IMPACT OF COVID-19
IMPACT OFCOVID-19ON THE IRAQIECONOMYUNITED NATIONS DEVELOPMENT PROGRAMME IN IRAQ.
CONTENTS1. Foreword32. EXECUTIVE SUMMARY43. THE GLOBAL AND REGIONAL ECONOMIC CONTEXT3.1 The global economic context663.2 The regional economic context84. IRAQ’S ECONOMIC STATUS BEFORE THE COVID-19 PANDEMIC95. THE ECONOMIC IMPACT OF COVID-19 ON IRAQ FROM 2020 TO 20225.1 Macroeconomic conditions13135.2 Fiscal conditions155.3 The external sector and monetary impacts185.4 The financial sector196. INCOME, EMPLOYMENT AND POVERTY AS A RESULT OF COVID-19216.1 Employment and income226.2 Poverty and social protection257. Policy Recommendations28References34ENDNOTES38October 20202UNDP – Impact of COVID-19 on the Iraqi Economy
1. FOREWORDThis paper builds on the “Impact of the Oil Crisis and COVID-19 on Iraq’s Fragility” published in August2020 by the United Nations Development Programme (UNDP). It explored how the COVID-19 pandemic anddiminishing oil revenues are affecting various dimensions of Iraq’s fragility. A series of forthcoming paperswill provide more details on key aspects of Iraq’s challenging political, social, economic and security context.UNDP will present these additional thematic policy papers in the coming months, looking at the implicationsfor social protection, the impact on environmental sustainability, social cohesion and the socioeconomicimpact on vulnerable households. The aim of these policy documents is to offer a comprehensive overviewof how the pandemic is affecting the social and economic context of Iraq. This responds to the recent callfrom the UN Secretary-General for ideas on surviving and recovering from the pandemic so that families andbusinesses can stay afloat, and the foundation for an inclusive recovery can be laid to ensure attainment ofthe Sustainable Development Goals (SDGs).This current paper draws on various sources from within and outside the United Nations, using thelatest information available at the time of writing. As the COVID-19 pandemic is a rapidly evolving globalphenomenon, however, economic and social circumstances for both Iraq and the wider world are likely tochange rapidly.UNDP would like to thank Barbara-Anne Krijgsman as the lead coordinator for these policy papers and BrynWelham as the main author of the current paper. Great appreciation also goes to the UNDP Regional Centrefor Arab States and the UNDP Iraq Country Office team for their support.UNDP – Impact of COVID-19 on the Iraqi Economy3
2. EXECUTIVE SUMMARYThis paper analyses the macroeconomic impactof the COVID-19 pandemic on Iraq. It sets out anumber of conclusions and recommendations fordifferent stakeholders. These aim at respondingto the macroeconomic challenges createdby the pandemic while ensuring continuedprogress towards achievement of the SustainableDevelopment Goals (SDGs).The global and regional contextEconomic conditions have dramatically worsenedas a result of COVID-19. Both global andregional growth forecasts have been repeatedlydowngraded. Current estimates for 2020 globaleconomic growth predict an unprecedentedcontraction of global gross domestic product (GDP)of 4 to 6 percent. These forecasts note in particularthat oil producers in the Arab States have been hithard by the pandemic.Iraq’s economy in the run-up to theCOVID-19 pandemicFrom 2017 to 2019, key macroeconomic and fiscalconditions were broadly positive for Iraq. Both oiland key non-oil sectors grew relatively consistently,leading to good fiscal results, with budget surplusesand declining public debt levels in 2018 and 2019.Iraq also saw positive current account surplusesand the build-up of substantial foreign ned. Iraq’s economy is characterized byoverdependence on oil, which accounts for most ofthe economy, almost all export revenue and nearlyall government revenue, but without generatingsignificant employment. Non-oil private-sectoractivity is limited, highly informal and generatesvery little government revenue. Fiscal policy hastended to be highly procyclical, tracking changesin oil prices. Unemployment, poverty and socialexclusion are widespread, with estimates from2017 suggesting that one third of the populationexperienced multidimensional poverty, a conceptthat looks beyond income to consider access tobasic goods and services.The impact of COVID-19 on Iraq’smacroeconomic and fiscal positionIraq now faces a significantly worsened economicoutlook through ‘twin shocks’. First, oil pricesexperienced a historically unprecedented fall inearly 2020, followed by a modest recovery laterin the year. Second, starting from March 2020, theGovernment imposed a range of restrictions oneconomic and social activities in a bid to control thespread of COVID-19. While these restrictions arekey to staunching infection, they have substantiallyreduced activity across the economy, far beyondthe oil sector.These shocks are having a profound impact onkey macroeconomic indicators. GDP is expectedto contract by nearly 10 percent in 2020. Iraq’sfiscal position has dramatically worsened, and thedeficit is forecast to reach nearly 30 percent ofGDP in 2020, an unprecedented level. This deficitis driven by a collapse in revenue rather than asharp increase in expenditure. The composition ofpublic spending—with a focus on wages, pensionsand social transfers—will make it difficult and/or inappropriate to reduce expenditure in anymeaningful way over the short term. The strikingimbalance between revenue and expenditure willresult in rapidly increasing debt levels for at leastthe three years between 2020 and 2022. WhileIraq does not face an immediate risk of debt defaultgiven the level of its international US dollar reservesheld at the Central Bank of Iraq, and its capacity toborrow from a range of sources, the current fiscalposition is not sustainable for the long term.The decline in oil prices combines with other effectsto pressure Iraq’s external position. Foreign exchangereserves are being used up, threatening the dinar todollar peg. There are a number of possible scenarios4UNDP – Impact of COVID-19 on the Iraqi Economy
where a rapid monetary adjustment caused bythe exhaustion of foreign reserves could createpotentially serious macroeconomic dislocations.Income and employmentEmployment was already a challenge in Iraq beforeCOVID-19 hit. In 2019, Iraq’s labour force participationrate was one of the lowest in the world, and belowthe regional average, at around 50 percent. Itwas particularly low for women. Initial high-levelestimates of the fallout of COVID-19 restrictions onemployment suggest a significantly negative impact.Informal estimates find that formal unemploymenthas already increased beyond its 2018 level of 10percent, and is particularly high among internallydisplaced people, women and youth. More detailedsurveys of the impact of the COVID-19 lockdowns onsmall and medium enterprises have also registeredsignificant negative effects on employment thatare likely to disproportionately affect marginalizedgroups. Some losses in employment and otherincome sources may endure after lockdowns arelifted as the overall reduction in economic activityputs the viability of small and medium enterprisesat risk.Poverty and vulnerabilityModels from the World Bank and the UnitedNations Children’s Fund (UNICEF) suggest that inthe ‘most likely’ scenario, which incorporates theactual experience of the national lockdown period,income poverty will increase by 11.7 percentagepoints—or by over 50 percent—taking the povertyrate up from 20 percent in 2017-2018 to just over 31percent in 2020. Using a broader multidimensionalapproach to poverty that considers access to basicgoods and services alongside income, 42 percentof the total population is expected to be vulnerableto poverty as a result of the pandemic. There is adivide in poverty risk. Households drawing theirincome from the public sector will be much lessaffected, while those working in the private sector,particularly in low-income work and the informalsector, and female-headed households, stand amuch greater risk of poverty. A key variable willUNDP – Impact of COVID-19 on the Iraqi Economybe the strength and timeliness of the economicrebound.In terms of social protection, public-sector salariesand public assistance are the most stable formsof income for many households. The PublicDistribution System of subsidized essential goodswill become more important for household welfare,particularly for those on the lowest incomes and/or experiencing unemployment. Adequatelyfinancing this large item of expenditure in thecontext of severely constrained public finances willbe a challenge. Overall, existing social protectionschemes are not well equipped to help the poorestin society.RecommendationsIraq’s current macro-fiscal economic situation isdaunting. ‘Do nothing’ is not an option given themassive imbalance between public revenue andexpenditures. Yet despite the need for reform,significant cuts to public expenditure are neitherfeasible nor desirable given its role in protectingvulnerable households. This suggests a short-termgovernment agenda focused on rapidly identifyingadditional deficit financing options; avoiding anunplanned monetary adjustment; and improvingthe quality and targeting of public expenditureswhere possible. In the longer term, the Governmentshould develop plans to: institute credible fiscalrules to better manage the impact of changing oilprices; invest in private-sector development andeconomic diversification to boost employment;develop incentives to progressively bring workersand firms into the formal sector; rationalize thepublic-sector wage bill; and redesign publicassistance schemes to focus on the neediesthouseholds and informal workers.5
3. The global and regional economic context3.1 The global economic contextGlobal economic conditions have dramatically worsened as a result of COVID-19 (Box 1). At the endof 2019, major forecasters were expecting steady economic growth for 2020, albeit at a slower pacethan in previous years. Over 2020, however, all major macroeconomic forecasting institutions haverepeatedly downgraded expectations for global growth, and for supporting metrics such as growth intrade and productivity. Recognizing the unprecedented nature of the change in global economiccircumstances, institutions such as the Organisation for Economic Co-operation and Development(OECD), the World Bank and the International Monetary Fund (IMF) have issued regular updates totheir usual biannual global economic forecasts.1 Iraq faces a challenging global economic context inmanaging the economic impacts of the COVID-19 pandemic (Figure 1).3. THE GLOBAL AND REGIONAL ECONOMIC CONTEXT3.1 The global economic contextGlobal economic conditions have dramaticallyworsened as a result of COVID-19 (Box 1). At theend of 2019, major forecasters were expectingsteady economic growth for 2020, albeit at a slowerpace than in previous years. Over 2020, however,all major macroeconomic forecasting institutionshave repeatedly downgraded expectations forglobal growth, and for supporting metrics suchas growth in trade and productivity. Recognizingthe unprecedented nature of the change in globaleconomic circumstances, institutions such asthe Organisation for Economic Co-operation andDevelopment (OECD), the World Bank and theInternational Monetary Fund (IMF) have issuedregular updates to their usual biannual globaleconomic forecasts.1 Iraq faces a challengingglobal economic context in managing the economicimpacts of the COVID-19 pandemic (Figure 1).Figure 1: Global economic growth forecasts all point downFigure 1: Global economic growth forecasts all point downGlobal economic growth forecasts – IMF(annual GDP percentage change)Source: IMF 2019c and 2020f.Source: IMF 2019c and 2020f.Global economic growth forecasts – World Bank(annual GDP percentage change)Unsurprisingly, this dramatically worseningeconomic climate is forecast to drive increasingpoverty across the world. While forecasters assumethat the economic impact will be most severe inadvanced economies, developing countries willnevertheless face a notable but less extreme 5 P a g ereduction in growth.2 This will have immediateconsequences in deepening poverty and slowingattainment of the Sustainable Development Goals(SDGs). Estimates suggest a severe hit to theglobal labour market, with the equivalent of 130million to 300 million jobs lost through fewer hoursworked. This is expected to push over 34 millionpeople into extreme poverty in 2020, with just overhalf the increase occurring in African countries.Between now and the 2030 endpoint of the SDGs, apessimistic scenario suggests that COVID-19 couldpotentially propel an additional 130 million peopleacross the world into extreme poverty compared toprevious baseline trends, bringing the total to over680 million.3DRAFT Impact of COVID-19 on Iraq EconomySource: World Bank 2019 and 2020a.Source: World Bank 2019 and 2020a.Source: World Bank 2019 and 2020a.Global economic growth forecasts – OECD(annual GDP percentage change)Source:OECD20192019 and2020b.Source:OECDand2020b.Source: OECD 2019 and 2020b.Unsurprisingly, this dramatically worsening economic climate is forecast to drive increasing nomicclimate impactis forecastto mostdrive severeincreasingpovertyacross the world.Whileforecastersassume thatthe economicwill bein advancedacrossthe world.While forecastersassumethat the economicimpact willmostseverereductionin advancedeconomies,developingcountries willneverthelessface a notablebut belessextremeineconomies,countries consequenceswill neverthelessface a notableextremereductioningrowth.2 Thisdevelopingwill have immediatein deepeningpovertybutandlessslowingattainmentof thegrowth.2 ThisDevelopmentwill have immediateconsequencesin suggestdeepeningpovertyslowingattainmentof theSustainableGoals (SDGs).Estimatesa severehitandto thegloballabour a severehit fewerto thehoursglobalworked.labour market,with the equivalentof 130millionto 300millionsuggestjobs lostthroughThis iswiththe toequivalentmillionto 300million jobslost inthroughfewerworked.This isexpectedpush overof34130millionpeopleinto extremepoverty2020, withjusthoursover halfthe increaseexpectedpush over34 millionpeoplenowintoandextremepovertyin 2020,withjust overhalf the scenarioincreaseoccurring toin Africancountries.Betweenthe 2030endpointof theSDGs,a pessimisticoccurring in African countries. Between now and the 2030 endpoint of the SDGs, a pessimistic scenario6 P a g e6 P a g e6DRAFT Impact of COVID-19 on Iraq EconomyDRAFT Impact of COVID-19 on Iraq EconomyUNDP – Impact of COVID-19 on the Iraqi Economy
Box 1: The unprecedented nature of the COVID-19 economic shockThe COVID-19 pandemic is an unprecedented shock to the global economy: The size of the impact on national economies is almost unparalleled in peacetime. The scale of GDP declinesbeing reported—particularly in developed countries—is typically associated with wartime effects. The synchronized nature of the impact, happening across all countries at broadly the same time, is alsounprecedented. This varies from, for example, the 2008 global financial crisis, which acutely affected wealthycountries but at a time when other parts of the world were still growing. The comprehensive impact across all sectors of the economy is unusual. Previous economic shocks tendedto affect a particular sector, but leave others relatively untouched. The COVID-19 shock is affecting almostall sectors at the same time.The impact on national economies can be characterized as both a supply and demand shock. It is influencingboth the ability to produce goods and services (supply), and the ability to consume goods and services (demand).The manifestations are direct and indirect, and will occur in the short and longer term. Direct impacts come from the immediate burden of sickness and ill-health, and they fall mainly on thoseinfected with the virus, and upon the health sector attempting to treat them. Indirect impacts are typically much more extensive and relate to changes in economic behaviour morebroadly. These could be voluntary, as people and their employers seek to avoid infections, or governmentmandated through measures to restrict economic and social activity. If export markets across the world aredepressed, global demand for products will decline. Indirect impacts can also relate to financial movementsas investors seek a ‘flight to safety’ and begin pulling money out of more risky markets. Short-run effects mean household and personal incomes will fall as a result of the direct and indirect effects,and many business will see reduced income and may be forced to suspend operations. Uncertainty regardingthe future will cramp business investment and household consumption. This will spur increases in povertyand unemployment for households, reduce income for firms and diminish tax revenues for governments. Long-run effects include student education suffering as schools and universities are closed for extendedperiods. The risks are particularly high for female students, who in many places are already less likely to bein school. Students in developing countries in general, and particularly in rural and remote areas, or in poorhouseholds, will be excluded from distance learning given gaps in telecommunications infrastructure andaccess to digital devices. These losses could be reversed, but the longer the pandemic continues, the harderit will be to remediate reductions in human capital formation. In addition, some businesses will simply closefor good, and some unemployed people will never return to the labour market. This will lead to a permanentloss of capital and labour, weakening future output growth.The direct and short-term effects are the most obvious to quantify. Many countries have extensive tracking ofinfections and deaths in hospitals. Economic data and surveys will gradually provide a clear picture of changes toincome and employment. The long-term effects, particularly those caused by the indirect impacts of the pandemic,will be much harder to measure and may not be clear for quite some time.Sources: IMF 2020b; World Bank 2020e.UNDP – Impact of COVID-19 on the Iraqi Economy7
3.2 The regional economic contextRegional economic forecasts for the Arab region aresimilarly negative, and have also been repeatedlydowngraded (Figure 2). For example, IMF regionalforecasts for July indicate a contraction of 4.7percent for the region, two percentage points lowerthan forecast in April 2020. This was the lowest levelin 50 years, below even the 2008 global financialcrisis or the 2014 oil price shock.4 This largelyrepresents continued weaknesses in oil prices,with commensurate effects on the growth potentialof oil-producing States. World Bank forecasts fromApril 2020 suggest a 5.2 percent decline in MiddleEast and North Africa GDP per head over 2020,also an unprecedented fall.5 According to someestimates, even before the onset of the COVID-19pandemic, the region’s economies had not fullyrecovered from the 2008 global financial crisis orfrom the 2014 drop in oil prices.6Oil producers have been hit particularly hard, withoil prices falling significantly from 2019 levels. Asa result, economic forecasts for 2020 and 2021note a significant divergence in prospects forcountries that export or import oil. IMF forecasts forall regional oil producers predict a decline in GDPof 7.3 percent in 2020, with a modest recovery of3.9 percent in 2021. These figures are worse thanthe general predictions for the region as a whole.Overall, countries with large oil sectors are seeingOilaproducershave been declinehit particularly hard,with oil pricessignificantlyfrom 2019levels. As adramaticin termsoffallingtrade,whilethoseresult, economic forecasts for 2020 and 2021 note a significant divergence in prospects for countriesth
THe GLoBAL ANd reGIoNAL eCoNoMIC CoNTeXT 6 3.1 The global economic context 6 3.2 The regional economic context 8 4. IrAQ’S eCoNoMIC STATUS BeFore THe CoVId-19 PANdeMIC 9 5. THe eCoNoMIC IMPACT .
COVID-19 Mental health impact COVID-19 Impact on Sleep COVID-19 Positive Impacts University of California, San Dr. Ariel J. Lang ajlang@health.ucsd.edu ID: 21877 COVID-19 Household Environment Scale (CHES) - English COVID-19 Household Environment Scale (CHES) - Spanish COVID-19 Social Distancing and Symptoms COVID-19 on Family .
4.2 Impact of Covid-19 on the Employment 16 4.3 Impact of Covid-19 on the Business Revenue 19 4.4 Impact of Covid-19 on the operations of Businesses 20 4.5 Significant challenges faced by business markets due to Covid-19 22 4.7 Support needed by business 29 4.8 Support by Businesses to the Government in its fight against Covid-19 31
3.1. The Covid-19 global and regional context 3 3.1.1. Impact on global and regional growth 4 3.1.2. Covid-19 effects on the global and regional employment 7 3.1.3. Global Covid-19 Responses 8 3.2. Impact of the Covid-19 on the Malawi economy. 10 3.2.1. Impact on the overall economy 10 3.2.2. Sectoral analysis of the effects of Covid-19 12
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