Oil-rich Iraq struggles with funding shortfall despite record exports

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Iraqi banknotes along with the greenbacks.

Iraq lies in ‘critical’ ninth place on the latest Failed State Index – unchanged from 2011 – with key measures such as poverty and economic decline up, a Financial Times report said on Wednesday.

Quoting a paper issued by an Iraqi think tank, the FT report said the situation has become grave in the interim.

“The economy in shambles; save oil there is hardly an economy. Worst still, is the pursuance of the same age-old objective: enhancement of command and, by extension, distributive economy. With no strategy to rehabilitate the market economy, the prospects of reducing unemployment (now at 19% nationwide), and alleviating poverty (23% of Iraqis live below international poverty standards), let alone restoring much needed basic services (electricity, housing), seems bleak,” Iraq Institute for Strategic Studies said in its study.

The report added that despite pouring billions into Iraq over the last 10 years, with the specific mandate to develop a sustainable private sector and promote a civil society in the long term, ‘it is no closer to being what was envisaged’.

Iraq sits at number 175 of the 182 countries on Transparency International’s 2011 Corruption Perceptions Index and has become synonymous with corruption and cronyism.

The report explained that Central Bank of Iraq has managed to keep inflation in the single digits since 2007 – year-on-year core inflation has risen slightly to 6.3%, but still remains below December 2011’s 6.97% and the IMF’s most recent 2012 projection of 7.7% for MENA (Middle East and North Africa) oil exporters.

The country’s four private banks, out of 22 listed on the Iraqi Stock Exchange, were still unable to meet the central bank’s minimum reserve requirement of 100bn Iraqi dinars ($85.8m), the FT report disclosed adding that the CBI’s next deadline is June 2013, when all private banks are supposed to have minimum reserves of 250bn dinars.

A 2011 World Bank review of Iraq’s financial sector noted that the state-owned banking sector expanded in the first quarter of 2012. Rasheed and Rafidain banks, which together account for about 85% of all bank transactions in the country, added staff and the Council of Representatives – the main elected body of Iraq – considered draft legislation that would expand the role of a third state-owned bank, the Trade Bank of Iraq.

Record Oil Exports

Meanwhile, Iraq’s crude exports in July rose for the third consecutive month to an average of 2.52 million barrels a day, generating sales of $7.5 billion, the head of the country’s State Oil Marketing Organisation said on Wednesday.

Iraq shipped most of the crude from the southern terminal of Basra, at an average rate of 2.22 million barrels a day, Falah al-Amri said in a telephone interview from Baghdad. The OPEC-member state exported 294,000 barrels a day on average from northern oil fields through the Turkish port of Ceyhan and also trucked 6,000 barrels a day to Jordan, the Iraqi official said while adding that the average selling price in July was $96.50 a barrel.

Iraqi oil exports averaged 2.4 million barrels a day in June and 2.45 million barrels a day in May, according to Oil Ministry figures. Iraq holds the world’s fifth-biggest crude reserves, based on BP statistics. The government is seeking investment and expertise to boost oil production and exports after years of conflict, sabotage and sanctions. Iraq is one of 12 members of the Organisation of Petroleum Exporting Countries.

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