Attachments
I. Key Messages
-
The devaluation of the Iraqi Dinar resulted in price increases in locally produced and imported food products. Sharp increases were observed in the price of basic food commodities compared with the third week of December, including for vegetable oil, wheat flour, rice and sugar.
-
Under the proposed 2021 budget, the Ministry of Agriculture (MoA) will receive an additional budget allocation by about 39% from 2019 and around 0.15% of planned government expenditure, while the absolute allocation for the Wheat and Barley Domestic Purchase program increased by around 80% from 2019. The budget for the Public Distribution System (PDS) - managed by the Ministry of Trade has been further reduced by 61% since 2019.
-
As part of its effort to increase non-oil exports and improve economic relations with neighboring countries, MoA has approved and facilitated the export of excess production to Saudi Arabia.
II. Overview
The coronavirus pandemic (COVID-19) has continued to spread in Iraq. As of 5 January 2021, the World Health Organization reported 597,774 confirmed cases and 12,834 deaths, and increase of 3% and 2% respectively since mid-December.
The pandemic and measures introduced to contain it of corona virus have diminished state income from oil as international oil prices declined. Iraq, heavily dependent on oil revenues, has experienced a direct negative impact on its gross domestic product . Over the past two weeks, Basra heavy oil prices fluctuated between USD 49.23 and USD 49.77 per barrel, up from minimum of USD 18.7 per barrel in April 2020, but well below USD 58.4 per barrel, the price recorded roughly one year ago.
The sudden devaluation of the Iraqi Dinar (around 23%) has started a wave of price increases in all locally produced and imported food products. This comes as an additional burden on household food security due to the already negative impact felt by COVID-19 on economic activities in the private and informal sector, such as the continued delays in government employee salaries, and lack of consumer protection. It is expected that the current devaluation of the Iraqi dinar will continue to have negative effects on household food security.
The government introduced the 2021 budget which is under debate in the parliament on 29th of December. The budget includes an allocation of $198.7 million for MoA, an increase of 39% since 2019. This includes an additional $87 million for various subsidy programs under MoA.
Additionally, 2021 budget is allocating a total of around $2.89 billion for the Ministry of Trade (MoT). This includes $2.3 billion (Kurdish Regional Government [KRG] share: $291.5 million) for the Wheat and Barley purchase program, an increase of 80% since 2019, and an additional $548 million (KRG share: $69.4 million) for the Public Distribution System (PDS), which has been reduced by around 61% since 2019. This signals a significant change in government policy towards subsidy reform and reallocation of subsidy resources from the downstream of the agri-food chain to the upstream, benefiting farmers while aiming at better targeting of assistance of the poorest Iraqis.
The Food and Agriculture Organization (FAO), the World Food Programme (WFP), International Fund for Agricultural Development (IFAD) and the World Bank continue to track the impact of this crisis on food security, with a focus on food availability, access, utilization and stability.