In this policy paper, Dr. Karen E. Young of the Middle East Institute sets out to delineate and compare economic diversification efforts underway in the GCC that might prove useful in the Iraqi context, for the state as a whole, and measures that might be adopted in the context of the Kurdistan region.
Iraq’s challenges are many: an attempt to compare its economic diversification priorities to those of the GCC is a bit like comparing apples and oranges. The fundamentals are similar in that they are all reliant on oil revenues for government spending, but demographics, infrastructure, security and savings are all very different in scale and composition. For Iraq, expatriate consumer demand is not an issue, nor is a burgeoning tourism and entertainment sector to attract Foreign Direct Investment (FDI). The most obvious point of difference is the voracious political competition and a tense parliamentary democracy in Iraq that does not exist in the GCC states. In finance, Iraq’s monetary policy and recent currency devaluation shows more flexibility than the GCC currency pegs, but it also creates an increasing external debt burden at much higher repayment terms than GCC states have to offer. The devaluation also risks lowering domestic consumption, as people buy less as their incomes are lower relative to the price of goods and services. Devaluations tend to increase the attractiveness of domestically-produced goods, but Iraq imports nearly all of its consumer products with the exception of some agriculture. In governance and institutionalization, Iraq faces a larger burden of administering its revenues from oil across the country efficiently and equitably via disparate government deposits in local banks, and particularly in disputes from the distribution of oil revenue to the Kurdistan Regional Government (KRG). Efforts in late 2020 to establish a reform agenda hit the key issues, including: cuts to the public sector wage bill, strengthening the bank sector, legal reforms, advancing digitalization and improving government services and infrastructure.
In this policy paper from Dr. Karen E. Young of the Middle East Institute sets out to delineate and compare economic diversification efforts underway in the GCC that might prove useful in the Iraqi context, for the state as a whole, and measures that might be adopted in the context of the Kurdistan region.
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Dr. Karen E. Young
Dr. Karen E. Young is a senior fellow and founding director of the Program on Economics and Energy at the Middle East Institute. She was a resident scholar at the American Enterprise Institute, focusing on the political economy of the Middle East and the member states of the Gulf Cooperation Council. She has taught courses on the international relations and economy of the Middle East at George Washington University and at the Johns Hopkins School of Advanced International Studies. She regularly teaches at the US Department of State Foreign Service Institute. Before joining AEI, she served as senior resident scholar at the Arab Gulf States Institute, a research and visiting fellow at the Middle East Centre of the London School of Economics and Political Science, and an assistant professor of political science at the American University of Sharjah in the UAE. She was twice awarded a Fulbright fellowship, first to Ecuador and later to Bulgaria.