A more accurate reading of the IMF report on Iraq's economy by the Financial
Times:
IMF slashes growth forecast for Iraq
By Alan Beattie
Fniancial Times
August 16 2005
Insurgents’ attacks on Iraq’s oil production will slash the country’s
predicted economic growth by more than three-quarters this year, the
International Monetary Fund said on Tuesday.
In its first assessment of the Iraqi economy since Iraq turned its back on
the IMF 25 years ago, the fund also warned that the government must cut back
its massive subsidies to petrol, diesel and kerosene to prevent its
precarious budget situation worsening further.
The IMF said it was cutting its forecast for gross domestic product growth
from 17 per cent this year to 4 per cent. Oil production was likely to reach
only 2m barrels per day over the year, down from an original estimate of
2.4m barrels, “because of the continuing sabotage of oil installations and
the resulting halting of oil exports from the north”.
Higher oil prices have helped to cushion the blow of lower output. But the
IMF warned that the government was still likely to run short of money in the
second half of this year as lower oil exports were compounded by a shortfall
in fiscal revenues. The IMF predicted a fiscal shortfall of $1.4bn in 2005,
which it said would largely have been eliminated if the government had cut
subsidies on petroleum products as planned.
Iraq has some of the cheapest petrol in the world, a litre of regular
gasoline retailing at 1.3 US cents. Vast differentials in price with nearby
countries such as Turkey encourage widespread smuggling.
Iraq’s national income is predicted to be around $30bn this year, around
three-quarters of which is down to oil. GDP rose by nearly 50 per cent in
2004 after oil production recovered from the interruption around the war in
2003.
But the IMF said: “Non-oil GDP is estimated to have recovered more slowly in
2004, as lack of security, electricity shortages and poor communications
hampered the recovery in private sector activity.” The banking system
remained “barely functional”, it added, and investment was restrained by
delays in spending reconstruction donations from abroad.
Iraq was formerly one of the more successful economies in the Arab world,
“graduating” from borrowing from the World Bank, the IMF’s sister
institution, in 1973 as its oil wealth made it too rich to be eligible. In
the late 1970s, a construction boom paid for with oil revenues brought in
foreign contractors and started to diversify the economy.
But the financial and military strain of war with Iran weighed heavily on
the country, and with internal repression and external economic sanctions
after the invasion of Kuwait in 1990, per capita income in Iraq had dropped
by around two-thirds by the time the coalition forces invaded in 2003.
