Download PDF
Quick Facts
- Population:
- GDP (PPP):
- $127.6 billion
- 9.9% growth
- 5.1% 5-year compound annual growth
- $3,886 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Embed This Data
Iraq remains unranked in the 2013 Index because of the lack of sufficiently reliable data on economic freedom within the country. The Iraqi economy has slowly recovered from the hostilities that began in 2003, but progress has been uneven, and the country faces continuing tension among different ethnic and religious factions. Iraq was last graded in the 2002 Index, when it received an overall score of 15.6.
Iraq’s ongoing economic reconstruction, although facilitated by recent reform measures, high oil prices, and foreign economic aid, continues to be fragile. The central government’s weakness, powerful vested interests, and high levels of corruption have hindered politically difficult policy reforms, undermining the limited but measureable progress made in past years.
Operating well below potential, the Iraqi economy is burdened by numerous systemic problems. A lack of transparency exacerbates the negative impact of inefficient business regulations on entrepreneurial activity, forestalling the emergence of a dynamic private sector. The economy lacks effective monetary and fiscal policies. The weak state of the financial system, coupled with its limited role within the economy, hampers both investment and the everyday operation of businesses.
Background
Prime Minister Nuri al-Maliki consolidated his power after the December 2011 withdrawal of U.S. troops. His Shia-dominated government coalition has gradually lost support among Sunnis, who increasingly charge that he has adopted a sectarian agenda. Iraq’s state-dominated economy surged ahead with an impressive growth rate of over 9 percent in 2011, propelled by improved security, high oil prices, and recovery of the oil industry, which provides more than 90 percent of government revenue. Oil wealth, still in government hands, holds Iraq’s disparate factions together but also will remain a source of tension absent more equitable access to economic opportunities. Inadequate infrastructure, weak property rights, bureaucratic red tape, and widespread corruption continue to undermine efforts to encourage foreign investment.
The legal system remains very weak, failing to provide reliable protection for property rights. There are widespread reports of bribery, kickbacks to companies connected to political leaders, and corruption in government payrolls, including fraud, mismanagement of public funds, payments to “ghost” employees, salary skimming, and nepotism.
Individual and corporate income tax rates are capped at 15 percent. Tax revenue as a percentage of GDP is negligible due to high levels of evasion and lax enforcement. Public spending is estimated to be over half of total domestic output, and the budget records consistent surpluses because of oil revenue, which funds more than 90 percent of government expenses. Public debt has fallen below 90 percent of GDP.
Despite recent reforms, the inefficient business environment continues to impede broader economic development. Application of existing regulations has been inconsistent and non-transparent. On average, launching a business takes more than 70 days, and obtaining operating licenses can take over 150 days. In the absence of a well-functioning labor market, informal labor activity persists in many sectors. Inflation has risen slightly.
Trade flows remain far below potential as broad-based commercial activity is still suppressed. Numerous non-tariff barriers add to the cost of trade. Iraq is open to foreign investment in principle, but bureaucratic inertia, policy uncertainty, and security concerns deter investment growth. State banks dominate credit markets, and the largely cash-based economy lacks the infrastructure of a fully functioning modern financial system.