political progression, economic stagnation and the strategic opportunity

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Political Progression, Economic Stagnationand the Strategic Opportunity

Mohammed A. Field Al- Khafaji

Iraqi Institute for Economic Reformwww.iier.org

PRESENTED AT 6TH ECONOMIC FREEDOM IN THE ARAB WORLD

Beirut 20 – 21 October 2011

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The indicators of Political progression and economic stagnation

Challenges facing the Iraqi economy

Importance of Rule of Law & Good governance Democracy and Economic prosperity

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Content

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Iraq made significant political achievements in comparison to other Arab countries, and this has manifested in for example:

Referendum on Federal Constitution, Elections at National and sub-National Levels

Has Iraq Achieved political progress?

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Has Iraq made political progress?

Source: Freedom in the World 2010: Table of Independent Countrieshttp://www.freedomhouse.org/template.cfm?page=505

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Decrease in unemployment from 51% to 15%,

Decrease in poverty from 54% to 27%,

Increase in electricity production from 3500 to 7500 MW,

Increase in GDP per capita from $3000 to $ 4000.

Decrease in inflation rate from 65% to 6%,

Increase in access to safe drinking Water from 30% to 70 %,

Significant Economic Progress?

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A significant proportion of citizens lack access to basic services.

Lately the grievance of citizens have escalated to protests calling for basic services.

Economic Stagnation

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Family Satisfaction: survey of Public Services in 2006

Health: 30% on average Crosse the board not satisfied with heath service

Education: 40% on average cross the board not satisfied with education service

Other Services: 60% on average not satisfied with other services (e.g. Electricity, water, housing)

Percentage of unsatisfied Families with public services

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What is the relationship between Democracy and Economic prosperity ?

There is no direct relationship, but evidence internationally, linking economic prosperity to an environment where there is respect for the rule of Law.

Yes, Democracy does provide better environment for economic growth providing there is respect for the Rule of Law

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Economic & Social Challenges

What are the facts of the Iraqi Economy?Damaged SMEs, and ineffective Public and Private sectors

Poor business environment for economic and investment

Poor social structure and ineffective educational system

The absence of good management of the economy

Lack of respect for the Rule of Law and Good Governance

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Obsolete System and Regulation

Advertising Receiving contracts

Issuing the offer

Process of Procurement at Basrah Province (as example).

Complicated Government routine, Non-clarity of roles and responsibilities and Overlapping of jurisdictions.

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Absence of Rule of Law & Good Governance

Participations Rule of law Transparency Responsiveness Consensus orientation Effectiveness and efficiency Accountability Strategic vision Equity

It is very hard to find any of these elements in place

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Weak Enviroment for Investment

Despite good investment legislation and incentives to do business, there a number of obstacles:

Government Bureaucracy, lack of commitment and management skills;

The absence of Insurance Companies, responsive Commercial Banking;

Corruption

.

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Total Revenue in 2011 is $ 69,175 Billion

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Total Expenditure

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Revenue, Expenditure & Deficit for 2011 ($Bn )

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Federal Budget 2006- 2009.

Total Government Revenue $210 BillionsAllocated spending $211 BillionsActual spend $182 billions

Notes: Investment Budget execution rate is 58%Operational budget execution rate is 91%

Is the Federal Budget really in deficits?

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Financial Execution Ratio of Capital Expenditure for 2010

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The Relationship between Economic Development & Rule of Law

Kaufmann, D. and A. Kray (2002), ‘Growth Without Governance’, World Bank Policy Research Working Paper No. 2928, November.

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The Relationship between Economic Development & Rule of Law

There are international evidences to suggest: Creates confidence between the citizens and the state/ organization Encourages transparency and reduces waste of resources Provide an incentive to financial institutions to lend, and Encourages investors to provide liquidity and technology transfer

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Culture/Religion:Values

Civil Society:Voice for the

People

State:Formal

rule

Strong Economy

With positive

spill over

Code of conduct

Rule of Law & Good Governance

Better Environ

ment for Business

Accountability

Education

What is needed?

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Democracy without Rule of Lawis a bird with one wing