Measuring Stability and Security in Iraq - United States Department ...

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1.2. Economic Activity1.2.1. Building the Iraqi EconomyThe GOI has taken significant steps toimprove its economy, although securityconcerns continue to restrain Iraq’s economicgrowth. In February 2007, the Iraqi Cabinetapproved a framework hydrocarbon law thatprovides the structure and principles for foreigninvestment in Iraq’s energy sector,decentralized management for the oil industry,and equitable distribution of oil revenuesto provincial and regional governments. Veryrecent Cabinet approval of the oil lawdemonstrated the importance of thislegislation in promoting the economicdevelopment and political unity of thecountry. It is anticipated the frameworkhydrocarbon law and related revenue-sharinglegislation will be submitted to the CoR inMarch.In 2006, the CoR passed the Foreign InvestmentLaw and the Fuel Import LiberalizationLaw to facilitate the expansion of privatesector activity. To become effective, theselaws require promulgating regulations toprovide a sufficient legal framework. TheGOI is drafting these regulations, whichshould be implemented later this spring. Anincrease in foreign investment will beeffective in stimulating growth, buildingtrust, and strengthening the Iraqi dinar.Stand-By ArrangementThe GOI met most of the performance criteriaand benchmarks of the Stand-By Arrangement(SBA) with the International MonetaryFund (IMF) in 2006. The GOI met again withthe IMF in mid-December 2006 to discuss thecombined third and fourth SBA reviews. Afollow-up meeting was held in Paris on February1, 2007. The participants agreed toschedule the Executive Board meeting,during which the reviews will be completedand the program extended for six months,dependent on the GOI implementing the nextmandated fuel price hikes on March 5. Threeyears of satisfactory performance on an uppercredit tranche IMF program are required forIraq to receive the final 20% tranche of ParisClub debt relief. Therefore, if fuel prices arenot raised and reviews are not completed byMarch 22, the IMF program may expire.Diversification IssuesThe Iraqi economy depends on the oil sector,which generates 67% of Iraq’s gross domesticproduct (GDP) and 95% of the government’sinternal revenues. To reduce its reliance onoil, the United States is supporting Iraq’s economicdiversification through increased agriculturalexports and private sector development.The Department of Defense’s (DoD)Task Force to Improve Business and StabilityOperations in Iraq aims to re-energize existingstate-owned enterprises, with the ultimateintent of privatization to promote economicdiversity. The United States Agency for InternationalDevelopment’s (USAID) agriculturaldevelopment projects include increasing agriculturalexports. Strengthening the growth ofhigh-value crops, such as olives, has demonstratedincreased export potential. USAID’smicrolending project has been very successfulat addressing private sector development.Government of Iraq Budget ExecutionThe GOI has available assets, the product oflast year’s under-spent budget and profitsfrom higher-than-anticipated oil prices, but itdoes not yet have the mechanisms to spendthem. The GOI will need to make significantinvestments in oil infrastructure, publicworks, and agriculture to expand theeconomy.In the 2006 Iraqi budget, 9.3 trillion dinar(US$6.2 billion) was allocated to capitalprojects, but less than 40% was obligated. Anumber of factors contribute to the consistentunder-spending of Iraq’s budget. The GOIlacks a public accounting framework andsuffers from outdated procurement processes.8March 2, 2007
To address procurement problems, the UnitedStates is helping the GOI formulate simplifiedcontracting procedures that will aid inbudget execution.In addition, the MOD and the MOI havetaken steps to spend significant portions oftheir procurement budgets—anticipated to bein excess of US$2 billion in 2007—throughU.S. Foreign Military Sales cases.1.2.2. Indicators of Economic ActivityEconomic indicators are collected and publishedregularly, largely by the Iraqi Ministryof Planning and Development Cooperationand international organizations. TheWorld Bank projects that 2006 GDP wasUS$48.5 billion, due largely to higherworld oil prices, with a per capita GDP ofUS$1,687. Real GDP growth was projectedto have been 3.0% in 2006, including 10.0%growth in the non-oil sector.InflationIraq’s high rate of inflation is a seriousobstacle to economic stability. Inflation in2006 averaged 50%, well above the IMF’srevised 2006 target of 30%. Because fuelshortages contributed to inflation in 2006, theGOI took nominal steps to remove obstaclesto private fuel imports. However, the GOI’sinability to craft an adequate regulatory structurehas so far prevented its efforts fromyielding any results. Over the past threemonths, in an attempt to curb inflation, theCoR passed the Fuel Import LiberalizationLaw, approved a deal with Kuwait to increasethe availability of refined fuel, and agreed tosell imported fuel at market prices. To reducethe rate of core (i.e., non-fuel) inflation, theCentral Bank of Iraq (CBI) implemented 14%exchange rate appreciation between November1, 2006 and February 1, 2007. As a signalingmeasure, the CBI also raised its benchmarkpolicy interest rate from 12% to 16% inNovember and to 20% in December. The CBIGDP Estimates and Projections, 2004 – 200820042005 e2006 e2007 p2008 pNominal GDP (in USD billion)25.734.548.561.071.0Government Oil Revenue (in % of GDP)69.669.466.966.567.4Per Capita GDP (USD)949.01,237.01,687.02,060.02,319.0Real GDP (% change)46.53.73.014.412.9Overall Fiscal Balance (in % of GDP)-40.69.8-6.1-2.1-0.8Consumer Price Inflation (annual %)31.731.650.017.010.0Source: World Bank Estimates (e), January 2007IMF Projections (p), August 20069March 2, 2007
Page 1 and 2: Measuring Stability andSecurity in
Page 3 and 4: IntroductionThis report to Congress
Page 5 and 6: 1. Stability and Security in Iraq1.
Page 7 and 8: 1.1.4. Rule of LawStability and sec
Page 9: CourtsAs of January 2007, Iraq had
Page 13 and 14: Oil Production, Distribution, and E
Page 15 and 16: Water and SanitationAs of December
Page 17 and 18: Total Attacks by ProvinceNovember 1
Page 19 and 20: 1400Sectarian Murders* and Incident
Page 21 and 22: 12001000Attacks Targeting Iraqi Civ
Page 23 and 24: Many Iraqis feel more positive at t
Page 25 and 26: quarters, and 93 Iraqi Army battali
Page 27 and 28: 2. Iraqi Security Forces Training a
Page 29 and 30: Current Manning InitiativesThe gene
Page 31 and 32: 2.2. Ministry of InteriorMOI forces
Page 33 and 34: formalized a professional developme
Page 35 and 36: Iraqi Police Service EquipmentFor B
Page 37 and 38: Administration Directorate develope
Page 39 and 40: 2.3. Ministry of DefenseThe Iraqi M
Page 41 and 42: Force GenerationForce generation of
Page 43 and 44: make-up of Iraq generally. The even
Page 45 and 46: Annex A. List of Acronyms and Abbre
Page 47: 20 This report and future reports w

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