2019 forecast: Iraq – investment versus insurgency

Prospects for Iraq’s economic rehabilitation are promising, although security and corruption concerns will continue to undermine government credibility.

2018 saw the removal of the Islamic State (ISIS) from large swathes of Iraqi territory, the last stages of an operation in place since the terrorist organisation seized Iraq’s second city of Mosul in 2014. Combined with stronger oil prices (predicted to average $75 per barrel) and increased production to 4.4 million barrels per day, the security environment is facilitating strong economic growth projections for Iraq.

GDP growth is predicted to reach 4.1% for 2019, the highest since 2016, and base economic indicators for Iraq are positive. Nevertheless, security challenges posed by ISIS and other insurgent groups are considerable. Although severely weakened, ISIS still enjoys support in parts of Iraq. The 2017 recapture of Mosul, carried out by a coalition of Peshmerga forces, Sunni tribesmen, Shia militiamen, and US advisors and aerial support, devastated the city and laggard reconstruction is fuelling discontent. There are also concerns that the recent US decision to remove troops from neighbouring Syria might provide a vacuum for the group to consolidate it’s forces, which could pose a cross-border risk to Iraq. The newly elected Prime Minister Adil Abdul-Mahdi, of the Sadrist movement, alluded to this concern in a phone call with US Secretary of State Mike Pompeo this year.

Endemic corruption throughout Iraqi society is another issue that will remain a problem. Iraq’s well-reported entrenched patronage networks, nepotistic public administration, and bribe-susceptible police force are hindrances to the Iraqi economy that will carry into tue new year and discourage foreign investment. Mismanagement of public funds also detracts from Iraq’s capability to rebuild critical infrastructure. Iraq’s planning ministry has quoted reconstruction costs at $23 billion in the short-term, supplemented by $65 billion in the long-term. Accessing such large amounts of capital will be made all the more difficult to obtain with such systemic misuse of public funds.