In Iraq, COVID-19 cases continue to rise and at this writing, the country is experiencing another wave of new infections. The twin shocks of the pandemic on the non-oil economy alongside oil price decline continue to take a toll on fiscal revenues.
This leaves the government with limited financing options constraining its ability to fulfil pre-existing financial commitments, including the payment of wages to public servants. The breadth and depth of economic challenges highlight the urgent need for structural reforms. Current cuts to public investment and pro-growth programmes are short-term measures to appease the fiscal situation, but are unsustainable given the implications on growth and poverty. In October 2020, the government of Iraq introduced the White Paper, setting out a blueprint of reforms to address the budget deficit and create a fiscal space as well as wider reforms over the medium term.
In November 2020, the Iraqi parliament approved a funding deficit law, entitling the government to borrow IQD 12 trillion from internal and external parties to pay delayed salaries. The government requires around IQD 7.5 trillion per month in operational and salary expenditures – unattainable revenue in the environment of current oil prices. Hence, a decision was made to devalue the Iraqi dinar by 18% in December 2020 to reconcile its budget gap, of IQD 80 trillion. The next issue of this report will analyse the impact of the devaluation so far, including on food prices.
Poverty is estimated to increase in the short term by 7 to 14 percentage points, meaning that 2.7 to 5.5 million Iraqis would become newly poor – in addition to the existing 6.9 million pre-COVID-19-crisis poor. With the pandemic continuing, the government is faced with difficult tasks of trying to contain the virus, protect people’s health and restart a crumbling economy.
Despite unabating pandemic, economic activities in the country have started to recover, however not yet to pre-COVID-19 levels. Despite challenges, the agricultural sector has proven resilient and continued to deliver, for example 5.1 million metric tonnes (mt) of wheat stored for the Public Distribution System for food rations (PDS). Among the challenges were high costs charged by input suppliers and the constrained ability of farmers to market their products. Cross-border food supply chains have also proven resilient, although some blockages were reported.
Although internal markets remained sufficiently supplied, movement obstacles jeopardised incomes of farmers and possibly preparations for the new agricultural season. Cold storage and the required packaging remain limited and expensive, and most farmers rely on selling their produce shortly following the harvest, often at the farm gate. Small farmers reported being particularly affected.
National average prices of the basic commodities (wheat flour, sugar, rice and vegetable oil) did not witness any significant month-on-month (m/m) or three-month changes. This was before the currency devaluation and spike in new COVID-19 cases. Market functionality improved in Karbala, Najaf, Kirkuk and Wassit, primarily because of increased religious tourism.
Conflict-affected populations are the most vulnerable strata, including IDPs (internally displaced persons), refugees and returnees from camps. Over one-third of Syrian refugees are employing negative coping strategies, such as relying on less expensive food, borrowing food or borrowing money to buy food. This is higher than the 29% and 21% among IDPs and returnees respectively, or the 8% national level.
Since the start of the pandemic, there have been various instances in countries where a decrease in access to food and markets has led to stampedes, looting and disturbances. In an already fragile context such as Iraq, the added pressure of COVID-19 on scarce resources and livelihoods could potentially affect community-level disputes and lead to increased competition over food.
New research in Iraq was undertaken into the impact of COVID-19 on food security and community relations. Around 45% of people noticed an increase in resource-sharing. This could be positive: communities coming together in challenging economic times, indicating social cohesion and support structures. Despite increased hardship, community members may still have enough access to food to share resources with households in need.
However, the increase in sharing of resources in some areas could also be negative, indicating it is needed since some households do not have enough access to food and are relying more on donations from neighbours, family and other community members. Further research will be needed to answer such questions and potentially make prioritisation decisions for programming.