The Rentier Mentality of the government destroys the Iraqi economy

The Rentier Mentality of the government destroys the Iraqi economy

- in Releases
Comments Off on The Rentier Mentality of the government destroys the Iraqi economy

Shatha Khalil *
Since 2003 Iraq has suffered from the deterioration of the economic sectors that relied on it before the US invasion, such as industry, agriculture and tourism, as it relied mainly on oil imports only, and efforts of successive governments failed to reform these sectors because of the magnitude of the destruction, in addition to the weakness of development and economic reform, which made the Iraqi economy a rentier economy.

The concept of rentier economy:
The rentier economy relies on natural resources without the need to pay attention to its development; examples of these resources are “minerals, water, oil and gas”. The rentier economy is defined as the economy that is concerned with maintaining activities that provide revenue from the sale of rentier wealth , but these activities don’t help to provide a clear picture of the economic situation prevailing in the state, and other definitions of the rentier economy is the dependence of a state in its economy on the natural source extracted from the ground, the economy becomes dependent on trade exchange leading to the emergence of consumer society linked to the import and this kind of economy doesn’t concern with agriculture or manufacturing .

Rentier Mentality:
The rentier means the income that comes from the extraction and export of crude oil, as is the case with many Arab countries, including Iraq, which has become a distinctly privileged state after its non-oil economic sectors have been destroyed. The rentier government is that its main revenue comes from the rentier revenue ie, the rentier is almost the only way of financing its annual budget.
And the rent government , ie the composition and the current potential of it , doesn’t know other sources of income to support Iraq’s financial budgets, but it only depends on rentier resulting from oil exports, in which the allocations of salaries and wages and retirement account of the proportion of fifty percent of the total ceiling of public expenditure to the country’s budget, it is covered by the oil revenues exclusively or through internal and external borrowing.
So Iraq’s fiscal policy should seek to strengthen its finances and diversify its national income through long-term development programs.
Therefore, the need to maximize the resources of the non-oil budget where it needs to be aware of the following economic factors:
1. Iraq is one of the countries in high government spending according to the gross domestic product by more than (46%), which requires reducing this ratio in favor of market economy, and activating the role of the private sector in economic activity to generate aggregate demand.
2. The country’s financial indicators still show Iraq’s dependence on oil revenues or expansion to cover public expenditures, an unsecured resource, which requires a radical new fiscal reform in the composition of public revenues.
3. The time has come to deal with unnecessary government expenditures and spending, starting from support and its extension to non- eligible ones, ended with tax evasion that accumulated incomes and wealth far from the scope of public finances and social and economic objectives.
4. The burdens of the war on terror of ISIS and the burden of reconstruction and development of all areas of Iraq require inevitably a strict financial program , in order to direct financial resources towards stability and development and address the manifestations of financial corruption, waste and lack of planning.

Characteristics of the rentier economy:
The main characteristics of the rent economy include:
• Rentier income is the prevailing income in the economy.
• The rentier comes from abroad so that the local economy does not need a strong production sector.
• The labor force involved in achieving rents constitutes a small percentage of the total labor force.
• The State / Government is the main recipient of external rent.
• The state is the main employer of the people, making it inflated and inefficient bureaucracy, and in such circumstances, it is difficult to emerge an active civil society, and therefore there is no motivation for the development towards democracy.
• The government in the shadow of the rentier economy is not much concerned with the vitality of economic activity and the creation of a state of sustained economic growth in order to expand the tax base and the consequent increase in the collected taxes, because the government here is not based on taxes in the financing of its budget.
The revenues of oil rentier are financing the government treasury and there is no need to impose taxes on the people. Here, we find the role of the government sluggish and lazy, and it does not assume its responsibilities in activating the economy and developing it by exploiting natural vitality, activating the role of the private sector and seeking economic development and it doesn’t seek to create adequate jobs for citizens, as long as it can accumulate them in the constantly inflated state apparatus, the traditional place of disguised unemployment, or pump them into its failed and inefficient public sector to increase its failure and weaken the competitiveness of its products by increasing the cost of production.
The Iraqi economists confirm that the Iraqi economy is suffering from the consequences of the financial crisis, financial and administrative corruption, and problems affecting all sectors of the state, as the decline of the Iraqi agricultural sector, and the decline of the proportion of farmers to the total population and the high role of extracted and export crude oil in the composition of gross domestic product, led to a lack of interest in the establishment of manufacturing projects so the oil sector became the first and main source of GDP, and the only development of the economic side, distorting the structure of the community and the subject of the state to the global capital centers that hinder getting rid of its rentier nature.
The agriculture Ministry announced that drought and the scarcity rainfall had reduced 20 percent of wheat and barley production this year, despite government assurances that it plans to complete the cultivation of about one million and six hundred thousand hectares of wheat.
It is worth to be noted that most of the factories suffer from a halt, while imports from Iran , Turkey and other countries are increasing, and the tourism sector is not exploited optimally because of the security situation.

On the other hand, the Iraqi government resorted to imposing taxes on a number of goods and services to compensate the budget deficit, which exceeded $ 11 billion, which is reflected negatively on the economic situation, especially among poor groups, and the high value of taxes on services, income, real estate and some imported goods amounted to More than (25%) of their price, which will raise inflation levels.

The economic expert Saleh al-Hamashi said that one of the most important obstacles to resort to an alternative economy, is the overlap of powers between the state ministries and its bodies, investors collide with a lot of administrative obstacles, as well as financial corruption, which led to the bankruptcy of dozens of projects and the delay of investment.
The population growth rate in Iraq is about 2.7%, which is one of the highest rates in the world, and is not matched by serious attempts to create economic opportunities, while the proportion of people living below the poverty line is increased to reach about 30% of the population.
Al-Hamashi adds that the reliance on oil in the budget of 2018 amounted to 94%, while the government is trying through the five-year plan that began this year to reduce the proportion to 80-75%, and reports confirm that Iraq lost daily $ 7 million due to burning natural gas emitted during the extraction of oil , prompting the government to sign several contracts with US companies to extract gas in Basra and other areas.

According to oil expert Hamzah al-Jawahiri, most of the gas comes out with oil in limited quantities, and the number of fields operating in this area are no more than three small fields under development, but they meet the need of Iraq.
Al-Jawahiri added that several areas have huge reserves of gas but are “fragile” in security, especially in the provinces of Anbar and Diyala, which makes Iraq to compensate its need of gas by the import.
The survival of the Iraqi economy a rentier means that the economy remains weak. This impedes the process of reproduction and weakness of sustainable development to develop all sectors to improve the bitter reality of the country, not to exploit its natural and human resources, improve living standards, increase employment and improve income.

Economic Studies Unit
Rawabet Center for Research and Strategic Studies