1. Weekly Commentary
QNB Economics
economics@qnb.com.qa
November 17, 2013
Iraq Continues to Expand Its Oil Resources, But Further Economic
Diversification Is Needed, According to QNB Group
Iraq continues to expand its oil resources, but
further economic diversification is needed,
according to QNB Group. Following the Iraq
war, oil production has expanded rapidly,
resulting in a rise in per capita GDP from
USD1,790 in 2005 to over USD6,300 in 2012
despite a difficult social context. However,
Iraq’s economy continues to experience
structural weaknesses, such as a small non-oil
sector, a dominant public involvement in all
areas of the economy and an underdeveloped
business environment. According to QNB
Group, with Iraq’s economy continuing to be
primarily driven by developments in the oil
sector, economic growth is expected to remain
strong in the short-term. However, there are
risks to the macroeconomic outlook such as
further social instability and weak policy
implementation. These risks could translate into
lower oil revenues, deteriorating the fiscal
position and potentially escalating inflation
levels.
Iraq’s macroeconomic performance over the
past few years has been sound primarily on the
back of a revival in oil production. In 2012, oil
production averaged 3.1m barrels a day (b/d),
the highest level in over 30 years. Real GDP has
accelerated at an average growth rate of 6.4%
during 2005-12 reflecting increased oil
production and high oil prices.
Iraq: Per Capita GDP and Oil Production (2005-12)
(Million b/d and Per Capita GDP in USD)
7,000
6,000
Oil Production, Million b/d (Right Axis)
Per Capita GDP, USD (Left Axis)
3.5
3
5,000
2.5
4,000
2
3,000
1.5
2,000
1
1,000
0.5
0
0
2005 2006 2007 2008 2009 2010 2011 2012
Sources: IMF, Bloomberg and QNB Group forecasts
However, high economic growth based on the
expansion of the oil sector may not be sufficient
to ensure continued prosperity. The lack of
economic diversification to date makes Iraq’s
economic growth sensitive to the fluctuations
of international oil prices and could undermine
macroeconomic stability. Hence, economic
diversification could be a challenge for the Iraqi
government both to create jobs and promote
income-generating opportunities for the
majority of the population. The International
Monetary Fund (IMF) has been involved in
supporting the government’s medium-term
economic reform program, thereby helping the
country improve fiscal sustainability and reduce
its vulnerability to sudden drops in oil revenues.
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2. Weekly Commentary
Iraq continues to face development challenges
despite the recent resurgence in economic
growth. Indeed, there is a need to rebuild
infrastructure and institutions, a task made
difficult by the prospect of social instability. In
addition, the impact of the war and sanctions,
have all contributed to a deterioration in Iraq’s
social indicators in recent years. For example,
the infant mortality rate is one of the worst in
the Middle East and North Africa region.
Furthermore, school enrolment has declined
over the past decade as a result of the low
quality of and low returns to education. During
2007-12, consumption among the lowest 40
percent of the population by income group grew
only by 1.1% annually, lower than the average
rate of consumption growth for the population
QNB Economics
economics@qnb.com.qa
November 17, 2013
as a whole (1.8%), suggesting that the income
distribution is becoming more skewed.
Looking ahead, QNB Group expects Iraq’s real
GDP growth to rise to 6.3% in 2014, as oil
production increases further together with a
rapid expansion in government services, trade
and construction. In addition, investment is set
to grow strongly in several large oilfields and as
infrastructure development gathers momentum.
However, the challenging social context,
external shocks and a weak economic structure
represent risks to Iraq’s short-term outlook.
Over the medium term, the key challenge to the
Iraqi economy remains to develop its non-oil
sector, which could provide for diversification,
higher living standards, and better social
conditions for the Iraqi people.