(EnergyAsia, March 27 2013, Wednesday) — Ten years after the US-led military invasion to oust former dictator Saddam Hussein, war-battered Iraq is expected to enjoy rapid oil production and economic growth, and slower inflation in 2013.
In a statement last week, the International Monetary Fund (IMF) predicted Iraq’s oil production would surge 10% to 3.3 million b/d to enable th economy to grow by 9% in 2013.
“Despite a difficult security and political environment, Iraq managed to maintain macroeconomic stability over the past two years. On the back of rising oil production and robust non-oil activity, economic growth has remained strong at about 8% in 2012,” said the IMF at the end of a study visit of the Middle Eastern country.
“We expect activity to accelerate further to 9% in 2013, as oil production increases from just under 3 million b/d in 2012 to 3.3 mbpd in 2013. In 2012, inflation was contained at 6%, and we project it to decline slightly next year. On account of strong oil proceeds, Central Bank of Iraq reserves reached US$70 billion at the end of 2012, while the Development Fund for Iraq (DFI) rose to US$18 billion.”
An IMF mission led by Carlo Sdralevich met with an Iraqi delegation headed by acting finance minister Ali Al Shukri in Amman, Jordan from March 2 to 12 as part of the agency’s study of Iraq. The Iraqi delegation included officials from the Central Bank of Iraq (CBI), Board of Supreme Audit, the ministries of finance, planning and oil, and representatives from the Iraqi banking and business communities.
Mr Sdralevich praised the Iraqi government for maintaining macroeconomic stability over the past two years despite the country’s difficult security and political environment.
“While we welcome the achievement of a budget surplus of about 4% of GDP in 2012, largely due higher-than expected oil revenues, the execution of the 2013 budget should be aligned with available financing and provide for the accumulation of adequate fiscal buffers in the DFI, which suggests to target a budget surplus in 2013,” he said.
“Public financial management should be strengthened, notably by phasing out off-budgetary spending practices and reliance on state-owned bank financing to support public enterprises. Approval of additional spending commitments during the fiscal year should also be avoided.
“Financial sector policies are improving, but more remains to be done. The CBI’s ongoing efforts to refine monetary policy instruments, strengthen banking supervision, and accelerate the restructuring of the banking system are crucial.
“While oil-growth is projected to remain high over the coming years, boosting non-oil private sector growth will need a long-term government strategy centered on improving the business environment and opening up opportunities for the private sector.”
In 2003, the US led a coalition of mostly Western countries to unilaterally launch what it called a pre-emptive war in self-defence on suspicion that Saddam’s Iraq was building up weapons of mass destruction (WMDs). There were no WMDs.
While the war inflicted huge financial and human costs on Iraq, the US too has suffered and looks likely to struggle to recover for decades.
According to the latest study by the Watson Institute for International Studies at Brown University, the war could cost the US as much as US$6 trillion with legacy expenses and interest added to the US$2 trillion already spent. Drawing from data on past and planned expenditures from the US Treasury related to the invasion, the study said the US government has spent US$1.7 trillion on the war, and another US$490 billion in benefits on war veterans. It will need to raise an extra US$4 trillion to cover interest payments through 2053.