Iraq's economy is on the brink of collapse as the Covid-19 pandemic and dwindling oil revenue bite, necessitating the implementation of critical reforms, analysts say.
Opec’s second-largest producer could see its economy shrink 12.1 per cent this year, the third-steepest contraction in the Arab world after Lebanon and Libya, according to the International Monetary Fund.
The country depends on oil revenue to meet 90 per cent of government expenditure, including $5 billion spent on monthly salaries for public servants. That leaves the government with difficult decisions that could raise the prospect of further civil strife.
A white paper on economic reform submitted to parliament by Mustafa Al Kadhimi's government proposes slashing the bill for government salaries to 12.5 per cent of gross domestic product within three years, from the current 25 per cent. The paper also calls for a reduction in benefits and allowances as well as reforms to the pension system.
Recommendations include phasing out subsidies to critical sectors in Iraq's economy, notably power.
"Electricity subsidies are one of the largest,” said Ahmed Tabaqchali, chief investment officer at the AFC Iraq Fund and a fellow at the Kurdistan-based Institute of Regional and International Studies. "They probably cost somewhere up to 4 per cent of GDP.”
He sees the current government including recommendations made in the white paper in Iraq’s 2021 budget.
Implementing long-term structural reforms remains a challenge for Iraq because it desperately needs oil revenue to balance its books at a time when it remains under pressure to curb supply as a member of the Opec+ alliance.
Iraq had already agreed to make compensatory cuts for overproduction earlier in the year, but output and exports have surged since September, putting it in an uncomfortable position at the upcoming Opec+ meetings.
The alliance headed by Saudi Arabia and Russia will convene their joint ministerial monitoring committee today and have their annual meeting on December 1. The group is likely to push to extend the current level of curbs at 7.7m bpd rather than consider easing the cuts as previously planned. This would require Iraq to cut at current levels for another three months, increasing pressure on its finances.
"August was the lowest [production] month for Iraq and it's when they said that they were going to compensate for higher production since May, since the Opec deal was in place, because they struggled to cut production and exports then,” Homayoun Falakshahi, oil and gas equity analyst at intelligence provider Kpler, said.
"In August, we saw exports went bellow 3 million barrels per day and then ... back to just 3m bpd in September and in October it was 3.2m bpd. So far in November, we’ve seen relatively strong levels,” he added.
Meanwhile, the government has exhausted borrowing options domestically.
"Monetary financing from the Central Bank of Iraq increased to 28.5 trillion dinars ($23.9 billion) by end-August, from 14.1tn dinars at end-May," Fitch said in a recent note.
Borrowing has now plateaued because the government requires parliament’s approval to sanction more spending. The ratings agency expects the Iraqi state to work to secure wider external support and borrow from the IMF. But securing an IMF aid package takes time and requires a phased structural adjustment programme. Given the political divide within the country, consensus around reforms may be difficult to build.
With little room to borrow, the government may require an incentive to meet its obligations with the international producers’ alliance and also avert a financial crisis at home.
Complicating the situation for implementing critical reforms in Iraq is the allure of higher oil prices that may tempt the country to increase production. Brent, the international benchmark climbed above $45 per barrel last week following optimism about the efficacy of a vaccine trial by American pharma company Pfizer and the election of Joe Biden as the 46th US President.
Iraq, which has boosted its supplies to key demand drivers such as India and China, which together make up 70 per cent of its exports, could look to make short-term gains as prices rally.
However, implementing reforms will outweigh higher oil revenues for Iraqi policymakers, says Ali Al Saffar, energy analyst at the International Energy Agency.
"Iraq has been running a huge deficit every month this year. And $45 [oil price] will not bring them into surplus,” Mr Al Saffar said.
"So, while it's relatively better than than a few months ago, it's still hugely unsustainable for a country like Iraq. I think there is a fundamental understanding that reform needs to happen independent of the oil price,” he added.
Brent, under which two-thirds of the world’s oil is priced, was up 0.68 per cent, trading at $44.12 per barrel at 10.56am UAE time on Tuesday. West Texas Intermediate, which tracks US crude grades was up/down 0.53 per cent at $41.56 per barrel.
While higher oil prices are a strong pull for Iraq to flout its Opec+ quotas, Mr Tabaqchali says making cuts remains a challenge, particularly in enforcing pro rata across all of its fields, including Kurdistan.
"The whole world expects Iraq to be able to to comply and they look at Iraq's totality, so they look at production by the federal government, as well as by the Kurdish region. But then they expect the federal government to honour the whole obligation,” said Mr Tabaqchali.
The precarious backdrop makes the need for Baghdad to balance its books all the more compelling.
Last week, the World Bank said millions of Iraqis could be forced into poverty due to the twin shocks of the pandemic and the collapse of the oil prices. Even in its "benign scenario”, around 5.5 million Iraqis could be pushed into poverty, the Washington-based lender said.
The government’s plans to slash public wages and pensions could force an additional 400,000 to 1.7 million Iraqis into poverty unless the reforms are phased in a gradual manner.
Mr Tabaqchali estimates Iraqis total government expenditure for this fiscal year will average 96 trillion Iraqi dinars, of which 64 trillion dinars (67 per cent) will comprise salaries and pensions.
In comparison, public wages last year accounted for 47 per cent of total spending. The increase, Mr Tabaqchali says, is due to the previous Iraqi administration hiring more people in order appease protests against the government last year.
“They added more people, which meant that it increased the wage bill significantly. So, it's like an own goal,” he said.
However, Mr Tabaqchali believes a successful adoption of the proposed white paper could begin to gradually ease Iraq’s woes.
"Now the question is, does that avert financial crisis? Yes, but a qualified yes in that it still doesn't resolve the issue, because currently the current spending is way ahead of income,” he said.
Key developments in maritime dispute
2000: Israel withdraws from Lebanon after nearly 30 years without an officially demarcated border. The UN establishes the Blue Line to act as the frontier.
2007: Lebanon and Cyprus define their respective exclusive economic zones to facilitate oil and gas exploration. Israel uses this to define its EEZ with Cyprus
2011: Lebanon disputes Israeli-proposed line and submits documents to UN showing different EEZ. Cyprus offers to mediate without much progress.
2018: Lebanon signs first offshore oil and gas licencing deal with consortium of France’s Total, Italy’s Eni and Russia’s Novatek.
2018-2019: US seeks to mediate between Israel and Lebanon to prevent clashes over oil and gas resources.
Company%20profile
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Arabian Gulf League fixtures:
Friday:
- Emirates v Hatta, 5.15pm
- Al Wahda v Al Dhafra, 5.25pm
- Al Ain v Shabab Al Ahli Dubai, 8.15pm
Saturday:
- Dibba v Ajman, 5.15pm
- Sharjah v Al Wasl, 5.20pm
- Al Jazira v Al Nasr, 8.15pm
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
Spider-Man%202
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Libya's Gold
UN Panel of Experts found regime secretly sold a fifth of the country's gold reserves.
The panel’s 2017 report followed a trail to West Africa where large sums of cash and gold were hidden by Abdullah Al Senussi, Qaddafi’s former intelligence chief, in 2011.
Cases filled with cash that was said to amount to $560m in 100 dollar notes, that was kept by a group of Libyans in Ouagadougou, Burkina Faso.
A second stash was said to have been held in Accra, Ghana, inside boxes at the local offices of an international human rights organisation based in France.
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
UAE and Russia in numbers
UAE-Russia ties stretch back 48 years
Trade between the UAE and Russia reached Dh12.5 bn in 2018
More than 3,000 Russian companies are registered in the UAE
Around 40,000 Russians live in the UAE
The number of Russian tourists travelling to the UAE will increase to 12 percent to reach 1.6 million in 2023
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Company Profile
Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
Funds raised: $22 million
MATCH INFO
Euro 2020 qualifier
Ukraine 2 (Yaremchuk 06', Yarmolenko 27')
Portugal 1 (Ronaldo 72' pen)
Scoreline
Real Madrid 1
Ronaldo (53')
Atletico Madrid 1
Griezmann (57')
Biography
Her family: She has four sons, aged 29, 27, 25 and 24 and is a grandmother-of-nine
Favourite book: Flashes of Thought by Sheikh Mohammed bin Rashid
Favourite drink: Water
Her hobbies: Reading and volunteer work
Favourite music: Classical music
Her motto: I don't wait, I initiate
GIANT REVIEW
Starring: Amir El-Masry, Pierce Brosnan
Director: Athale
Rating: 4/5
The biog
Name: Dhabia Khalifa AlQubaisi
Age: 23
How she spends spare time: Playing with cats at the clinic and feeding them
Inspiration: My father. He’s a hard working man who has been through a lot to provide us with everything we need
Favourite book: Attitude, emotions and the psychology of cats by Dr Nicholes Dodman
Favourit film: 101 Dalmatians - it remind me of my childhood and began my love of dogs
Word of advice: By being patient, good things will come and by staying positive you’ll have the will to continue to love what you're doing
Why seagrass matters
- Carbon sink: Seagrass sequesters carbon up to 35X faster than tropical rainforests
- Marine nursery: Crucial habitat for juvenile fish, crustations, and invertebrates
- Biodiversity: Support species like sea turtles, dugongs, and seabirds
- Coastal protection: Reduce erosion and improve water quality
Why it pays to compare
A comparison of sending Dh20,000 from the UAE using two different routes at the same time - the first direct from a UAE bank to a bank in Germany, and the second from the same UAE bank via an online platform to Germany - found key differences in cost and speed. The transfers were both initiated on January 30.
Route 1: bank transfer
The UAE bank charged Dh152.25 for the Dh20,000 transfer. On top of that, their exchange rate margin added a difference of around Dh415, compared with the mid-market rate.
Total cost: Dh567.25 - around 2.9 per cent of the total amount
Total received: €4,670.30
Route 2: online platform
The UAE bank’s charge for sending Dh20,000 to a UK dirham-denominated account was Dh2.10. The exchange rate margin cost was Dh60, plus a Dh12 fee.
Total cost: Dh74.10, around 0.4 per cent of the transaction
Total received: €4,756
The UAE bank transfer was far quicker – around two to three working days, while the online platform took around four to five days, but was considerably cheaper. In the online platform transfer, the funds were also exposed to currency risk during the period it took for them to arrive.
US tops drug cost charts
The study of 13 essential drugs showed costs in the United States were about 300 per cent higher than the global average, followed by Germany at 126 per cent and 122 per cent in the UAE.
Thailand, Kenya and Malaysia were rated as nations with the lowest costs, about 90 per cent cheaper.
In the case of insulin, diabetic patients in the US paid five and a half times the global average, while in the UAE the costs are about 50 per cent higher than the median price of branded and generic drugs.
Some of the costliest drugs worldwide include Lipitor for high cholesterol.
The study’s price index placed the US at an exorbitant 2,170 per cent higher for Lipitor than the average global price and the UAE at the eighth spot globally with costs 252 per cent higher.
High blood pressure medication Zestril was also more than 2,680 per cent higher in the US and the UAE price was 187 per cent higher than the global price.
STAR%20WARS%20JEDI%3A%20SURVIVOR
%3Cp%3E%3Cstrong%3EDeveloper%3A%3C%2Fstrong%3E%20Respawn%20Entertainment%3Cbr%3E%3Cstrong%3EPublisher%3A%3C%2Fstrong%3E%20Electronic%20Arts%3Cbr%3E%3Cstrong%3EConsoles%3A%3C%2Fstrong%3E%20PC%2C%20Playstation%205%2C%20Xbox%20Series%20X%20and%20S%3Cbr%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%204%2F5%3C%2Fp%3E%0A
Liverpool's all-time goalscorers
Ian Rush 346
Roger Hunt 285
Mohamed Salah 250
Gordon Hodgson 241
Billy Liddell 228
Porsche Taycan Turbo specs
Engine: Two permanent-magnet synchronous AC motors
Transmission: two-speed
Power: 671hp
Torque: 1050Nm
Range: 450km
Price: Dh601,800
On sale: now
The specS: 2018 Toyota Camry
Price: base / as tested: Dh91,000 / Dh114,000
Engine: 3.5-litre V6
Gearbox: Eight-speed automatic
Power: 298hp @ 6,600rpm
Torque: 356Nm @ 4,700rpm
Fuel economy, combined: 7.0L / 100km
RACE CARD
5pm: Handicap (PA) Dh70,000 1,400m
5.30pm: Handicap (TB) Dh70,000 1,000m
6pm: Maiden (PA) Dh70,000 2,000m
6.30pm: Handicap (PA) Dh70,000 2,000m
7pm: Maiden (PA) Dh70,000 1,600m
7.30pm: Al Ain Mile Group 3 (PA) Dh350,000 1,600m
8pm: Handicap (PA) Dh70,000 1,600m
Amith's selections:
5pm: AF Sail
5.30pm: Dahawi
6pm: Taajer
6.30pm: Pharitz Oubai
7pm: Winked
7.30pm: Shahm
8pm: Raniah
UAE central contracts
Full time contracts
Rohan Mustafa, Ahmed Raza, Mohammed Usman, Chirag Suri, Mohammed Boota, Sultan Ahmed, Zahoor Khan, Junaid Siddique, Waheed Ahmed, Zawar Farid
Part time contracts
Aryan Lakra, Ansh Tandon, Karthik Meiyappan, Rahul Bhatia, Alishan Sharafu, CP Rizwaan, Basil Hameed, Matiullah, Fahad Nawaz, Sanchit Sharma
BMW M5 specs
Engine: 4.4-litre twin-turbo V-8 petrol enging with additional electric motor
Power: 727hp
Torque: 1,000Nm
Transmission: 8-speed auto
Fuel consumption: 10.6L/100km
On sale: Now
Price: From Dh650,000
MATCH INFO
Tottenham Hotspur 3 (Son 1', Kane 8' & 16') West Ham United 3 (Balbuena 82', Sanchez og 85', Lanzini 90' 4)
Man of the match Harry Kane
Killing of Qassem Suleimani
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
Who is Ramon Tribulietx?
Born in Spain, Tribulietx took sole charge of Auckland in 2010 and has gone on to lead the club to 14 trophies, including seven successive Oceania Champions League crowns. Has been tipped for the vacant New Zealand national team job following Anthony Hudson's resignation last month. Had previously been considered for the role.
MATCH INFO
Day 2 at the Gabba
Australia 312-1
Warner 151 not out, Burns 97, Labuschagne 55 not out
Pakistan 240
Shafiq 76, Starc 4-52
The biog
Place of birth: Kalba
Family: Mother of eight children and has 10 grandchildren
Favourite traditional dish: Al Harees, a slow cooked porridge-like dish made from boiled cracked or coarsely ground wheat mixed with meat or chicken
Favourite book: My early life by Sheikh Dr Sultan bin Muhammad Al Qasimi, the Ruler of Sharjah
Favourite quote: By Sheikh Zayed, the UAE's Founding Father, “Those who have no past will have no present or future.”
