MIDDLE EAST & NORTH AFRICA
Iraq
CONFIDENTIAL
xxiv
80 Although no clear priorities have yet emerged for reconstruction, military
expenditure, increased oil export capacity, major intrastructural projects and
satisfying pent-up consumer demand are high on the list. The regime remains
committed to economic perestroika and has introduced measures to promote
privatisation and encourage private investment, but the legacy of war and
centralised planning mean that the benefits of reform will take time to come
through. Most industry remains Government-controlled. This sector is likely to
benefit most from new credit. Foreign exchange to finance reconstruction is in
short supply particularly as significant additional Arab aid looks increasingly
unlikely (although Arab States are likely to write off Iraq's non-banking debt)
(Neutral Zone war relief crude worth around $1.1 bn a year at current prices
to cease at the end of the year). Oil revenues are likely to remain uncertain.
Prices could stay weak and Iraq is seeking a quota increase next year. Official
and commercial borrowing may also prove difficult given the size of Iraq's
outstanding debt and poor payment record. Iraq remains opposed to Paris Club
rescheduling but most creditors can expect continued payment delays and
reschedulings. Indeed Iraq has recently approached HMG with a request for a
bilateral rescheduling. (The UK had only just agreed major new lines of credit
worth £340 mn for 1989, double the 1988 total.)
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is
Egypt
81 The IMF sees no prospect of an agreement with Egypt within the next six
months.
Negotiations remained deadlocked over the exchange rate, interest rates,
pricing and fiscal policies. Egypt's external position is deteriorating,
particularly as rising world commodity prices are pushing up the food import bill
and oil prices remain depressed. The fiscal deficit target of 13% of GDP for
1988/89 is likely to be exceeded by a significant margin, and the recent riots in
Algeria have reinforced the authorities' reluctance to reform subsidies.
financial sector, a number of Islamic Investment Companies are reportedly bankrupt
following failure to comply with new regulations by the November deadline. The
final implications of this are not yet clear, but confidence in the financial sector
could be seriously undermined.
In the