The Iraqi Economy: From Rentier Economy to Value Economy

Context

The Iraqi economy depends on oil revenues for more than ninety percent of general budget financing. Oil funds salaries, salaries convert into consumer demand, and that demand is met through imports, while the domestic productive sector remains stunted. This equation has afforded Iraq a surface-level stability but left it hostage to the fluctuations of a single market.

Any genuine shock in oil prices — as occurred in 2014 and 2020 — exposes the state to an immediate liquidity crisis that rapidly transmits from the budget to social security. Economic sustainability is not an option; it is a matter of national security.

Diagnosis

Iraq’s economic dilemma goes beyond the conventional idea of “economic diversification.” Diversification alone does not produce an economy unless it is underpinned by a reliable business environment, non-rentier financing, and competitive capacity. Three structural problems impede the transition:

• Absence of a stable investment environment: legal ambiguity, delays in dispute resolution, and weak protection of property rights.
• Fragility of the banking sector: weak financial intermediation, prevalence of a cash economy, and atrophied productive lending channels.
• Weak productive human capital: educational outputs do not match labor market needs, and the private sector lacks a qualified cadre.

Position

The transition from rent to value is not a budgetary project; it is a project to restructure the relationship between the state and the economy. The position we advocate calls for redefining the state’s economic function: from owner and operator to regulator and enabler. This does not mean state withdrawal, but rather redirecting its weight toward infrastructure, education, social protection, and market regulation.

Recommendations

• Establish a sovereign wealth fund for future generations, into which surplus oil revenues above a legally defined reference price are transferred.
• Reform the banking sector by strengthening central bank independence, unifying the exchange rate, and supporting commercial banks.
• Issue a unified Investment Law that eliminates the duplication of licensing bodies and shortens approval cycles.
• Restructure public subsidies: transition from commodity subsidies to conditional cash transfers targeting the most vulnerable households.
• Develop specialized economic zones along strategic geographic corridors (Basra, Mosul, Anbar).