Iraqi Economy Get Affected By Their New Hurdles in August

The Iraqi government faced two major \nhurdles in August -social unrest in  Basra and an ongoing decline in the\n global oil market. However, new  reports indicate that officials are \nstarting to make headway resolving  them. Political and economic \nstability should improve in Iraq if these  problems are resolved by the \nend of the year.

Iraq News - Baghdad Officials Push for Reforms in Basra

Iraqi Government Pursues Reforms in Basra

Problems\n in the province of Basra have created uncertainty for the  rest of the \ncountry. Governor Majid al-Nasrawi faces the possibility of  impeachment\n after a slew of corruption allegations were made against  him. Nasrawi \nhas responded to the accusations by insisting that the  alleged \nimproprieties are baseless and renewed his pledge to turn the  province \naround.

The governor has stated that any problems impacting his \nprovince are  due to years of mismanagement, which have been driven by \noutdated  practices. He said that citizens of Basra will need to vote \nfor new  reforms if they hope to resolve these challenges. Nasrawi is \nalso  requesting additional assistance from the central government.

Part\n of the challenge that Basra faces is the burdensome regulations  \nimposed by the central government. Baghdad recognizes their national  \npolicies don't seem to be helping Basra, so they are considering easing \n some of them. The Independent High Electoral Commission recently  \nannounced that the citizens of Basra have collected 46,212 signatures\n for a petition to provide more autonomy to the region, which would \nmean  that Basra officials could enact some of the policies needed to \ngrow  the economy and provide more relief to their citizens.

"The percentage required by law has been achieved," wrote the HEC.
Nasrawi\n is likely to endorse any reforms that would give Basra more  control \nover its future. He said that he has pursued long-term solutions  over \nthe immediate fixes brought by his predecessors, but will have  more \npower to implement these changes if the central government backs  down a\n little.

Abadi Proposes New Rules to Curtail Corruption
Corruption\n among government officials was a serious problem while  former Prime \nMinister Maliki was in power. Abadi has introduced new  reforms to \nmitigate corruption, but feels that additional measures are  still \nneeded. According to a review from Uticensis Risk Services, Abadi  \nremains the only Shia leader to introduce a detailed plan to address \nthe  issue.

Abadi's proposals have given the Shias more favorable \nattention in  the media. His party will gain a stronger lead over the \nState of the Law  party, which was formerly led by Maliki. While the \nproposals are  helpful to his party, the country is the ultimate \nbeneficiary of these  changes. Reducing government corruption will unify\n Iraq and improve  social sentiments, which are key to improving the \nlong-term direction of  the economy. The value of the Dinar will be \naffected if citizens are  more confident in the role of their elected \nofficials and government  waste is reduced.

Oil and Energy -Officials Wait for Oil Prices to Rebound

Falling oil prices have taken their \ntoll on government revenues over the  past year. The outlook for the \ncoming year is still pessimistic, but  officials are still confident \nthat the long-term direction of the oil  industry is positive. Higher \noil production should offset declining  prices for the foreseeable \nfuture.

Oil Prices May Start to Rebound in 2016
Oil is \ncurrently trading under $45 a gallon, which is less than half  the value\n it was trading in 2010. Collapsing oil prices have reduced  revenue for\n local oil producers and the central government as the  decline has \naccelerated. Experts doubt they will make a solid recovery  in the next \nyear, but expect prices will at least start to rebound  somewhat in \n2016.

Oil Exports Should Rebound in September
According\n to the State Oil Marketing Organization, Iraqi oil exports  dropped \nnoticeably in August. A number of factors appear to have played a  role,\n but one of the most profound was sabotage of a pipeline in Kurdistan.

Kurdish\n officials have stated that the setback has temporarily  hampered the \nregion's ability to export oil to Turkey. They also  announced that \nthieves on the other side of the Turkish border attempted  to steal oil \nfrom the reservoirs. Nevertheless, KRG officials are  confident that \nthey will be able to improve security and will continue  to directly \nexport oil to their partners in Turkey.

A report from the KRG \nstated the region "continued its direct oil  sales in Ceyhan to \ncompensate the Region for the budget shortfalls from  the federal \ngovernment in Baghdad and to continue to pay down debts  accumulated in \n2014 from pre-payments for direct oil sales."

Exports also \ndeclined due to security challenges in Basra. However,  Basra officials \nare also taking measures to address the problem, which  should help \nelevate oil exports in the coming year.

The central government \nhas been able to mitigate the effects of  declining oil prices by \nboosting production over the past year. They  appear confident that \nproduction will pick up again in the next couple  of months, which will \nhelp lift government revenue.

Declining U.S. Output Likely a Boon for the Global Oil Industry
U.S. oil outputs are starting to fall. \n This is leading to speculation that the global oil supply is beginning \n to contract, which would create upward pressure on oil prices. This  \nwould be a boon for OPEC members, because they would probably be able \nto  maintain output better than other nations.

Iraq in particular\n would benefit from lower oil exports from the  United States, because \nthey still have a strong supply of oil and are  bound by more lenient \nrestrictions from OPEC. Iraq is also discussing  proposals to lift \nsanctions that limit its exports, which would allow  the country to make\n up for reduced output from the U.S. and OPEC  members.

Business and Foreign Investment - Iraq Pursues New Trade Routes to Grow Local Trade

Improving trade with other regions \nremains one of the central  government's chief priorities. They have \nrecently taken several  initiatives to improve business activity \nthroughout the country,  including borrowing money from the Islamic \nDevelopment Bank to finance  some of their new endeavors.

New IDB Loan Will Increase Business Activity
The Iraqi Economy\n is seeking a $500 million loan  from the Islamic Development Bank. An \nestimated $250 million of the loan  will purportedly be used to build a new trade route with neighboring countries. \n Few details of the proposal have been released, but the new route is  \nexpected to boost business activity between Saudi Arabia, Iran and \nother  neighboring countries. Improved trade relations with other \nMiddle  Eastern countries has boosted activity in Iraq as more countries\n launch  startups or form partnerships with local businesses.

Baghdad\n hasn't specified how it plans to spend the remaining half of  the loan.\n Simon Kent of Iraq Business News speculates that the rest of  the money\n will be used to fund the salaries of government employees and  \ncontractors that are currently working on ongoing infrastructural  \nprojects.

Foreign Direct Investment in Basra Improves
Both \nBaghdad and regional government officials have taken new  measures to \nencourage foreign businesses to establish a presence in  Iraq. A large \nnumber of businesses have signed contracts with the  Kurdistan Regional \nGovernment over the past year. There are a number of  reasons that this \nregion has received the most interest:

• The KRG has reached a resolution with Baghdad over a dispute regarding taxation of local oil fields.
• Kurdistan\n has one of the fastest growing oil industries in the  country, which is\n driving economic activity throughout the region.
• Kurdistan is gradually earning more freedom from the authority of the central government.

Kurdistan\n has led the way in foreign direct investment, but other  provinces are \nstarting to attract business as well. G4S Risk Management  has recently signed a $187 million contract to provide security services\n for the Basra Bas Company. More businesses are likely to establish a  \npresence in Basra in the coming year as some of the problems the  \nprovince faces are addressed.

Economy - Job Creation Efforts Extend to Remote Areas of Iraq

Job creation has remained one of the top priorities of the Abadi Administration. Since 2006, the joblessness had dropped sharply from its peak\n of 18%. However, the rate increased slightly to 16% last year. The  \nhigher unemployment rate is likely due largely to austerity measures \nthe  country had to implement over the past year. The central government\n is  more committed to job growth as fears of economic stagnation start \nto  abate.

While employment is fairly in Baghdad and other \nestablished regions,  more remote areas of the country are facing more \nchallenges. Citizens in  Basra have staged protests over the past few \nyears. They have  previously stated that improving access to electricity\n was their chief  priority, but have recently changed their emphasis to \njob creation.  Improved employment in Basra and other could improve \nsocial sentiments  throughout Iraq.

Baghdad has pledged to take \nnecessary measures to stimulate job  growth in the coming year. However,\n a large part of the job creation  effort hinges on regional \ngovernments' efforts to improve economic  activity. The problems in \nBasra stem largely from local shortcomings and  would probably be best \nserved through their own reforms rather than  financing from the central\n government. Baghdad is likely to provide some  resources, but may be \nmore likely to help Basra and other remote  provinces by responding to \ndemands to remove corrupt or ineffectual  government officials.

Dinar Value and Exchange Rate - CBI Dismisses Rumors of Dinar Devaluation

Since recent economic and political reports have been mixed, experts have questioned the direction of the Buying Iraqi Dinar. \n However, the Central Bank of Iraq (CBI) has emphasized that it does \nnot  plan to devalue the currency in the months ahead. In fact, it is  \npossible that the CBI will strengthen the currency, according to one  \nofficial.

CBI Reluctant to Pursue Devaluation
The CBI \nhas said that the risk of devaluation is minimal, in spite of  the war \nwith ISIS. CBI Governor Ali Mohsen Ismail said that the country  has \nenough dinar reserves to maintain a decent pairing with the dollar. \n A small devaluation is possible if oil prices plunge further and the  \ngovernment struggles to raise the capital needed to finance the war  \nagainst the Islamic State.

"There is no fear for the dinar," said \nIsmail. "If the pressure  remains, we could marginally change the \nexchange rate to increase  revenues of the finance ministry. This is \njust an option that needs to  be carefully studied because we don't want\n to give away what we have  achieved in terms of the inflation rate, \nwhich is perfect now."
Ismail's comment indicates that the government\n wants to peg the value  of the currency to the rate of inflation. There\n is a possibility that  the dinar could be changed if aggregate demand \ncauses inflation rates to  rise in the future, but it is too early to be\n sure.

The governor's announcement comes a month after Bloomberg \nanalysts  warned that declining dollar reserves could place added \npressure on the  dinar and force devaluation. The CBI report indicates \nthat those fears  may have been overblown.

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