Iraq is facing the worst economic crisis since the days of Saddam Hussein
Currently, Iraq faces one of its worst economic crises, similar to the one it faced during the 2003 invasion that brought down the exploitative regime of Saddam Hussein. What caused the current financial crisis to peak was the devaluation of its currency last month, cutting it by a quarter.For the first time in decades, the nation has been devalued. Due to the onslaught of the coronavirus pandemic and the global downturn in global oil prices, one of its main revenue fetch source, the Iraqi economy faced a double blow.
When the government began struggling to pay wages to around 3 million of its state employees, the situation became visibly worse. Approximately 40 percent of the population of the country depends on government wages and contracts. For a country largely dependent on imports, the situation turned desperate as devaluation triggered inflation and caused prices of even basic commodities to increase.The disparity in its income ($3.5 billion in monthly oil revenue) and expenditure ($5 billion a month) has led Iraq to drain its small foreign reserve pool, which some economists say is a precarious situation.
The International Monetary Fund forecast last month that in December the economy of the world would contract by 11% in 2020. It urged government officials to concentrate on strengthening governance and reducing bribery.To add to the ongoing challenges facing the Iraqi government, Iran has stopped supplying the country with electricity and natural gas. Iraq is OPEC’s second largest producer of crude oil, but it is unable to generate its own electricity and gets it from Iran.
Since Iraq was unable to pay Oran in cash due to ongoing fines, it used to pay in cash by exporting food and medicine in return for gas and electricity. Iran reported that its neighbour owed more than $5 billion in equal payments and refused to supply electricity until the debt was cleared.Abdul Hussein al-Anbaki, Prime Minister Mustafa al-economic Kadhimi’s advisor, said, “Iraq cannot repay Iran’s entire debt.” Iran faces an economic crisis as well, and without paying, we will not buy gas.
“It is difficult for the Iraqis because the mechanism for paying them is almost non-existent, because it is obvious that the Americans are closely monitoring the situation,” said Farhad Alaaldin, chairman of the Iraq Advisory Council, a political research institute.Many observers fear that the current situation could lead to the outbreak of civil war, giving the congenial breeding ground of the country’s armed group to overthrow the government. In the past, a similar crisis caused by rising corruption, unemployment and sky rocketing inflation led to the previous government’s collapse.