Current Economic Outlook of Iraq and Economic Relations with Turkey

Political stability is the main factor affecting the economic performance of a country and political stability is positively associated with sustainable economic development. As concepts such as democracy, human rights, and the rule of law, which express political stability, come to the fore, the economic attractiveness of countries increases. However, economic problems arise in the opposite situation where unemployment rates rise, income distribution is unfair, the public sector's budget deficit increases, and the level of indebtedness is unsustainable. The problems experienced in Iraq, especially in the post-2003 period, also developed within this vicious circle. The war, conflicts, riots, and prolonged terrorist incidents before and after 2003 caused political instability, and this situation led to political corruption, bribery, and rent problems, and ultimately presented great challenges in the country's economy.

As the steps to be taken in fighting against the insufficient administrative capabilities in Iraq such as corruption have failed in practice, this situation has been accompanied by many structural problems. This is so much so that these administrative malpractices have weakened the socio-economic and institutional structure on which economic development is based, caused domestic and foreign investors to leave the country, limited economic growth, increased income inequality and poverty, reduced the quality of public infrastructure facilities, reduced tax revenues from imports and companies and effectuated deterioration of the structure of public expenditures. In the corruption perception index (CPI) published since 1995, Iraq has been included in the analysis after 2003 and ranked at the bottom of the list every year. Embezzlement, money laundering, oil smuggling, and bureaucratic bribery that have led the country to the bottom of these rankings, combined with the prolonged destructive conflict environment disrupted the economy, legal and political order.

In Iraq, as the economic problems, caused by political instability, such as corruption, income inequality, unemployment, and poverty were perceived to become permanent, public demonstrations erupted in October 2019 across the country. As the protests intensified, Iraqi Prime Minister Adil Abdul-Mahdi resigned, and efforts were initiated to establish a new government. In this context, although the former communications minister Mohammad Tawfiq Allawi was appointed in February to form a government, he announced his resignation in March 2020 as he could not gather enough support. After Allawi, the Iraqi President Barham Salih appointed former Najaf Governor Adnan al-Zurfi to form the government on March 17. However, Zurfi announced his resignation as he also failed to form a government and then he was replaced by al-Kadhimi, who was also supported by Shiite parties, Sunni and Kurdish groups. In this process, the ongoing protests were also stopped with the rapid spread of the epidemic in the country and neighboring Iran.

In this period when the country was driven into more uncertainty, under the growing economic crisis the task of forming a government was given to the director of the Iraqi National Intelligence Service Mustafa al-Kadhimi, and Kadhimi received the vote of confidence of the Iraqi parliament to serve as Iraq’s new prime minister. The new administration in Iraq has promised to take steps to resolve fundamental socio-economic and political problems such as non-accountability, nepotism, widespread corruption, and the ensuing economic injustice, which were the root causes of the uprisings. In this context, the published studies such as the final report of “the Emergency Cell for Financial Reform” pointed out the aforementioned basic problems and put forward the policies to be implemented to solve them. Moreover, Kadhimi made his own appointments in the state bureaucracy, including economic institutions. Among these appointments the governor of the Central Bank of Iraq, the head of the Iraq Securities Commission and lastly the head of the Integrity Commission were related to the economy.

However, the ongoing political and security problems accompanied by economic instability have made the Iraqi economy very fragile. The country's economy, which its budget and expenditures are heavily dependent on oil due to its natural resource-dependent structure, has entered a deep crisis with the global epidemic and low oil prices. Realizing that it is not possible to save the country's fragile economy and overcome its structural problems in the current global crisis, the Iraqi government has made an effort to formulate long-term policies despite social reservations. However, in this environment where there is no economic diversity and the central authority is weak, the low price of oil, which is the most important source of income, appears as the biggest obstacle to the realization of the reforms. Therefore, reducing the fragility of the economy by implementing emergency action plans and realizing development projects has been determined as the primary goal for the new government in Iraq.

In order to strengthen the Iraqi economy, first of all, the necessary infrastructure investments should be taken immediately. Based on this, the added values and supports that Turkey, an important neighbor, and ally from the point of view of Iraq, can provide to the people and economy of the country come to the fore. The agreements signed between the Iraqi government and Turkey have shown that the Iraqi government will adopt policies in this direction. The policies to be developed in this direction will ensure that the two countries will experience significant positive developments in many areas, from energy security to reducing regional risks, together with common economic gains.