Iraq Hit Hard by World Financial Crisis

Iraq’s war-ravaged economy has been hit hard by the global financial crisis, forcing the authorities to try and diversify away from the core oil business, Deputy Prime Minister Barham Saleh said Friday.

Saleh’s comments came a day after a major conference in London of more than 200 major companies from around the world and more than 100 Iraqi businessmen and senior government officials, aimed at drumming up investment.

“The financial crisis has had a serious impact (on the Iraqi economy)… the plummeting oil prices really forced us to constrain our government spending,” he told a think-tank in London.

Saleh said Iraq had last month been forced to cut its overall budget by nearly a quarter to around 60 billion dollars and still projected a 20-billion-dollar (15-billion-euro) deficit.

“2009, I expect that we will be able to manage it, but 2010 will be a difficult year” because government surpluses would have been severely depleted by then, he added.

Oil prices have dropped from above 145 dollars a barrel in March 2008, to around 50 dollars a barrel, putting severe pressure on the Iraqi budget, which is projected to get 86 percent of its revenue from oil in the coming year.

Saleh added, though, that the credit crunch had provided some rays of light for Iraq, because it was forcing the government to concentrate on economic reforms and diversification of the economy away from oil.

“This financial crisis… is forcing us to focus further on economic reforms,” he said.

“We were very lax in the last two to three years in developing our oil sector… Now this financial crisis is obliging us, is forcing us to” improve oil production infrastructure.

“It is also obliging us to diversify our economy,” he said, adding that particular focus would be placed on developing agriculture in Iraq.

Saleh also stated that the top concerns for potential investors at the “Invest Iraq 2009″ conference in London a day earlier had been the country’s legislative framework and the security situation.

“The number one issue for investors was the legislative environment and some of the bureaucratic impediments that an investor would have to deal when they contemplate working in Iraq,” he said.

“The second area of concern was the issue of security, whether these flare-ups in security is something serious and would make investors more reluctant.”

Though security has improved dramatically since sectarian violence between Shiites and Sunnis peaked in late 2007, bombings remain a daily occurrence, and official figures showed April was the bloodiest period in Iraq in seven months.

According to the Department for International Development in London, Thursday’s conference, attended by global corporations such as General Electric and Vodafone, was the culmination of a one-year process that drew around 10 billion dollars worth of proposed investment into Iraq.

Among the results of the conference was an announcement by British airline bmi that it wanted to launch a London-Baghdad route, though it said it had not yet received government clearance to do so.

Last month, Business Secretary Peter Mandelson led an official trade delegation comprising 23 companies to Iraq, and he and Saleh signed an agreement pledging strong economic co-operation on Thursday.

British troops officially ended combat operations in Iraq on Thursday, more than six years after taking part in the US-led invasion of the country.