Nearly two decades after the 2003 war, Iraq finds itself at a crossroads: caught in a fragility trap and faced with increasing instability and multiple crises, Iraq is projected to have the worst annual GDP growth performance since the fall of the Saddam regime. Yet even in the midst of the COVID-19 pandemic, an oil price shock, and recent protests, Iraq can take the path toward sustainable growth, peace, and stability and improve living standards for its people.
These are the findings of the World Bank’s new Iraq Country Economic Memorandum, titled Breaking Out of Fragility. The report examines why Iraq has not managed to escape the fragility trap. It details what the country can do to turn crises into opportunity, diversify its economy away from the oil sector, and sustain future growth. The report highlights nonetheless that the path will demand persistence, and Iraq will face much uncertainty as it tries to address its long-lasting challenges and change the status quo.
“Economic diversification, through reforms and developing the private sector, is critical to reduce the continuous challenges Iraq is facing,” said Saroj Kumar Jha, World Bank Mashreq Regional Director. “This Country Economic Memorandum provides a roadmap to help Iraq and the Iraqi people re-think the existing economic model, build a more diversified economy that creates opportunities for all Iraqis, and rebuild the social contract. The World Bank will be a committed partner in helping Iraq move down the path of reform to ensure peace and stability and give all Iraqis a chance to fulfill their highest aspirations.”
Breaking out of Fragility details how, for decades, Iraq’s oil wealth allowed the country to obtain upper income status, while in many ways the country’s institutions and social and economic outcomes resembled a low-income fragile country. Oil revenues eroded the country’s economic competitiveness, reduced the need for taxation, weakened the accountability link between citizens and the state, and fueled corruption.
The COVID-19 pandemic and the oil price shock have thrown into stark relief how much Iraqis have lost in the last two decades. The education system, which once ranked near the top of the MENA region, is now near the bottom. Iraq’s labor force participation is mired at 42%. Combined with one of the lowest female labor force participation rates in the world, Iraq faces low levels of human capital, deteriorating business conditions, and one of the highest poverty rates among upper middle-income countries.
Breaking out of Fragility outlines key pathways for Iraq to achieve sustainable growth after closely considering the country’s complex political economy. The report highlights that Iraq’s priority should be to refocus the country’s political settlement on development, and improve transparency in the management and allocation of its oil wealth and public resources. The report also underlines the urgent need for Iraq to rebuild the confidence between citizens and the government by strengthening citizen engagement and government accountability in the delivery of priority services and infrastructure, responding to youth demand for jobs and tackling socioeconomic inequalities.
Despite Iraq’s current political and economic challenges, three areas of focus can help lead to economic diversification, growth, and stability:
First, maintaining peace can, by itself, be a strong driver of growth. Iraq’s per capita GDP was about one fifth lower in 2018 than it would have been if not for the conflict that began in 2014, while non-oil GDP was one-third lower. In countries that have undergone a vicious cycle of violence and fragility, coordinated policies from a broad coalition of actors are critical to maintaining “peaceful pathways” and kickstarting a virtuous cycle. The report finds that, in the short term, Iraq should focus on reforms that expand social safety nets for the poor and most vulnerable, improve delivery of basic services such as education and health, and ensure greater transparency in the functioning of the government institutions.
Second, tapping into Iraq’s export potential to help diversify the economy away from oil production and toward trade and integration. Iraq’s geographical position has the potential to make the country a regional logistics hub; however, Iraq’s logistical performance lags behind its peers so much that it is instead a regional bottleneck.
Third, reviving Iraq’s agriculture sector to serve as a key pillar of a more diversified, private sector-led economy. Agriculture production; food processing; and related services including logistics, finance, manufacturing, and technology have large potential to expand and create jobs. The agri-food sector has not been subject to the same level of government control as other sectors, so it is well positioned to develop new methods and adopt the latest technologies to maximize its competitive potential.
The latest Country Economic Memorandum builds on two previous reports, from 2006 and 2012, which noted the need for Iraq to move from conflict to rehabilitation; from state dominance to market orientation; from oil dependence to diversification; and from isolation to regional and global integration.
Breaking out of Fragility builds on those recommendations by 1) conducting a close analysis of Iraq’s underlying fragility and political economy challenges and their implications for a diversified growth model; 2) analyzing Iraq’s growth characteristics and the country’s potential for and benefits from economic diversification; 3) assessing Iraq’s potential for trade and regional integration to create growth; and 4) reviewing Iraq’s agriculture sector and its potential to support economic diversification.
Zimbabwe’s Economy is Set for Recovery, but Key Risks Remain
Gross Domestic Product (GDP) growth in Zimbabwe is projected to reach 3.9 percent in 2021, a significant improvement after a two-year recession, according to the World Bank Zimbabwe Economic Update (ZEU) launched today.
Economic growth this year will be led by recovery of agriculture as rains normalize, businesses adjust to limitations caused by the COVID-19 (coronavirus) pandemic, and inflation slows down. However, disruptions caused by the pandemic will continue to weigh on economic activity in Zimbabwe, limiting employment growth and improvements in living standards.
The ZEU, Overcoming Economic challenges, Natural Disasters, and the Pandemic: Social and Economic Impacts, provides the World Bank perspective on macroeconomic and poverty developments and discusses ways to strengthen public service delivery in key sectors. This is the third economic update for Zimbabwe produced by the World Bank. Economic Updates are a standard World Bank tool for macroeconomic and fiscal monitoring.
The ZEU notes that economic recovery is expected to strengthen further in 2022 with GDP growing at 5.1 percent as the deployment of vaccines intensifies and implementation of National Development Strategy 1 (2021-2025) bears fruits. Overall, the COVID-19 global contagion continues to pose significant downside risks, and thus the global and local outlook remains uncertain. A prolonged pandemic, weaker global demand, and heightened macroeconomic instability could choke economic growth, increase poverty, and worsen human capital development outcomes.
Mitigating these risks requires domestic policies to strengthen and sustain macroeconomic stability – which is critical for consolidating economic recovery. Recent efforts to stabilize prices through rule-based monetary and exchange rate policies have been effective and must be continued and expanded. Fiscal policies supportive of these efforts have thus focused on avoiding monetary financing and quasi-fiscal activities, reducing distortive subsidies, and improving fiscal and debt transparency.
“Improving the country’s growth prospects will require further attention to policies that strengthen the quality of service delivery in the social sectors. Preserving lives during an unprecedented that protects livelihoods, strengthens social protection, improves food security, and ensures better education outcomes,” said Mukami Kariuki, World Bank Country Manager.
Facing tight public finances and limited recourse to external financing, Zimbabwe will need to rely mostly on reallocating domestic resources to optimal public uses and leveraging private financing and humanitarian support where possible. Addressing underlying challenges in health, education, social protection, and food security will require sustained financing, strengthened accountability frameworks and investments in appropriate management information systems.
The ZEU reviews developments in 2019 and 2020; and emerging trends in 2021. Part One of the ZEU provides an overview of the macroeconomic and poverty context. Part Two assesses the impact of COVID-19 and other exogenous shocks on delivery of basic services to the poor and proposes mitigating actions for discussion. It also summarizes key policy options needed to stabilize Zimbabwe’s economy, minimize the social costs of the transition, and prepare for an economic recovery.
Slow jobs recovery and increased inequality risk long-term COVID-19 scarring
The labour market crisis created by the COVID-19 pandemic is far from over, and employment growth will be insufficient to make up for the losses suffered until at least 2023, according to a new assessment by the International Labour Organization (ILO).
The ILO’s World Employment and Social Outlook: Trends 2021 (WESO Trends) projects the global crisis-induced ‘jobs gap’ will reach 75 million in 2021, before falling to 23 million in 2022. The related gap in working-hours, which includes the jobs gap and those on reduced hours, amounts to the equivalent of 100 million full-time jobs in 2021 and 26 million full-time jobs in 2022. This shortfall in employment and working hours comes on top of persistently high pre-crisis levels of unemployment, labour underutilization and poor working conditions.
In consequence, global unemployment is expected to stand at 205 million people in 2022, greatly surpassing the level of 187 million in 2019. This corresponds to an unemployment rate of 5.7 per cent. Excluding the COVID-19 crisis period, such a rate was last seen in 2013.
The worst affected regions in the first half of 2021 have been Latin America and the Caribbean, and Europe and Central Asia. In both, estimated working-hour losses exceeded eight per cent in the first quarter and six per cent in the second quarter, compared to global working-hour losses of 4.8 and 4.4 per cent in the first and second quarter, respectively.
Global employment recovery is projected to accelerate in the second half of 2021, provided that there is no worsening in the overall pandemic situation. However this will be uneven, due to unequal vaccine access and the limited capacity of most developing and emerging economies to support strong fiscal stimulus measures. Furthermore, the quality of newly created jobs is likely to deteriorate in those countries.
The fall in employment and hours worked has translated into a sharp drop in labour income and a corresponding rise in poverty. Compared to 2019, an additional 108 million workers worldwide are now categorized as poor or extremely poor (meaning they and their families live on the equivalent of less than US$3.20 per person per day). “Five years of progress towards the eradication of working poverty have been undone,” the report says, adding that this renders the achievement of the UN Sustainable Development Goal of eradicating poverty by 2030 even more elusive.
The COVID-19 crisis has also made pre-existing inequalities worse by hitting vulnerable workers harder, the report finds. The widespread lack of social protection – for example among the world’s two billion informal sector workers – means that pandemic-related work disruptions have had catastrophic consequences for family incomes and livelihoods.
The crisis has also hit women disproportionately. Their employment declined by 5 per cent in 2020 compared to 3.9 per cent for men. A greater proportion of women also fell out of the labour market, becoming inactive. Additional domestic responsibilities resulting from crisis lockdowns have also created the risk of a “re-traditionalization” of gender roles.
Globally, youth employment fell 8.7 per cent in 2020, compared with 3.7 per cent for adults, with the most pronounced fall seen in middle-income countries. The consequences of this delay and disruption to the early labour market experience of young people could last for years.
The pandemic’s impact on young people’s labour market prospects is laid out in greater detail in an ILO brief published alongside the WESO Trends. The Update on the youth labour market impact of the COVID-19 crisis also finds that gender gaps in youth labour markets became more pronounced.
“Recovery from COVID-19 is not just a health issue. The serious damage to economies and societies needs to be overcome too. Without a deliberate effort to accelerate the creation of decent jobs, and support the most vulnerable members of society and the recovery of the hardest-hit economic sectors, the lingering effects of the pandemic could be with us for years in the form of lost human and economic potential and higher poverty and inequality,” said ILO Director-General, Guy Ryder. “We need a comprehensive and co-ordinated strategy, based on human-centred policies, and backed by action and funding. There can be no real recovery without a recovery of decent jobs.”
As well as looking at working hour and direct employment losses, and foregone job growth, the WESO outlines a recovery strategy structured around four principles: promoting broad-based economic growth and the creation of productive employment; supporting household incomes and labour market transitions; strengthening the institutional foundations needed for inclusive, sustainable and resilient economic growth and development; and using social dialogue to develop human-centred recovery strategies.
Universal Access to Sustainable Energy Will Remain Elusive Without Addressing Inequalities
During the last decade, a greater share of the global population gained access to electricity than ever before, but the number of people without electricity in Sub-Saharan Africa actually increased. Unless efforts are scaled up significantly in countries with the largest deficits the world will still fall short of ensuring universal access to affordable, reliable, sustainable, and modern energy by 2030, according to Tracking SDG 7: The Energy Progress Report released today by the International Energy Agency (IEA) the International Renewable Energy Agency (IRENA), the UN Department of Economic and Social Affairs (UN DESA), the World Bank, and the World Health Organization (WHO).
According to the report, significant progress has been made since 2010 on various aspects of the Sustainable Development Goal (SDG) 7, but progress has been unequal across regions. While more than one billion people gained access to electricity globally over the last decade, COVID’s financial impact has made basic electricity services unaffordable for 30 million more people, the majority located in Africa. Nigeria, the Democratic Republic of Congo and Ethiopia had the biggest electricity access deficits, with Ethiopia replacing India in the Top 3.
Globally, the number of people without access to electricity declined from 1.2 billion in 2010 to 759 million in 2019. Electrification through decentralized renewable-based solutions in particular gained momentum. The number of people connected to mini grids has more than doubled between 2010 and 2019, growing from 5 to 11 million people. However, under current and planned policies and further affected by the COVID-19 crisis, an estimated 660 million people would still lack access in 2030, most of them in Sub-Saharan Africa.
At the same time, some 2.6 billion people remained without access to clean cooking in 2019, one third of the global population. Largely stagnant progress since 2010 leads to millions of deaths each year from breathing cooking smoke, and without rapid action to scale up clean cooking the world will fall short of its target by 30 percent come 2030. The state of access in the Sub-Saharan African region is characterized by population growth outpacing gains in the number of people with access, so that 910 million in the region lack access to clean cooking. The top 20 access-deficit countries account for 81 percent of the global population without access to clean fuels and technologies. Of these, the Democratic Republic of the Congo, Ethiopia, Madagascar, Mozambique, Niger, Uganda and Tanzania had less or equal to 5 percent of their populations with access to clean cooking. On a positive note, Indonesia, Cambodia and Myanmar have made gains each year over the report period.
The report examines various ways to bridge the gaps to reach SDG7, chief among them the goal of significantly scaling up renewables – which have proven more resilient than other parts of the energy sector during the COVID-19 crisis. While renewable energy has seen unprecedented growth over the last decade, its share of total final energy consumption remained steady as global energy consumption grew at a similar rate. Renewables are most dynamic in the electricity sector, reaching around 25 percent in 2018, while progress in the heat and transport sectors have been much slower.
More than one third of the increase in renewable energy generation in 2018 can be attributed to East Asia – driven by large uptakes of solar and wind energy in China. The largest country-level advances in renewable energy in 2018 were observed in Spain, owing to higher hydropower generation, followed by Indonesia where a rapid uptake of bioenergy for power generation played a substantial role. To significantly increase the share of renewable energy in line with the SDG 7 target, current efforts need to accelerate in all end-use sectors to scale uptake of renewables while containing total energy demand.
Energy intensity improvements (a proxy for energy efficiency) are moving further away from the target set under SDG7 for 2030. The rate of global primary energy intensity improvement in 2018 was 1.1 percent compared to 2017, the lowest average annual rate of improvement since 2010. The annual improvement until 2030 will now need to average 3 percent if we are to meet the goal.
Accelerating the pace of progress across all regions and indicators will require stronger political commitment, long-term energy planning, and adequate policy and scale incentives to spur faster uptake of sustainable energy solutions. Although clean energy investments continue to be sourced primarily from the private sector, the public sector remains a major source of financing and is central in leveraging private capital, particularly in developing countries and in a post-COVID context. One of the newest indicators in the report, international public financial flows to developing countries, shows that international financial support continue to be concentrated in a few countries and failing to reach many of those most in need. Flows to developing countries in support of clean and renewable energy reached $14 billion in 2018, with a mere 20 percent going to the least-developed countries, which are the furthest from achieving the various SDG7 targets. An increased emphasis on “leaving no one behind” is required in the years ahead.
This is the seventh edition of this report, formerly known as the Global Tracking Framework (GTF). This year’s edition was chaired by the United Nations Statistics Division.
The report this year comes at a crucial time as Governments and stakeholders are gearing up for the UN High-level Dialogue on Energy, a summit-level meeting in September 2021 that will examine steps needed to achieve SDG7 by 2030 and mobilize voluntary commitments and actions in the form of Energy Compacts.
Funding for the report was provided by the World Bank’s Energy Sector Management Assistance Program (ESMAP).
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