By John Lee.

Business leaders in Jordan have reportedly welcomed increased access to Iraq’s $88.2-billion reconstruction efforts.

According to a report from Jordan Tmes, a recent agreement to grant Jordanian construction contractors equal status to their Iraqi peers was described as “a God-sent miracle” by engineer and board member of the Jordan Construction Contractors Association (JCCA) Abdel Haleem Bustanji.

It has only been two days since we signed the agreement, but I already received calls about the necessary papers. Contractors are thrilled to be working again,” he added.

Prime Minister Adil Abd Al-Mahdi received King Abdullah II of Jordan in Baghdad on Monday, to discuss improving relations between the two countries.

More here.

(Sources: Jordan Tmes, Media office of the Prime Minister)

His Excellency Prime Minister Adil Abd Al-Mahdi expressed his country’s pride in the level of relations with Japan, commended the Japanese government for its support in the fields of security, stability, reconstruction projects, economic and cultural cooperation.

His Excellency said during his reception to the Japanese Prime Minister’s Special Adviser Kentaro Sonoura and his accompanying delegation: Japan will be an excellent partner for Iraq, while many infrastructure and service projects in Iraq have been done and we have a lot of interests and ambitions for future projects, underscoring that Iraq has begun to regain stability, health and doing vital role while the countries of the world coming to us because they do feel our country stability, strengthening the security and democratic life.

His Excellency Prime Minister presented an initiative for partnership, economic and rebuilding cooperation between the Iraqi and Japanese governments, including the call for the establishment of a joint fund to finance reconstruction projects through the quantities of Iraqi oil exported to Japan. The Fund also funds the Japanese side to encourage Japanese companies to operate in Iraq,

The Iraqi government will provide a package of projects in a way that ensures the success of the work of Japanese companies and accelerate their efforts and smooth work.

Concerning that initiative, His Excellency Prime Minister confirmed that this initiative will strengthen the Mutual relationship between the two countries, accelerate reconstruction efforts, establishing economic projects, provide job opportunities for Iraqis, diversify national wealth and reduce dependence on oil, also providing opportunities for Japan’s presence in the Iraqi market and the region in general.

The Japanese official expressed his interest in the project; He said that he was present when His Excellency Prime Minister presented those projects during His Excellency visit to Japan as oil minister, assuring that he expressed interesting in that vision.

It was agreed that the Iraqi side will submit a statement of the main lines of the project through the Japanese Embassy in Baghdad to be studied by the Japanese authorities, thus contributing to the consolidation of cooperation between the two parties.

The Japanese official conveyed greetings and congratulations to His Excellency Prime Minister on the occasion of the government formation, reaffirming the Japanese government’s aspiration to expand mutual relations with Iraq in all areas and move more effectively in support of Iraq’s stability, reconstruction, completion of service projects, supporting the Iraqi government’s efforts to develop the Iraqi economy, strengthening security and stability and empowering democratic experience.

(Source: Media Office of the Prime Minister)

EU Signs Contracts of 57.5 Million Euros with UN to Support Mosul Recovery, Promises Additional 20 Million Euros Next Month

A delegation from the United Nations in Iraq and the European Union Mission to Iraq yesterday toured a number of EU-funded and UN implemented projects in Mosul, seeing first-hand the clearance, stabilization, rehabilitation and development work undertaken in the northern Iraqi city more than a year after its liberation from Da’esh.

Illustrating the joint efforts in post-Da’esh Iraq, the EU signed a contract with the UN Development Programme (UNDP) worth 47.5 million euros, another with UN Mine Action Service (UNMAS) totaling 10 million euros, and announced 20 million euros in additional support for UNESCO as well as a further 15 million support for FAO, to be signed in January 2019.

The conflict with Da’esh has destroyed many areas of Mosul and Ninewa Governorate, and displaced a large number of the population. Since the military defeat of Da’esh a year ago, many people have returned, encouraged by the efforts to ensure a secure and safe environment. Some areas still lack basic services, and the UN, in support of the Iraqi authorities, are working to ensure a decent living for the people to facilitate the dignified return of Internally Displaced Persons (IDPs).

The delegation called on the Governor of Ninewa, Nawfal Al-Agoub, after which a signing ceremony was held.

EU Director for Development Cooperation for Asia, Central Asia, Middle East/Gulf and the Pacific Region, Pierre Amilhat, said:

“The Iraqi people have suffered enough, and the country is on the cusp of entering into a renewed phase of state-building. Today exemplifies the strong commitment the EU along with its UN partners have in shouldering Iraq in this critical phase. With the territorial defeat of Da’esh, all of us together have a window of opportunity to build an inclusive and accountable country and restore the trust between the people and their Government. This multi-pronged initiative will join the dots between the various reconstruction components, and significantly contribute to the betterment of the Iraqi people”.

UNDP Resident Representative a.i. for Iraq, Gerardo Noto, said:

“We are grateful to EU for our excellent partnership. We jointly help people of Iraq so that no one is left behind as all UN Members Countries committed in the Agenda 2030 and Sustainable Development Goals (SDGs). This is yet another practical example of support to the authorities and citizens of Iraq in regaining the trust of the local communities and rebuilding the state institutions towards a new social contract to sustaining peace and sustainable development”.

Earlier, the EU-UN delegation visited the Old City, site of some of the worst fighting – and destruction. They inspected the reconstruction work at the Al-Nuri Mosque, a symbol of Mosul’s history and culture that Da’esh deliberately destroyed its landmark leaning minaret before their retreat from the city. The work is part of ongoing projects to repair heritage sites by UNESCO throughout Mosul Old City’s funded by the EU.

UNESCO has launched “Revive the Spirit of Mosul”, an initiative that has the support of the Government of Iraq and in line with the Initial Planning Framework for Reconstruction of Mosul, which was jointly developed by the United Nations Human Settlements Programme (UN-Habitat) and UNESCO in collaboration with the Governorate of Ninewa, to rehabilitate Mosul’s rich and diverse cultural heritage. Restoring the identities within the communities of Mosul and other liberated areas of Iraq contributes to reconciliation and promotes more just, peaceful and inclusive societies.

“UNESCO is very grateful to the EU for its contribution to the reconstruction and restoration of the Old City of Mosul, in the context of the UNESCO ‘Revive the Spirit of Mosul Initiative’. This support contributes to the physical reconstruction of one of Iraq’s most emblematic historical cities, which has been severely damaged and destroyed. It also benefits directly the local community – by providing skills and jobs to thousands of young people” stated Louise Haxthausen, Head of UNESCO in Iraq. “We are particularly pleased that part of this contribution is dedicated to the urban rehabilitation of the old city of Basra, another highly significant historical city of Iraq,” added Louise Haxthausen.

UN-Habitat and UNDP are also working together in Mosul to rehabilitate damaged houses, repair secondary infrastructure, retrofit public facilities such as schools to promote the environmental responsiveness of buildings, and involve youth in redesign of public open spaces. Yuko Otsuki, Head of UN-Habitat in Iraq, expressed gratitude for the EU support “to continue improving the living conditions of Iraqi population through urban recovery investments and job and income generating opportunities in conflict-affected areas.”

The delegation toured Mosul University, once a major centre of learning in Iraq that Da’esh turned into a command post and weapons cache. Mosul University, Iraq’s second largest university, has suffered major damage, and it is estimated that rehabilitation work would require 350-500 million dollars. The university was cleared of explosive hazards, included Improvised Explosive Devices (IEDs).

The work of UNMAS lies at the core of the stabilization and rehabilitation work. Mindful that no stabilization work and return of IDPs can be sustainable without ensuring a safe environment, the EU signed a contract granting UNMAS 10 million euros to continue the clearance of contaminated hospitals, schools, roads, bridges, religious sites and neighborhoods.

“We are very grateful for the support provided by the international community and more specifically by the EU. With this contribution, UNMAS Iraq will be expanding the clearance capacity in Mosul and also deploy capacity in Sinjar,” said Pehr Lodhammar, UNMAS Iraq Senior Programme Manager.

The group also visited the Ninewa Directorate of Agriculture where they were briefed about a project supported by the EU and the UN Food and Agriculture Organization (FAO) to support recovery of agricultural livelihoods by revitalizing of food production, value chains and income generation in Ninewa.

“I am so pleased to see the EU has agreed to help us rehabilitate key facilities and equipment of the Directorate as well as rebuilding livelihoods for so many smallholder farmers. Creating jobs in this heart land of agriculture is really key to community stabilization,” said Dr Fadel El-Zubi, FAO Country Representative in Iraq.

The EU has contributed a total of 184.4 million euros since 2016 to support stabilization and humanitarian efforts undertaken by the UN in support of the Government of Iraq.

(Source: UN)

The European Union has adopted today a €56.5 million package to promote sustainable job creation and strengthen support to refugees, internally displaced populations and their host communities in Iraq.

This brings the total EU development assistance mobilised in favour of Iraq in 2018 to €129 million and it is part of the €400 million pledged by the EU at the Iraq Reconstruction Conference held in Kuwait in February 2018.

Iraq is facing enormous challenges to rebuild the areas affected by the conflict and assist people in need. The purpose of the programme adopted today is to contribute to the development of the urban areas of Mosul and Basra, and of the rural areas of Nineveh governorate.

This will help returning displaced populations, vulnerable youth and women find income opportunities and obtain services to respond to their essential needs. The assistance will also be used to promote youth entrepreneurship notably via start-up services. By supporting sustainable and inclusive economic growth in Iraq, the help is delivering also on the Sustainable Development Goals and the priorities of the Government of Iraq.

Commissioner for International Cooperation and Development Neven Mimica said:

“The EU is delivering on its commitments made last February at the Iraq Reconstruction Conference in Kuwait. This new support will create opportunities and jobs, helping some of the most vulnerable communities to get back on their feet and rebuild their lives.”

The measure adopted today also includes a €15 million contribution to the EU Regional Trust Fund in Response to the Syrian Crisis, the central aim of which is to provide a coherent and swift response to the needs arising from the massive displacement and returns caused by both the Syrian and the internal Iraqi crises.

This action aims to enhance public service delivery in sectors like education and health. It will enhance access to livelihood opportunities for refugees, internally displaced persons, returnees and their communities. It will also uphold the long-standing Iraqi policy of protection and support of people residing and seeking protection in the country.

Today’s measure complements the €72.5 million package adopted last October to foster stabilisation and socio-economic development through support to basic service delivery and improved living conditions in conflict areas. This package included measures to reactivate economic activity and entrepreneurship, assistance to facilitate the clearance of lands previously contaminated by explosives, and support to reforms in the energy sector.

These measures are in line with the 2018 EU strategy for Iraq and the Council Conclusions of 19 May 2017 on Iraq as a pilot country for implementing the Humanitarian-Development Nexus, and reaffirm the EU commitments as stated during the Kuwait Conference for the Reconstruction of Iraq. The total EU development assistance to Iraq amounts to €309.8 million since the beginning of the crisis.

(Source: EU)

(Picture: Realistic wavy flag of European Union, from NiglayNik/Shutterstock)

By John Lee.

Iraqi President Barham Salih has told an international conference in Rome that Iraq will remove any impediments to Iraqi and foreign private sector companies, as well as international financial institutions, donor countries and sovereign wealth funds, to invest in major infrastructure projects in the country.

He added that these projects may include deep port facilities in Basra, a highway network, new railways, airports, industrial cities and dams, and irrigation projects in the Nineveh Plain, Garamian, Erbil, as well as land reclamation in the south.

 

The following is the full text of the speech delivered by His Excellency President Barham Salih at the Conference of the Mediterranean Dialogues on Thursday afternoon, November 22, 2018:

Excellencies,
Distinguished Guests,

First of all, I’d like to thank the Italian Ministry of Foreign Affairs and ISPI for organizing this conference and the opportunity to address this distinguished audience. I also want to thank His Excellency President Sergio Mattarella and His Excellency Prime Minister Giuseppe Conte for their kind invitation to Italy.

Many may say there is nothing unique about the present day Middle East — we are living through yet another phase of conflict— as we have been plagued by conflict and powers struggles for much of our contemporary history.

However, the military defeat of DAESH and the formation of a new government in Baghdad may well represent a turning point not only for Iraq, but also potentially for the wider Middle East. Iraq has been the epicenter for change in Middle East- for millennia, Iraq has often been the catalyst, the precursor regional order— or disorder!

I dare say that there is now an opportunity to reorient Iraq’s trajectory and propel the country towards prosperity and stability. This will require embarking on fundamental internal reforms, both political and economic.

As such, Iraq is in need of an internal dialogue to address the underlying structural flaws at the crux of the post-2003 political order. Iraqis are indignant at years of conflict and the failure to deliver services. Restoring basic services like water and electricity, reconstruction of the devastated communities by the war with DAESH and repatriation of our IDPs to their homes is an urgent challenge. Corruption and abuse of public funds undermine the viability of the Iraqi state and sustains the cycle of conflict and terrorism. It is imperative to dry up the swamp of corruption.

The defeat of ISIS was undeniably a monumental challenge and impressive success for Iraqi armed forces— the Army, Police, Hashd Al Shabi mobilized by the fatwa of Ayatollah Sistani and Peshmerga forces fought side by side and have become battle hardened. In this context, we are grateful for the help rendered by our allies in the international coalition, led by the United States and which comprised many nations including our generous host Italy. The task ahead is to enhance our defense and intelligence capabilities, integrate our armed forces within the framework of our national defense institution and affirming accountability of all armed forces to the state.

There remain issues of contention between the Kurdistan Region and federal government— time to resolve these issues in a fundamental way through adhering to the constitution. There is renewed hope as the our new PM Dr Adil Abdul Mahdi and the Kurdistan leadership have pledged to move on to resolve these outstanding issues. The recent agreement to resume oil exports from Kirkuk to Ceyhan is a welcomed gesture in this context.

However, ending the crises that plague Iraq also require a reconstruction of the current political order to restore citizen trust in the government. A reformed political order must be based on the protecting constitution, the civil state that strengthens civic values, supports the role of women and their rights, and ensures a commitment to human rights.

A most important and consequential challenge for Iraq today is economic reform and regeneration. Iraq is endowed with immense natural resources, water and fertile land— and an indispensable geopolitical position that can become the hub for regional trade and economic integration. Yet decades of war, sanctions, conflicts, economic mismanagement and corruption have tuned Iraq into an extreme rentier state. This is unsustainable— we are today a 38 million population, and increasing at a rate of one million each year— youth unemployment is rampant— this is a profound security, social and development challenge.

The new government, led by Adil Abdul Mahdi, a pragmatic reformer and economist, is pursuing an ambitious economic restructuring agenda based on empowering the private sector and promoting investment. The unity of Iraq and its security is crucially dependent on strengthening infrastructure links within Iraq and with the neighborhood. This is imperative to bind the country together and to promote common interests with the neighbors and to ensure job opportunities for our youth.

Iraq will be eliminating impediments to Iraqi and foreign private sector companies, as well as international financial institutions, donor countries and sovereign wealth to invest in major infrastructure projects. These projects may include deep port facilities in Basra, a highway network, new railways, airports, industrial cities and dams, and irrigation projects in the Nineveh Plain, Garamian, Erbil, as well as land reclamation in the south. Similar experiences can be seen in Thailand, Vietnam and India, which attracted investment funding from sovereign wealth funds in Japan, China and the Gulf.

In addition to local economic growth, these projects could also contribute to regional economic prosperity. Iraq is an important strategic hub that joins the Arab world with Iran and Turkey and connects the economies of the Gulf and Europe. These could connect the countries of the region so that Iraq could become the heart of a new Silk Road to the Mediterranean.

But for Iraq to succeed and stabilize, it requires a regional order that can embrace and nurture its stability. Iraq has been the domain for regional power struggles— the rivalry over Iraq, and within Iraq, among regional and global actors have sustained and deepened Iraqi crisis. For the last forty years, Iraq has been moving from a war to a war, sanctions and terrorist onslaught and condemned to en ever deepening cycle of crises. This is got to end. It is time Iraq’s stability and prosperity is turned into a common intertest in the neighborhood. Iraq is an important country in the Arab world— This Arab anchor for Iraq is vital economically and politically, and we are emphatic about fully developing our relations with our Arab and Gulf neighbors. Our relations with Iran is also important, we share a border of 1400 km, and much social and cultural bonds — and it is in our national interest to promote good relations with Iran and alike with our northern neighbor, Turkey, which is undeniably an important economic geopolitical actor.

I just come back from a tour to our neighbors in Kuwait, UAE, Jordan, Iran and Saudi Arabia— our message was that Iraq is adamant to protect its independence and sovereignty— our priority is economic regeneration and jobs for our youth— and that we want Iraq’s stability, sovereignty and prosperity to be shared interests for the neighborhood. I made the point that Iraq’s prospects for success is real, but remains precarious, so it should NOT be burdened with further tensions and escalations in the neighborhood. The Middle East needs a regional order based on shared security interests in the face of violent extremists and also rooted in economic collaboration and integration. As in the past, sovereign Iraq with its geopolitical, cultural and economic relevance can be a catalyst for such an order.

I am sure many of you will consider this as too ambitious— perhaps mere wishful thinking. Europe did it after two devastating World Wars— many other regions of the world have moved away from decades of conflict. We must pursue this agenda for our region with vigor and determination— it is primarily our responsibility in the region— and our people deserve better. However, legions of unemployed youth, millions of IDPs in camps— poverty and conflict are the incubators for terrorism, extremism and yes immigrants fleeing our fertile an rich lands to come to the shores of Europe— this should also be shared global interest— certainly a European interest.

This conference theme is about youth and women empowerment. The agenda of reform in Iraq, and the vision for a durable regional order in the Middle East, is what will defeat violent extremism through providing education, meaningful job opportunities for our youth and prioritizing human development as a core aim for our governments and for the global powers.

Thank you.

(Source: Office of the Iraqi President)

UN-Habitat and UNESCO presented the Initial Planning Framework for Reconstruction of Mosul

On 15 November 2018, the United Nations Human Settlements Programme (UN-Habitat) and the United Nations Educational, Scientific and Cultural Organization (UNESCO) presented the Initial Planning Framework for the Reconstruction of Mosul, offering perspectives on how to ‘Build Back Better’ the city for the people of Mosul.

Over 100 participants from the local government, private sector, civil society organizations and the United Nations agencies gathered at the Ninewa Governor’s office to discuss the priorities and recommendations for the reconstruction of Mosul, with special attention to the Old City.

The event highlighted the complex challenges ensuring a fast reconstruction, while protecting the heritage and historical characteristics of the Old City. It also touched upon the problems that wider Mosul is currently facing in the housing sector and the urgent need to support vulnerable returnees whose houses were completely destroyed, which continues to be a major obstacle for the return of internally displaced persons in camps to Mosul.

H.E. Mr. Nawfal Al Sultan, Governor of Ninewa, noted the prominent role of the United Nations agencies in the reconstruction of Mosul, and reiterated the importance of collaboration between the government offices, the United Nations agencies and the people of Mosul. He also expressed his hope that Ninewa will be built back better, asking for continuous support from the international community.

Ms. Marta Ruedas, Deputy Special Representative of the Secretary-General and United Nations Resident and Humanitarian Coordinator, explained that the Framework provides a holistic and integrated approach for the reconstruction of Mosul, noting that the top priority is to protect heritage sites in the Old City from further damage as analysed and recommended in the Framework.

Both H.E. Mr. Nawfal Al Sultan and Ms. Marta Ruedas called for setting up a specialised committee to follow up on and ensure that the actions recommended in the Framework are endorsed by the relevant authorities and implemented in a timely manner.

After gathering comments and feedback, the Framework will be finalized and distributed to key stakeholders, including national and local government counterparts, representatives of civil society, the private sector and the community, United Nations agencies and donors.

(Source: UN)

Aiming for more sustainable options for dealing with the huge amounts of rubble borne out of the ISIL conflict, municipalities of around half a dozen devastated cities in western Iraq explored opportunities to establish debris recycling centres to help advance recovery efforts at a two-day workshop held in Ramadi’s Anbar University on 7-8 November 2018.

Hosted by Anbar Governorate and organized in collaboration with the Iraq Ministry of Health and Environment with technical advisory support from UN Environment, the gathering brought together – for the first time – key stakeholders from local authorities, technical government departments, university academics, demining experts, as well as UN agencies to discuss more sustainable options for dealing with the huge amounts of rubble created by the ISIL conflict.

“Over two years since retaking most of Anbar’s shattered cities from the grips of ISIL terrorists in 2016, rubble continues to be a major obstacle for tens of thousands of displaced persons to regain their homes, and restart their lives and businesses,” said Mr. Mustapha Arsan, deputy governor of Anbar Governorate.

Municipal representatives from the most damaged cities of Ramadi, Haditha, Hit, Qaim and Kubaisa, in Iraq’s upper Euphrates region, underscored the major problems they continue to face in removing colossal volumes of rubble. Lack of debris removal equipment and inadequate operational budgets were highlighted as major constraints. While most of the rubble in the streets has been removed, much of the remaining debris will be generated from building demolition.

The Qaim Maqam (head of district) of Ramadi, Mr. Ibrahim Al-Awsaj, stated that around 80 percent of Ramadi – capital of Anbar governorate with a population of over 570,000 people before the conflict – lay in ruins. Preliminary estimates by Ramadi municipality indicate that around three of the seven million tonnes of debris have so far been removed with extensive support from the United Nations Development Programme (UNDP)’s Funding Facility for Immediate Stabilization.

Furthermore, debris removal is significantly complicated by exceptionally high levels of contamination with unexploded ordnance and booby traps. “Over 20,000 explosive devices have so far been from Ramadi city alone,” said Mr. Al-Awsaj. Training and establishing clear procedures for dealing with explosives in the debris is a critical prerequisite for clearing-up the rubble.

“Debris continues to be scooped and dumped in an uncontrolled manner creating serious health and environmental risks and burdensome economic liabilities for the future,” decried Mr. Qais Abd, head of the Anbar Environment Directorate. Mr. Abd added that “future campaigns to remove debris haphazardly dumped all over the place may be needed,” engendering additional costs for the financially strapped local authorities.

Emphasizing that many other post-conflict cities faced similar challenges, UN Environment expert Martin Bjerregaard affirmed that considerable experience exists from elsewhere that can help inform Anbar’s debris management efforts. “We are not starting from scratch here,” said Mr. Bjerregaard, who went on to share lessons from neighbouring Mosul as well as Syria, Lebanon, Philippines, and going to back the Balkans conflict in the late 1990s.

The workshop also highlighted ongoing work by UNDP’s Funding Facility for Immediate Stabilization and the International Organization Migration to establish debris recycling centres in Mosul with technical advice from UN Environment. This initiative will help create much needed jobs through cash-for-work programmes.

Original research by Anbar University engineer Mr. Salah Thameel found that crushed debris from Ramadi were of high quality and complied with Iraqi engineering standards for use in civil works, including as underlying subbase for roads.

“The cost of crushing the debris is about one third of buying fresh quarry materials and, if transportation costs are added, it would account for only 10 percent,” explained Mr. Thameel. Furthermore, “by reusing the crushed debris, we would significantly reduce negative environmental impacts of quarrying and polluting emissions from trucking gravel from quarry sites,” he asserted.

Crushing debris would not only significantly facilitate rubble removal operations by reducing the volumes handled, but would also result in important cost savings. “We are eager to start with recycling and welcome support from the friends of Iraq to help us in rebuilding our damaged cities,” stated Ms. Asmaa Osama, President of the Committee of Health and Environment and member of Anbar Provincial Council.

Workshop participants further recommended that an Anbar-wide debris management action plan led by the Governorate is developed to help coordinate debris recycling efforts across its damaged cities. Key actions including identification of potential sites for setting-up debris recycling centres were also discussed with a specific focus on Ramadi city as a demonstration pilot.

(Source: UN)

From Al Jazeera. Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

The Iraqi city of Fallujah in Anbar province is struggling to recover, two years after the Iraqi army defeated ISIL fighters.

Their battle left the city in ruins. As well as reconstructing destroyed buildings and creating jobs, the local government is also handing out compensation.

But some complain the process is unfair.

Al Jazeera’s Rob Matheson reports from Baghdad, Iraq.

The Nineveh Governor Nofal al-Akoub and EU Delegation representative Mathieu Goodstein launched the Online Damage Assessment System in Mosul at the Governorate building.

The system gathers information about the damage of vital facilities in a centralised data base and informs administration and donors on both needs and projects implementation in restoring stability and future development of the city.

The reporting system uses web and mobile phone applications, easy graphical interface in both English and Arabic languages, and contains the damages assessed in the province accurately for each sector.

Furthermore, it provides an opportunity for citizens, local and international government agencies, NGOs and donors to monitor process of reconstruction and improvement of services that are fundamental to daily life.

Mathieu Goodstein from the Delegation of the European Union to Iraq, said:

“This project illustrates perfectly well the tangible impacts such initiative has. The real time data collection equally strengthens accountability on all sides of the equation, and the end result is the improvement of the conditions of the people of Ninewa. It is noteworthy to point out that such tool is “homegrown”, epitomizing an Iraqi solution of an Iraqi situation. Widening its scope, this tool clearly has the potential to be replicated in other Governorates – covering a wide range of sectors”.

Nofal al-Akoub, Governor of Nineveh stated that:

“This EU  visit is a support to the local government of Nineveh. We also thank UNDP for its support for the reconstruction, which was the first organization to support of Nineveh province. This online system is unique in Iraq and the rest of the provinces can borrow this experience and we are fully prepared to support that.”

The system was developed under Local Area Development Programme (LADP), implemented by United Nations Development Programme (UNDP) and funded by the European Union. In addition, LADP has supported the Governorate in building capacity for effective planning through the development of Ninewa Response Plan.

(Source: UNDP)

By Ahmed Tabaqchali (pictured), CIO of Asia Frontier Capital (AFC) Iraq Fund.

This article was originally published in the Marsh to Mountain blog. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

“Forget the Donations, Stupid”: New dynamics in funding the reconstruction of Iraq

Key Takeaways

In the months following the Kuwait Conference a sea change has taken place in Iraq’s financial health that has yet to be reflected in perceptions.

Higher oil prices, as a result of the changed dynamics of the oil market and the robust health of the global economy, has had a transformative effect on Iraq’s finances.

By end of 2018, based on realized oil prices of 2018 and average year-to-date for 2018, Iraq is on its way to have a cumulative two-year budget surplus of $18.8bn instead of the initially projected cumulative deficit of $19.4bn.  

This would allow it to start the reconstruction process on its own resources. Coupled with a potential surplus of $9.3bn in 2019 would give the country a great deal of flexibility to fund further reconstruction over the near-term. 

The surplus of $18.8bn by end of 2018 would equal a stimulus of 14.5% of non-oil GDP once reconstruction projects are underway, which would further accelerate economic activity. 

However, this three-year window of opportunity faces the twin headwinds of Iraq’s corrosive corruption and all of prior governments’ failures to spend oil wealth on  rebuilding the country’s infrastructure, spending it instead on expanding the state’s role in the economy.

——————————————————————-

A great deal has changed since the Kuwait Conference on the reconstruction of Iraq, which was marred by misconceptions of international observers who bemoaned that it failed to achieve its objective in raising enough donations. These were not helped by an Iraqi side that went to the conference looking for donations (investments in Iraqi speak) by focusing its efforts solely on presenting a shopping list of projects that needed $88bn in funding over five years.

These misconceptions were addressed in a prior article[1] which highlighted that over five years, Iraq should be able to fund $77bn out of this $88bn through a combination of $50bn from its oil revenues and $27bn in borrowings. Crucially, this level of direct funding and borrowing would be consistent with maintaining macroeconomic stability, which means that funding the reconstruction would not distract from the government fulfilling its traditional role in the economy, and so the reconstruction will contribute to sustainable economic growth.

This ability to fund the $77bn was derived from the IMF estimates for Iraq’s budget for 2018-2022 based on updated market-implied future Iraq oil prices, i.e. the implicit price of oil from the futures markets. In February, the implied price for Iraqi oil was $60/bbl for 2018, declining to $51 by 2022. These are in sharp contrast to the IMF’s estimates in August 2017 which used Iraqi oil prices of $45.5 in 2018, increasing to $47.2 by 2022. The 2018-2022 estimates made in 2017 would have made it impossible for Iraq to fund any portion of the needed funding as it would have needed to borrow to balance its budget during these years[2].

Iraq’s high dependence[3] on oil means that its budget and GDP are highly sensitive to the volume of oil it exports and to oil prices. The massive change in oil prices over the last few years, as seen from the five-year Brent crude price chart below, played havoc with Iraq’s budget during the ISIS conflict 2014-2017. They forced the government into a sharp fiscal retrenchment by cutting costs and cancelling all investment spending, while increasing military spending which had substantial negative knock-on effects on the economy[4]. The significant effects of oil price changes extend to planning for funding the reconstruction directly by Iraq, and indirectly by its stakeholders who need to take into account these effects in relation to their level of contributions and expected investment returns.

Brent Crude Jun 2013-Jun 2018, Source: Financial Times[5]

The fundamentals of the oil market went through major changes over the last four years, from expectations of supply scarcity versus increasing demand up to mid-2014; fears of increasing supply overwhelming decreasing demand from mid-2014 into late-2016; easing somewhat to hopes for a rebalance by mid 2017; and finally, into growing demand exceeding declining supply. Overlay the robust health of the global economy and it is expected the oil market will continue to tighten in the immediate future. This outlook is complicated by disruptive technologies such as those behind the Shale oil boom in the US, and by geopolitics affecting major suppliers such as Iran and Venezuela. These are balanced somewhat by OPEC’s actions and shifting perceptions of either its increasing dominance or increasing irrelevance. These perceptions came into sharp focus with the OPEC & non-OPEC supply cut agreement in late 2016 that started the recovery process. Recently there is news that talks have been underway to increase supply as prices have risen too high in response to threats to Iranian and Venezuelan supplies.

These would make budget planning, let alone long-term reconstruction planning, for Iraq an exercise in folly if it were to use the latest market implied future prices or to accept the prevailing wisdom at any given time as a basis for planning. This pretty much explains the conservative assumptions used by the IMF -which the world financial community depends on in assessing Iraq’s financial soundness and its credit worthiness. These assumptions served as the basis on which Iraq and the IMF identified creditors and donors for Iraq to cover its estimated budget deficits for 2017-2022 as part of the IMF’s 2016 Standby agreement.  Moreover, the IMF updated these assumptions with new estimates for forward oil prices as part of its Kuwait Conference presentation.

A recent article[6] noted “using realized prices of Iraqi oil of $49.1/bbl for 2017, and assuming Iraqi oil prices of $60/bbl for 2018, then declining to $51/bbl in 2022, would produce a cumulative surplus of $47.4bn for 2017-2022 instead of the earlier assumed cumulative deficit of $17.6bn”[7].  While using higher estimates for oil prices would result in a cumulative surplus of $78.2bn. In the first scenario Iraq could fund the reconstruction by a combination of $50bn from its oil revenues and $27bn from borrowings, and the final $11bn from aid/donations, which is in-line with the assumptions made by the IMF at the Kuwait conference.  While, in the second scenario Iraq could fund the reconstruction by a combination of $80bn from its oil revenues and $8bn from borrowings which is a vastly different proposition.

Given the impossibility of forecasting future oil prices, especially up to 2022, this article will consider the data for 2017-2019 given the higher degree of predictability in this short timeframe.

The IMF updated its global growth projections to +3.9% for both 2018 & 2019, up from its previous projections of 3.7% for both which was made in late 2017 as part of its World Economic Outlook (WEO) in April[8]. It believes that the upswing that began in 2016 has accelerated since then but it expects that it will taper off afterword’s. These coupled with changed dynamics in the oil supply/demand imply higher oil price assumptions for the period, which for the short-term has positive implications for oil exporting nations in MENA as outlined in its Regional Economic Outlook (ROE) May[9].

For Iraq, these would have huge implications for its economic profile for 2017-2019 and thus to its ability to start funding the huge reconstruction demands. The table below looks at the original IMF estimates for Iraq’s budget 2017-2019[10] versus updated estimates for 2017-2019 based on the latest actual data for 2017 and updated estimates for oil prices.

For sources & assumptions see endnote[11]

The updated assumptions for 2017-2019 imply a cumulative surplus of $28.1bn vs earlier assumptions of a cumulative deficit of $22.8. Although Iraq has identified funding sources for each year during the budget planning stages, it is likely that it would have not utilized them due to the higher revenues as a result of the higher than planned oil prices. These unused funding sources could be as high as $14.3bn[12].

Irrespective of the above, the upcoming government should have a cumulative surplus of $18.8bn by the end of 2018 which can be used to start the reconstruction process, which coupled with the likely surplus of $9.3bn in 2019 would give the country a great deal of flexibility to fund further reconstruction over the near-term. This flexibility would be augmented by $30bn, over five years, in investments and trade credit guarantees that Iraq received during the Kuwait Conference in February[13].

The effect of this spending flexibility on economic activity is enormous, in that should the surpluses be spent on reconstruction from 2019 over a two-year period, this would be equivalent to an economic stimulus of 14.5%[14] of 2019’s non-oil GDP over this period. This is a major economic stimulus by any account that would be magnified over the next five-years should the $30bn in pledges that Iraq received materialize.

However, the risk, and the likelihood, is that the upcoming government would succumb to public pressures to use some of this extra fiscal flexibility on populist measures. Such pressures have already been applied by parliament as it amended the budget by removing the 3.8% tax on salaries and pensions to appease an angry electorate in an election year. The elections marked by the continued pro-reform demonstrations since 2015, and the large active non-participation movement imply that the upcoming government would increase spending on populist measures to pacify the electorate and provide a visible peace divided.  In fact, the updated estimates for 2018 & 2109 in the table above reflect the expectations of higher expenditures, which would narrow the surplus for these two years, which in turn would detract from the funds available for infrastructure investment.

A further risk is the country’s corrosive corruption which would find breathing space as a result of higher oil revenues, especially if they are spent on populist measures, in the process relieving public pressures on the government to reform and to expose corruption. Moreover, the practice post-2003 of using state contracts as a means of reinforcing political influence on selected players in the private sector could continue, further entrenching corruption, with the government ability to fund the reconstruction and ability to award contracts.

Even, if the government would not succumb to populist measures, it would still need to resort to borrowing to continue funding the reconstruction. This is especially true given the high level of government expenditures, especially its public-sector payroll and social security spending. Moreover, higher oil prices for 2017-2019 will likely lead to the government to slow the pace of fiscal consolidation in response to public demands. This therefore means that budget surpluses will decline in time, especially as oil prices are likely to moderate in the coming years[15].

Borrowing, especially from the commercial debt markets, imposes a much-needed discipline on the government to adhere to sound fiscal policy and to continue the path of reducing its role in the economy and encouraging the development of the private sector[16]. Combined with the IMF’s 2016 Stand-By Agreement (SBA) this should help ensure sustainable macroeconomic stability.

Iraq’s ability to assume debt that is sustainable and within the confines of maintaining macroeconomic stability is much higher than assumed by many who merely look at the headline figure. An upcoming report by the author looks into the composition and background of Iraq’s debt[17]. The IMF estimates the total debt to be $122.9bn by end of 2017[18], made up of external debt of $73.7bn and domestic debt of $49.2bn.

However, $41bn out the external debt is to non-Paris Club creditors, mostly the GCC nations, that date back to the pre-2003 regime which are under negotiations to reduce them on the same terms as applied by the Paris Club of creditors. Should this happen they would likely be reduced by 90% to $4.1bn[19]. Therefore, including the unused borrowing for the 2017 deficit, this means that actual debt by end of 2017 is more likely to be $71.7bn[20] than the headline figure of $122.9bn. This would imply debt/GDP ratios of 37.3% for 2017 and 32.1% for 2018[21], giving Iraq plenty of scope to assume debts of up to $40bn and still keep debt/GDP ratio under 50% for 2018[22].

A sea change in Iraq’s position has taken place since the months leading up to the Kuwait Conference, but perceptions have not. Iraq’s position was that of a country with a debt/GDP ratio of 63.8%/65.3% for 2017/18, that needs to borrow to fund its budget deficit for the next few years and thus needs aid/donations to fund an urgent and massive reconstruction. The sea change, based on the IMF’s May REO, is that Iraq now has a debt/GDP ratio of 58%/54.7% for 2017/18, a budget surplus and can start to fund its reconstruction. This article further shows that Iraq can start funding its reconstruction in 2018 with $18.8bn in cumulative surpluses based on current oil prices. If the argument above on the underlying nature of its debt were to unfold then Iraq can add to this by accessing $40bn in the debt markets- which is far more than its immediate needs for reconstruction.

The underlying positive for Iraq that is fortunately to a large extent free from any government planning, or mismanagement, is that the reconstruction along the lines described by the joint study of the World Bank Group (WBG) and Iraq’s Ministry of Planning (MoP), on its own, will generate substitutional non-oil economic activity[23]. This activity can over the course of the next five years provide the non-oil economy with sufficient momentum for Iraq to escape its high oil dependence, which no government has attempted before. The silver lining of the trauma caused by the ISIS conflict, coupled with collapsing oil prices was that Iraq, in spite of all the improbable odds, united and climbed its way out of the abyss and of total disintegration. Given Iraq’s ability to start self-funding the reconstruction, a similar silver lining is that the recovery from the same trauma, in the form of reconstruction, could lead the country’s evolution away from pure oil dependence.

Disclaimer

Ahmed Tabaqchali’s comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

 

[1] http://www.iraq-businessnews.com/2018/02/22/its-not-the-donations-stupid-key-points-from-kuwait-conf/ – _edn3

 

[2] IMF’s estimates and presentation in the Kuwait conference are at:  Session 3 after clicking on the pdf icon of the presentation. Presentation starts at minute 8.20 on the youtube link on the link below: –

https://view.publitas.com/1692ac51-faf7-464f-a9c2-1784ed1da647/iraq-reconstruction-and-investment-part-3-investment-opportunities-and-reforms/page/1

IMF’s earlier estimates are from Country Report No. 17/251

 

[3] 2017 estimates: Oil exports accounted for 99% of all exports, Oil revenues accounted for 87% of government revenues which in turn accounted for 32% of total GDP. Moreover, Oil GDP accounted for 38% of total GDP and indirectly accounts for the bulk on non-Oil GDP as the government’s orders drives non-Oil GDP (source: Country Report No. 17/251).

 

[4] A report by the author discusses this dynamic and the government response http://www.iraq-businessnews.com/2017/07/17/economic-consequences-post-mosul/. Some highlights of which are “The government maintained overall spending on salaries and pensions, but it introduced new and increased existing consumption taxes on a large number of consumables while it also increased utility prices, Non-oil investments bore the brunt of the cuts as the government sharply curtailed all capital spending and investments.”

 

[5] https://markets.ft.com/data/commodities/tearsheet/summary?c=Brent+Crude+Oil

Iraqi oil sells for about $5/bbl discount to Brent.

 

[6] http://www.iraq-businessnews.com/2018/05/23/market-review-elections-the-economy-and-the-stock-market/

 

[7] The deficit of $17.6bn was based on IMF estimates made in 2017 (Country Report No. 17/251). The IMF has since then updated its revenue estimates higher based on higher oil prices which imply a much lower cumulative deficit than the one used here, but these estimates were only up to 2019 and hence old estimates are still used. Updated data is at: World Economic Outlook April 2018 & Regional Economic Outlook May 2018 in the two footnotes below.

 

The estimates depend on IMF projections which assume that the government spending would continue to be constrained but this is unlikely given public demands for an ease as a result of higher oil prices. This will be balanced in this report’s higher oil price assumptions such that the surpluses would be the similar as will be seen later in this report and in the author’s other recent publications.

 

[8] https://www.imf.org/en/Publications/WEO/Issues/2018/03/20/world-economic-outlook-april-2018

 

[9] http://www.imf.org/en/Publications/REO/MECA/Issues/2018/04/24/mreo0518 (data only until 2019)

 

[10] IMF Iraq Country Report No. 17/251 (http://www.imf.org/~/media/Files/Publications/CR/2017/cr17251.ashx). The IMF assumptions are used throughout for assumptions made in 2017, instead of available Iraq budget figures for 2017 & 2018, to ensure consistency with other estimates used throughout. Moreover, the data from the IMF country report 17/251 are used instead of the IMF updated data (footnotes above) as the updated figures provide only headline numbers without specific details that are needed for a full analysis.

Note: figures are rounded, and so total figures might not add up fully.

 

Below are the main differences between IMF projections and those of Iraq’s budgets for 2017 & 2018, and Iraq’s actual 2017 budget spending.

 

Iraq’s budget vs IMF projections for 2017

  • Iraq’s budget
    • Total revenues of $66.8bn made up of oil revenues of $57.5bn based on oil price of $42/bbl, and total exports of 3.75mbbl/d. These exports include the KRG’s exports of 0.55mbbl/d.
      • The agreement with the Kurdistan Regional Government (KRG) was for it to export 0.55mbbl/d through Iraq’s State Oil Marketing Organization (SOMO). In return the KRG would receive 17%, less sovereign expenses, of the federal budget. However, neither have fulfilled their obligations, yet, both of Iraq’s budget and the IMF budget assumptions include the KRG’s oil exports and its share of expenditure.
    • Expenditures of $82.2bn, creating a deficit of $18.3bn.
  • IMF projections:
    • Total revenues of $69.2bn made up from oil revenues of $61.3bn based on oil price of $45.3/bbl and total exports 3.8mbbl/d, and non-oil revenues of $7.5bn
    • Expenditures of $79bn, creating a deficit of $9.8bn

 

Iraq’s preliminary budget vs IMF projections for 2018

  • Iraq’s budget
    • Total revenues of $77.5bn made up from oil revenues of $65.2bn based on oil price of $46/bbl, and total exports of 3.888mbbl/d. These exports include the KRG’s exports of 0.55mbbl/d.
    • Expenditures of $88.1bn creating a deficit of $10.6bn
  • IMF Projections
    • Total revenues of $73.9bn made up from oil revenues of $64.3bn based on oil price of $45.5/bbl, and total exports 3.9mbbl/d and non-oil revenues of $9.3bn
    • Expenditures of $83.4bn creating a deficit of $9.5bn

 

Iraq’s actual 2017 budget revenues and expenditures based on Ministry of Finance (MoF) data

  • Oil revenues of $55.3bn, which exclude the revenues from the KRG’s direct exports of 0.55mbbl/d (included in the IMF projections in the table used and in Iraq’s budget planning). These revenues would have been higher than planned by the government which assumed an oil price of $42/bbl total, including KRG, exports of 3.75mbbl/d vs the realized price estimated at $49.2. They are also higher than the IMF est.’s which assumed a $45.5/bbl on total exports of 3.8mbbl/d.
    • If the KRG’s exports of 0.55mbbl/d were sold at the same price, then total revenues would have been $73.6bn vs the Iraq budget plans of $57.5bn or the IMF’s estimate of $61.3bn. This reflects the budgets sensitivity of $1.4n to every $1 change in oil prices.
  • Non-oil revenues of $9.9bn for total revenues of $65.4bn (ex-KRG oil revenues).
  • Expenditures, which excluded the KRG’s share of the budget, were $63.8bn or showing a surplus of $1.6bn.
    • If the KRG’s planned $6.4bn expenditures were to be included, total expenditure would have been $70.2bn vs the planned $82.2bn, which would have resulted in a surplus of $3.4bn.

 

 

Note:  Revenues for 2017, and likely for 2018, benefited from higher than planned oil prices. But, expenditures in 2017, and likely in 2018, were lower than planned. The under execution of the budget expenditure, especially on capital spending, is an ongoing feature of Iraqi governments due to the country’s weak institutional capacity and which possess a risk to the reconstructing effort.

 

Sources for this footnote:

http://www.mof.gov.iq/obs/_layouts/obsServices/DownloadObs.aspx?SourceUrl=%2fobs%2fObsDocuments%2fYear-End+Report+Folder+-+مجلد+تقارير+نهاية+السنة%2fEnd-Year+Report+2017.xlsx

http://www.bayancenter.org/en/2018/03/1461/

(http://www.imf.org/~/media/Files/Publications/CR/2017/cr17251.ashx).

http://www.mof.gov.iq/obs/_layouts/obsServices/DownloadObs.aspx?SourceUrl=%2fobs%2fObsDocuments%2fYear-End+Report+Folder+-+مجلد+تقارير+نهاية+السنة%2fEnd-Year+Report+2017.xlsx

 

 

 

[11] Sources: IMF Iraq Country Report No. 17/251, IMF World Economic Outlook (WEO) April 2018 database, IMF Regional Economic Outlook (REO) statistical appendix, Iraqi Ministry of Finance (MoF).

Assumptions:

  • Updated figures for 2017 are from MoF which show revenues and expenditures for 2017 excluding those for the KRG. However, MoF and IMF estimates and planed budget include those of the KRG (see details in footnote 9).
  • Iraqi oil price averaged $63.5 for Jan-Jun, while Jun’s average was $69.9. The YTD average is used as an estimate for the full year.
  • Total updated revenues for 2018 & 2019 include higher non-oil revenues as the IMF in May’s REO increased its growth rate for non-oil GDP to +4.4%/+5% for 2018/2019 up from 2.4%/3.7%
  • Revenues are estimates based on updated oil price assumptions while expenditures are the updated IMF’s estimates.
  • Updated Expenditures reflect expectations that the government will ease back on its tight fiscal consolidation, however, they might very well be off-set by the historic tendency for lower budget executions.

 

[12] The IMF (Country Report No. 17/251 P: 28) notes “The program is fully financed through the next twelve months, but there is a financing gap of $7.1bn in late 2018 and 2019. The authorities have contacted one donor to fill the 2018–19 financing gap, for which there is good prospect”. The financing gap is made up of $5bn and $2.1bn respectively 2018 & 2019. Which implies that Iraq has achieved full financing for 2017’s $9.8bn deficit, $4.5bn out of 2018’s $9.5bn deficit., and $1.3bn out of 2019’s $3.4bn deficit.

 

Since the actual budget achieved a surplus for 2017 and would likely achieve a surplus in 2018, then Iraq has borrowed $14.3bn ($9.8bn + $4.5bn see above) to fund a deficit that did not materialize and so the funds could either not be drawn which would lower overall debit or used to fund reconstruction projects.

 

However, it should be noted that “fully financed” does not imply that the all of the funds were delivered to Iraq but that funding agreements were made.

 

[13] https://uk.reuters.com/article/mideast-crisis-iraq-reconstruction/factbox-pledges-made-for-iraqs-reconstruction-in-kuwait-idUKL8N1Q55RY

 

[14] This would be about 8.4% of 2019’s updated GDP estimate, but as it would be spent on reconstruction it would be a stimulus of about 14.5% of non-oil GDP. It would have an added significance in that the planned for deficits would have been accompanied by restricted capital spending and continued fiscal consolidation by the government, the reversal of which alone would have expansionary effects.

 

[15] The major shortcoming of the successive governments since 2003, was to use most of the oil revenues on expanding the public payroll and social security spending as main vehicle for transfer of oil wealth. As a result very little of oil revenues went towards reconstructing and building the country’s physical capital that would contribute towards diversification away from oil and to economic sustainability. The upshot is high oil dependence with the resultant vulnerability to external forces, import dependence, weak/small private sector and a skewed labor market.

 

Without a fundamental change of track, such as that agreed by the IMF’s 2016 SBA, the fruits of the country’s expanding energy production profile as a result will perpetuate this process. However, this is unsustainable given Iraq’s large rapidly growing population whose needs for public sector jobs cannot be met under any optimistic scenarios for increased oil production or prices.

 

The upshot, is the fundamental change of track along the SBA guidance will take a number of years to unfold, and as such the public-sector payroll and social security spending will continue to account for the bulk of government expenditure and thus the need for accessing the debt markets to fund reconstruction down the road.

 

[16] As can be seen from the author’s report on Iraq’s debt (link on next footnote) that Iraq’s only debt on truly commercial terms are two Eurobonds worth $3.7bn: A $2.7bn bond issued in 2006, due in 2028 with a 5.8% interest rate; and a $1.0bn bond issued in 2017, due in 2023 with a 6.5% interest rate. However, the third $1bn bond issued in 2017, due in 2022, is guaranteed 100% by the U.S. government, with a 2.1% interest rate, and as such does not constitute debt on commercial terms.

 

Therefore, should Iraq access the commercial debt markets these would require fiscal discipline to assure the markets that debt would be serviced. Some of the requirements would take into account, debt repayments as a percentage of exports, currency stability and the level of foreign reserves in relations to months of imports, balance of payments, budget balance as a percentage of GDP. They would also take into account other liabilities and contingent liabilities such as the state guarantees discussed in footnote #22 below. All of these requirements will affect the amount of debt raised and the interest rate it would carry, which would place a much-needed significant fiscal discipline on the government. Coupled with the huge demands for reconstruction they should help ensure that Iraq’s governments pursue sound fiscal policies while following sustainable macroeconomic stability.

 

[17] Link to be provided in an updated version of this report.

 

[18] Updated figures in REO show that the updated figure for 2017 is $114.6bn of which foreign debt is $68bn. However, the older assumptions of 2017 are used as they are part of longer term projections, and crucially they served as the basis for Iraq securing finding for the expected deficits as explained in an earlier footnote.

 

[19] The IMF notes: “These arrears can be tolerated under the Fund’s policy on Arrears to Official Bilateral Creditors because the Paris Club Agreement was found to be adequately representative (i.e., Paris Club creditors provided most of the financing contributions required from official bilateral creditors in the context of that agreement) and the authorities have since been making best efforts to conclude agreements with non-Paris Club creditors on Paris Club comparable terms. Negotiations to implement debt relief on the same terms as with the Paris Club creditors, i.e. an 89.75 percent net present value reduction, are ongoing.”.

 

In the current environment of the rebuilding of the relationship between Iraq and the GCC it is very likely that these negotiations will lead to a grand bargain in which both sides agree to the same 90% debt reduction in exchange for investment opportunities and long-term agreements.

 

[20] $122.9bn less: (1) 90% of $41 or $36.9bn, (2) Unused deficit funding of $14.3

 

[21] The IMF’s updated GDP figures for 2017/2018 are $197.76bn/ $223.3 and GDP/Debt ratios of 58%/54.4%

 

[22] It should be noted that the government has issued 11 state guarantees that affect the total amount of debt that it can take as these are contingent liabilities. These are a total of $36bn made of which the largest is $32.4bn in guarantees of service payments to independent power producers (IPPs) in the electricity sector for the 14 years of the contacts.  This makes it essential for the government to continue with the electricity sector reform and ensure the collection of tariffs-the failure of which will make the state liable to fulfil its guarantees to the IPP’s which would add to the debt.

 

Separately, the IMF aware of all of the above liabilities, in its presentation in the Kuwait Conference, had argued that Iraq should be able to borrow up to $36bn over the next five-years while its debt to GDP would be around 50% by 2022-23. These were made under lower oil price assumptions, with more fiscal discipline in expenditures, over a longer time frame, but without the benefit of the 90% haircut to the $41bn in debt.

http://www.iraq-businessnews.com/2018/02/22/its-not-the-donations-stupid-key-points-from-kuwait-conf/ – _edn4

 

[23] The IMF has attributed reconstruction for increasing its non-oil GDP growth rates to +4.4%/+5% for 2018/2019 up from prior +2.4%/+3.7%.

 

These figures could be higher should the full $88bn in reconstruction spending be embarked upon over the next five years as that would be a stimulus equivalent to about 14% of non-oil GDP in each year over the five-year period. While, it is ambitious to assume that all of that amount would be properly spent, yet even half that amount would create the conditions for self-sustaining economic activity for the non-oil sector.

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS). He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.