NADER: IQD STATUS

Summary

The Prime Minister’s economic advisor, Mazar Muhammad Salah, highlighted the strong coordination between monetary and fiscal policies in addressing the economic challenges stemming from recent global oil price shocks. This collaboration aims to maintain national economic stability,

 ensure sustainable public spending, and manage domestic debt effectively. Salah emphasized the importance of maintaining robust reserves to safeguard economic stability amid fluctuating global energy markets and geopolitical uncertainties,

 especially in key energy-producing regions such as the Gulf, the Mediterranean, and the Russia-Ukraine conflict zone. These regions significantly influence around 40% of global oil demand and form the backbone of European oil and gas supplies. 

The advisor pointed out the ongoing impact of these geopolitical tensions on global energy prices and demand trends, which are expected to improve over time. Looking forward, economic policy cooperation is planned to continue throughout fiscal year 2025, with a focus on implementing major financial reforms.

 These reforms will prioritize controlling public expenditures aligned with governmental programs, particularly targeting budget allocations for services, infrastructure, salaries, pensions, and social welfare. 

Salah underscored the critical role government income plays for more than 8 million Iraqi citizens, which directly affects the household income of up to 35 to 40 million people in the country, making government spending a key driver of economic activity domestically.

Highlights

• 🔄 Close cooperation between monetary and fiscal policies to combat oil price shocks.
• 🛡️ Emphasis on economic stability through robust reserves and smart debt management.
• 🌍 Critical role of geopolitical factors in global energy markets, especially in Gulf, Mediterranean, and Russia-Ukraine regions.
• 📊 Anticipation of global demand shifts and energy price improvements.
• 📆 Policy cooperation and major financial reforms planned through fiscal year 2025.
• 💰 Focus on controlling public spending while securing salaries, pensions, and social welfare.
• 👥 Government income supports millions of Iraqi households, underscoring the social impact of fiscal policies.

Key Insights

• 🔗 Integrated Monetary and Fiscal Policy: The decision to tightly coordinate monetary and fiscal policy demonstrates an understanding that a multi-pronged economic approach is necessary when facing external shocks such as oil price volatility. This strategy helps cushion the economy from external disturbances by ensuring liquidity and government spending are balanced to sustain growth without fueling inflation.
• 🌐 Geopolitical Dependencies: The emphasis on geopolitical scenarios in energy sectors, particularly in unstable regions, reveals Iraq’s vulnerability as well as opportunity in a highly interconnected energy market. Fluctuations in the Gulf, Mediterranean, and Russia-Ukraine areas directly impact Iraq’s economic planning due to their share in global supply chains and influence on energy prices.
• 🔮 Uncertainty and Risk Management: By linking economic stability to unpredictable future energy market movements and geopolitical developments, the advisory highlights the inherent uncertainties faced by Iraq’s economy. This necessitates flexibility in policymaking and the maintenance of reserves to manage risk associated with external shocks.
• 💼 Focus on Public Spending Efficiency: The intention to control public spending in alignment with government priorities shows a shift towards fiscal discipline, which is crucial for long-term sustainability. Prioritizing sectors like services and infrastructure ensures that spending drives growth and development rather than waste.
• 👥 Social Safety Net Importance: With over 8 million citizens relying on government income and the ripple effect on up to 40 million household members, Iraq’s fiscal policy directly affects the social fabric. Ensuring the payment of salaries, pensions, and social welfare becomes critical to maintaining social stability and consumer demand.
• 📈 Sustainability of Economic Reforms: The timeline extending the current cooperative economic measures through 2025 indicates a commitment to medium-term reform rather than short-term fixes. This long horizon allows for the gradual implementation of reforms needed to modernize fiscal governance and economic management.
• 💰 Domestic Debt Management and Economic Stability: Effective management of domestic debt alongside building good reserves is identified as key to sustaining economic stability. This approach balances immediate fiscal needs with long-term debt sustainability, showing prudent economic governance aimed at avoiding excessive borrowing that can lead to future crises.