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Iraq: Structural Reforms Critically Needed to Manage a Multi-Faceted Crisis

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Faced with a combination of acute shocks which the country is ill-prepared to manage, Iraq’s economic outlook has markedly worsened over the past 6 months. GDP growth is projected to contract by 9.7 percent in 2020, down from a positive growth of 4.4 percent in 2019, making it the country’s worst annual performance since 2003, according to a new World Bank report released today.  

The Spring 2020 edition of the Iraq Economic Monitor, “Navigating the Perfect Storm (Redux)” discusses the recent economic and policy developments and highlights some of the main macroeconomic policy challenges facing the country. The report finds that Iraq’s pre-existing conditions going into this crisis limit its ability to manage and mitigate the socio-economic impact resulting from low oil prices, reduced oil production quotas and disruptions due to the COVID 19 lockdown measures. Iraq’s highly oil-dependent and state-owned economy impedes the creation of the needed private sector jobs for a predominantly young population. Furthermore, the growing discontent over poor service delivery, rising corruption, and lack of jobs persists and is coupled with political impasse over the formation of a new government.

Fiscal discipline and Economic diversification through more private sector participation are critical to reduce Iraq’s vulnerabilities to external shocks,” said Saroj Kumar Jha, World Bank Mashreq Regional Director. “A reform oriented and growth enhancing program will help sustain the reconstruction efforts and preserve the positive improvements achieved in the electricity and agriculture sectors over the past year.  Such a program is also key to create the much-needed jobs for the youth and help restore the confidence of Iraqi citizens.” 

The unsustainable stimulus package introduced since last October – including a rising public sector employment, lower retirement age, and various transfers – coupled with weaker oil revenues are expected to have detrimental fiscal effects. In case oil prices stabilize in the low-30s and no reform measures are taken, the budget deficit would exceed 29 percent of GDP in 2020 and gross financing needs would reach US$67 billion (over 39 percent of GDP).

Under this situation, financing options might be limited. Heavy reliance on local financing can crowd-out the available liquidity for private sector credit and weaken the balance sheet of the Central Bank of Iraq creating pressures on inflation and the exchange rate. At the same time, access to international markets may prove to be difficult given global market conditions and Iraq’s weak macro-framework. 

With this context, it has become critical for Iraq to embark on a comprehensive forward-looking economic reform agenda to enable private sector led growth, diversification and job creation. Such a program could be based on two pillars: i) Tackling cross-cutting impediments to private-sector led diversification through fiscal sustainability and economic governance, financial sector reforms, business environment reforms, Improving human capital outcomes, as well as social protection and labor system reforms; and ii) Improving governance and promoting private sector participation in selected productive sectors like agriculture and agri-food Industries, electricity and gas.

The Iraq Economic Monitor also includes a Special Focus section that highlights the importance of digital transformation for Iraq and the urgency behind it. The benefits of a robust digital economy are numerous. Leveraging the digital economy will help Iraq improve economic opportunities, particularly for its youth, and thus address the demands of citizens.

The digital transformation of the Iraqi economy will require economic reforms and longer-term development priorities along the five pillars of the digital economy framework by ensuring affordable access to high-speed internet, achieving widespread adoption of cashless payments, delivering digital government services and improving access to data, upskilling youth with technological know-how, and scaling up the digital entrepreneurship ecosystem. An example of the relevance and urgency of digital transformation has recently materialized with the deployment of innovative digital solutions in the fight against the COVID 19 pandemic across the globe. 

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Uzbekistan’s Artel joins UN’s ‘Orange The World’ campaign against gender-based violence

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Artel Electronics LLC (Artel), Central Asia’s largest home appliance and electronics manufacturer, has teamed up with the UN Population Fund (UNFPA) on a public information campaign against gender-based violence.

The campaign is in line with the UN’s 16 Days of Activism against Gender-Based Violence, which utilizes the color orange to symbolize a brighter future. Artel’s green branding turned orange for several days in advertising material throughout Uzbek capital Tashkent, and public figures made statements to raise awareness.

Artel joins an international movement that kicked off on 25th November and lasts for 16 days. Since 1991, it has been used by individuals and organizations to call for the prevention and elimination of violence against women and girls.

This is the second year the company has ‘gone orange’. Artel Electronics HR Director, Lazizbek Mamatov, also took part in a panel discussion about Gender Equality in the Workplace hosted by the UNFPA at Westminster International University in Tashkent in line with the campaign.

Shohruh Ruzikulov, CEO of Artel, said “It is a privilege to once more work with the UN in raising awareness about the issue of Gender Based Violence. In Uzbekistan, this conversation is at a relatively young stage. We are proud to stand against domestic violence and continue Artel’s work in all areas to contribute to a better society.”

Mr. Yu Yu, Country Representative of the United Nations Population Fund, said “We are delighted to partner with a company like Artel on such an important issue. The public reach of the private sector is vital in ensuring our message to stand against domestic violence can be heard across all segments of society. We are grateful to Artel for taking leadership on this important issue in Uzbekistan. Together, we can make the change.”

The true rate of domestic violence in Uzbekistan is not known. However, the government alongside diplomatic partners and aid organizations are prioritizing the issue. In recent years the Presidential Administration has issued decrees targeted at domestic violence prevention, the government has adopted laws guaranteeing equal rights for women, and funding has been provided for information campaigns and rehabilitation centers.

Support for this campaign is just one of Artel’s initiatives to support women’s empowerment. Internally, the company has introduced whistle-blowing mechanisms, and is implementing an internal legal clinic to improve the legal literacy of employees. Over the last year, the proportion of women in the company’s 10,000 employees has risen by 5%, to 35%. The global average for the manufacturing industry is thought to be around 30%.

In 2021, Artel became a full participant of the UN Global Compact (UNGC), the world’s largest business community focused on sustainable development. In doing so, the company committed to promoting ten principles covering human rights, labor rights and environmental protection.

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US Anti-Inflation Law threatens Europe

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Europe and the US are heading towards a serious trade and economic conflict, writes “Berliner Morgenpost”.

In the European Union hopes are fading that the US government will significantly amend the controversial subsidies law by providing billions in bailouts to US manufacturers. This forces the EU to protect domestic companies from threatening competitive advantages over US competition and to prevent investment from moving to America.

Fear of the “de-industrialization” of Europe is spreading. For example, buyers of a “Made in USA” electric vehicle with a battery also made in the USA receive a $7,500 subsidy. Subsidies also go to companies that make wind turbines or solar panels from American steel. Europeans are worried that not only will they have to contend with heavily subsidized US competition in future strategic sectors, but industrial cooperation with US companies could also be threatened.

The head of the trade committee in the European Parliament, Bernd Lange, told: “I assume that a few small changes to implement the IRA can still be agreed upon in the negotiations. But I do not think that anything will change significantly, because the Law has already been passed.”

The US IRA law goes into effect on January 1. By that time, the EU countries should have found a common line. France is already openly threatening a trade war and agitating for a tough counterattack: the EU should take a protectionist course and respond with the Buy European initiative. But there are also concerns in Berlin.

An EU trade expert argues that lower energy prices for industry should be considered, as they are currently ten times higher than in the US. European Commission economic policy spokesman Markus Ferber is also calling for a hard line: If the US side doesn’t give in now, the EU commission should “put all instruments of torture on the table” and consider boosting trade. Disappointment with the protectionist course of US President Joe Biden is great, Ferber says: “The American anti-inflationary law threatens Europe, and can make its economic situation much worse.”

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Energy News

OPEC+ agrees to stick to its existing policy of reducing oil production

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Led by Saudi Arabia and Russia, OPEC+ agreed in early October to reduce production by 2 million barrels per day from November, – informs CNBC.

An influential alliance of oil producers on Sunday agreed to stay the course on output policy ahead of a pending ban from the European Union on Russian crude.

OPEC and non-OPEC producers, a group of  23 oil-producing nations known as OPEC+, decided to stick to its existing policy of reducing oil production by 2 million barrels per day, or about 2% of world demand, from November until the end of 2023.

The European Union is poised to ban all imports of Russian seaborne crude from Monday, while the U.S. and other members of the G-7 will impose a price cap on the oil Russia sells to countries around the world.

The Kremlin has previously warned that any attempt to impose a price cap on Russian oil will cause more harm than good.

Led by Saudi Arabia and Russia, OPEC+ agreed in early October to reduce production by 2 million barrels per day from November. It came despite calls from the U.S. for the group to pump more to lower fuel prices and help the global economy…

The looming Russian oil price “cap” has all the hallmarks of a historic debacle in the making, – notes “The Hill”.

For months, the United States and the G-7 have haggled over a complex plan to constrain the money that the Kremlin makes from some of its oil exports.

Despite Russian war against Ukraine and subsequent Western sanctions on his regime, Russia is swimming in petrol dollars. By the end of the year, the Russian Economy Ministry estimates that the country will have made a record $338 billion from its energy exports.

Together with America’s existing embargo on Russian crude, when the European Union’s oil embargo comes into full force on Dec. 5, policymakers fear that the move will constrain global petroleum supplies and push prices upward.

Assuming that EU and G-7 leaders can sort out their current price puzzle and fix Russian crude below what the international market would prefer to pay, who will pick winners and losers in the subsequent scramble for cheap Kremlin oil: Putin and his energy cronies?  

The Russian oil “cap” would not be necessary if the Biden White House had been making it easier to open the spigots of American oil from the start. The president’s pledge of “no more drilling” in America continues to undercut his economic and foreign policy against Russia.

If the Russian oil price cap fails to materialize or work as officials intend, the United States and its allies should drop the scheme, – stresses “The Hill”.

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