemic economic growth levels by 2024, according to the International Monetary Fund.

Iraq has begun taking much-needed steps towards ensuring future economic stability.

The Central Bank of Iraq devalued the currency by about 23 per cent against the US dollar in December – a move the IMF expects to help reduce external imbalances and preserve foreign exchange reserves.

The draft 2021 budget is intended to cut the fiscal deficit through various measures to raise non-oil revenue and contain the unsustainable expansion of pension bills and government wages, the IMF said.

In July, Moody’s Investors Service affirmed the Caa1 long-term non-investment grade rating of Iraq and maintained its stable outlook.

Meanwhile, Denmark topped the global index, with European nations dominating nine of the top 10 spots and New Zealand coming in at 7th place.

The UAE maintained its position as the most prosperous Arab nation for the 14th year in a row. The Emirates scored highly for its open economy, particularly its enterprise conditions, market access and infrastructure, putting the nation in 42nd position out of 167 countries.