5.1 Iraq’s proposed reforms to make its economy more dynamic and diversified

Box 5.1 Iraq’s proposed reforms to make its economy more dynamic and diversified

In 2020, the government of Iraq produced and adopted a White Paper that outlines some of the key reforms and initiatives that the government will undertake in the next three to five years. The aim of the White Paper is to “create a dynamic and diversified economy that gives citizens the opportunity for a dignified life.”

The Paper recognizes first and foremost that one of the reasons behind the deterioration of the Iraqi economy has been the expansive role of the state, including nationalization policies in the 1970s, the war and conflict that it had seen since the 1980s, and the failure of the new political system since 2003 in creating tangible change for the people. The Paper remarkably recognizes the challenges that rising public employment has had on Iraq’s fiscal space, and, more important, on the private sector.

Among the bold reforms that the Paper outlines is a reconsideration of the role of the state altogether in the economy, including the restructuring of state-owned enterprises (SOEs) (Axis 4). Proposed initiatives include: (1) entirely phasing out financial support provided by the state to these enterprises by the end of 2024; (2) privatizing the successful and profitable SOEs, either partially or completely, and restructuring the unprofitable ones; (3) increasing the number of SOEs that are listed in the stock exchange; and (4) restructuring employment within the enterprises and finding alternatives to the oversupply of employees. The Iraqi government’s detailed reforms also extend to reducing subsidies in the economy and better targeting the poor and vulnerable through social assistance programs.

Sources: Government of Iraq, Objectives and Axes of the White Paper for Iraq’s Economic Reforms (accessed June 2021), https://gds.gov.iq/ar/iraqs-white-paper-for-economic-reforms-vision-and-key-objectives/ and https://gds.gov.iq/ar/wp-content /uploads/2020/10/Iraq-white-paper-in-arabic-october-2020.pdf.

Governments should also reduce price controls. While regulating prices in natural monopolies might be necessary, in other markets price controls tend to have negative effects because restrictions to competition and innovation resulting from such policies outweigh their benefits. Retail price controls remain prevalent in the MENA region, especially on staples, liquified petroleum gas, gasoline, and medicine. This is done by far fewer governments in high-income countries and upper-middle-income countries. Instead of focusing on price controls, governments can focus on providing targeted assistance to the poor and vulnerable. Table 5.1 summarizes considerations for governments when assessing whether and how to implement price controls to help reduce negative effects.

Lastly, MENA countries should also enforce effective competition policies through systematized assessments of the potential for negative market impacts of laws and regulations. Systematized Regulatory Impact Assessments (RIAs) offer a critical filter to evaluate the costs and benefits of new regulations and policies. In the MENA region so far, only two countries (Morocco and the United Arab Emirates) have adopted general RIA frameworks.