Introductory remarks by CASI: This report was submitted by the Iraqi government to the United Nations Secretary-General, on Iraq’s economic situation in 1991. It asks for a moratorium of "at least five years" before reparations required under section E of UNSCR 687 (1991) begin to be deducted from Iraq’s oil revenues. The report was appended as an annex to a letter from Iraq’s Permanent Representative at the United Nations, Abdul-Amir al-Anbari, dated 29 April 1991.

The Iraqi economy has substantial financial obligations and large-scale basic requirements, namely, external debt service, closing the food gap, the domestic demand for foreign commodities and services for consumer purposes, the reconstruction of what was destroyed by the war and investment to guarantee stability and balance the national economy.

We review below briefly Iraq's financial obligations with regard to the servicing of its external debt, its basic foreign currency requirements and the major structural deficiencies suffered by the Iraqi economy under the following basic headings:

I. Financial Obligations

Iraq's total external debt and obligations amount to 18,118 million Iraqi dinars (ID) or the equivalent of $US42,097mn as of 81 December 1990, excluding interest.

A breakdown of the balances of these debts and obligations by the years in which they fall due is as follows:

The problem of the external debt for the Iraqi economy does not lie solely in its size (which constitutes 65% of the gross domestic product) but extends to servicing difficulties also, since 97% of these debts fall due in the next five years.

II. Basic Requirements

This section covers import programs, the reconstitution of the stock of foodstuffs and basic commodities, the costs of repairing part of the war damage in the state civilian sector and the continued implementation of the development projects that were under way.

The annexed table shows that the total of these obligations for the above-mentioned categories is ID43.4bn at an annual rate of ID8.7bn during the period 1991-1995, while the estimate of these requirements for 1991 totaled ID7bn. These amounts represent the minimum needed to meet Iraqi economic requirements for the restoration of normal life. Below is a brief summary of the main categories of basic requirements:

1. Import Program

Total allocations for import programs for the next five years are estimated at ID15.1bn, including ID2.4bn for 1991 alone. The country's import requirements have been estimated on the basis of the 1989 program, which was characterized essentially by moderation and a focus on basic commodities. Below are the main totals for import programs over the next few years.

(a) Basic Commodities (foodstuffs and medicine)

The sum of ID4,532mn has been allocated for the categories of foodstuffs and medicine in the import programs for the next five years, at an annual rate of ID906mn or the equivalent of 30% of annual allocations for import programs, as against an allocation of ID713mn in the 1991 program for the importation of basic foodstuffs and medicines.

(b) Other Consumer Goods and Raw Materials

The sum of ID7,357mn has been allocated for this group, at an annual rate of IDl,471mn, which represents 48.7% of the annual allocations for import programs, as against an allocation of IDl,158mn in the 1991 program fur the importation of other consumer goods and raw materials.

(c) Production Goods

The sum of ID3,218mn has been allocated, an annual rate of 1D643.6mn; these allocations represent 21.3% of the total allocations for the import program, as against an allocation of ID507mn in the 1991 program for the importation of production goods.

2. Reconstitution of Stock (Foodstuffs and Basic Commodities)

As a result of the economic embargo, the government has exhausted its strategic stock of foodstuffs and primary intermediate goods. Iraq used to keep the equivalent of 25% of its imports as a strategic stock for emergencies, and, in order to reconstitute this stock, the allocation of ID735mn is required over the period 1991-1995. It is expected that ID283mn will be allocated during 1991, representing 15% of the volume of imports for 1991.

3. Repair of War Damage

The war destroyed infrastructure and enterprises vital to the economic and social life of the country and created a serious case of economic weakness and retardation. It is expected that the situation will remain thus for a long period of time if the repair and reconstruction of war damage to the civilian sector is not expedited.

Our concern will be focused on the costs of reconstructing these of the plants destroyed which are of particular importance for economic and social life, and which bore much of the direct and indirect material damage left by the war,

The cost of reconstructing these plants is estimated at some ID8.0bn, 80% of that amount, or ID6.4bn, in foreign currency. It is expected that ID0.6bn of the total will be allocated during 1991. These costs do not include that of such indirect damage as the stoppage of production, the various forms of social and humanitarian damage, military damage, damage to nuclear-power installations and military industries, damage to private sector establishments or other damage to enterprises located in certain areas of Iraq where there is a foreign military presence.

4. Obligations Under the Development Plan

Total investment allocations for the period 1991-1995 were approximately ID28.7bn, and they represent the minimum required to achieve an extremely low rate of growth in non-petroleum GDP of no more than 3.4% a year. This is a paltry figure when account is taken of the population growth rate of 2.8% a year. The foreign currency component of total allocations is approximately ID17.2bn, and this represents 60% of all allocations at an annual average of ID3,447.6mn over the period in question. The breakdown of foreign currency requirements for the economic and social development plan for each year of the plan is as follows:

III. Anticipated Revenue

Iraq's anticipated oil revenue over the years 1991-1995 are estimated at ID20bn. ID539mn of this amount is for the remainder of 1991, assuming the exportation of only 600,000 barrels of crude oil a day at a rate of $16 per barrel because of the substantial damage caused to oil extraction and exploitation installations. For 1992, oil exports have been estimated at 2mn b/d; for 1993, 2.85mn; for 1994, 2.9mn; and for 1995, 2.95mn.

Non-petroleum exports are extremely limited and they are not exported to exceed ID290mn over the five-year period 1991-1995.

The Gap Between Requirements and Anticipated Foreign Currency Revenue

In light of the data presented in sections I and 1I above, if it is to meet its debt-servicing requirements, installment payments and interest payments, and to have the minimum necessary to provide for domestic consumption and investment demand, as well as for the repair or reconstruction of these vital enterprises of particular importance for economic and social life which were destroyed by the war, Iraq's total foreign currency needs amount to ID66.8bn. Of this amount, ID23.4bn would go to service debt installments and interest payments and ID43.4bn to meet the requirements of the national economy. At the same time, Iraq's total revenue is not expected to exceed ID20.3bn over the period 1991 - 1995, a total in which oil would have a 98.6% share, as shown in the accompanying table. Accordingly, the gap between requirements and anticipated foreign currency revenue will reach an accumulated total ever the period in question of some ID46.5bn at an average of ID9.3bn a year. It should be borne in mind that the 1991 deficit is expected to reach ID14.9bn. The reason that the size of this deficit is greater than the annual average is the enormous value of debt installments falling due this year together with those for previous years. It is because these installments include all the amounts due for 1991 as well as those for previous years on which no agreement was reached on deferment or on a modality for payment.

The paucity of Iraq's anticipated export revenue over the next five years places the national economy in an unenviable position in as much as such revenues do not cover its minimum financial obligations or its requirements for food and medicine. This conclusion can be drawn from the figures indicating that Iraq's anticipated foreign currency expenditures on current debt servicing – installments and interest payments due and those expected to fall due during the next five years and on imports of food and medicine will amount to ID20.4bn, while its total revenue for the period 1991-1995 will be ID20.3bn, as set forth below.

V. Other Key Problems Facing the Iraqi Economy

The major economic indicators show that there are many economic imbalances and problems which are distorting the allocation of resources and impeding the restoration of economic activity to its normal levels with the necessary speed. The most important of these are as follows:

1. The Accumulated Deficit in the General State Budget

The accumulated deficit in the general state budget is in the order of ID42bn, of which ID35.7bn is financed by the banking sector at an annual rate of 16.6%, representing 216% of GDP at the present time.

2. Inflation

The increase in prices over the period 1985-1990, as expressed by the consumer price index, was 126%, for an annual inflation rate of 17.7%. This may rise to 23.2% a year, which reflects hidden inflation according to indicators of liquidity or the relation between money supply and GDP.

3. Decline in Economic Activity

Most of the sectors and activities sharing in the composition of GDP experienced a drop or decline in value added at fixed prices, the rates of real growth of which were close to -0.03, over the period 1985-1989. This situation gave rise to a decline in real per capita income by 2.8% a year, and that decline also had a negative impact on economic activity in terms of investment and real consumption.

4. Balance of Payments Deficit

In the period 1985-1990, the balance-of-payments deficit was about ID2.6bn and was financed from external borrowing.

For the same period, the current account deficit is estimated at some ID8.8bn.

6. External Debts

External indebtedness and external obligations have accumulated, and the total at the end of 1990 was close to $42.1bn, excluding interest payments due and grants from the Gulf Arab countries.

VI. Proposal of the Government of Iraq

On the basis of the facts referred to in this note and mentioned above, which clearly reflect the tremendous financial deficit and the great gap between the financial obligations and the financial requirements of Iraq on the one hand and its limited revenue and expected exports for 1991 in particular and for subsequent years on the other hand, and in the light of the conclusions reached by Mr. Ahtisaari, the United Nations Under-Secretary-General dispatched to Iraq who noted in his report that "...the recent conflict has wrought near-apocalyptic results upon the economic infrastructure... Now, most means of modern life-support have been destroyed or rendered tenuous, Iraq has, for some time to come, been relegated to a pre-industrial age..."

With its current financial resources and those expected for 1991 and subsequent years, it is not within the capacity of Iraq alone to restore its economic and social life to that obtaining before the events of 17 January 1991. Intensive international efforts must be exerted in order to help Iraq to accelerate the return to a normal situation. Therefore, Iraq is in no position to bear any deduction from its oil export revenue for 1991 and coming years, which will be meagre and suffice only to finance an extremely small part of its financial obligations and basic requirements, which should be taken into consideration, as stated unambiguously in paragraph 19 of Security Council resolution 687 (1991).

Therefore, the Government of Iraq requests that it should be granted a delay of at least five years for the implementation of paragraphs 18 and 19 of the above Security Council resolution in order to enable it to adjust its economy so as to allow it to meet its international financial obligations and its basic requirements.

Financial Obligations and Basic Foreign-Currency Requirements of Iraq

(Millions of Iraqi dinars)

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