GDP is estimated to have rebounded by nearly 50% in 2004, driven mainly by the recovery of the oil sector. Oil production expanded by 74% from 1,2 million barrels per day (mbpd) on average in 2003 to 2,0 mbpd in 2004, although this is still below the pre-war production level of 2,5 mbpd. Non-oil GDP is estimated to have expanded more moderately in 2004, as lack of security, electricity shortages and poor communications hamper the recovery in private sector activity. Some state-owned enterprises, mainly in construction and petrochemicals, have reactivated production. Oil export revenues in the first five months of 2005 were in line with the expectations, but only because lower oil export volumes were offset by higher oil prices.

Prospects for real GDP growth in 2004 were down to 4% (from 17% in the economic programme), reflecting downward revisions to oil production.

Economic potential

Iraq has the second largest proven oil reserves in the world at around 112 billion barrels, yet reserves are estimated to be far greater as the country is largely unexplored. Only 15 out of the 73 discovered fields have been developed. In addition, Iraq's oil production costs are among the lowest in the world. Oil export volumes in the first five months of 2005 remained at an average of 1,4 million b/p., the same as the average in 2004 but well below the target. Iraq has not had access to state-of-the-art oil industry technology for many years. It has also been using techniques such as water injection in order to maintain production and it is likely that this may have damaged oil reservoirs. Iraq has also significant gas reserves, with proven reserves estimated at 110 million cubic feet, about 2% of the proven global reserves.
Agriculture has long time been the primary economic activity, although the country imported about 33% of its food supplies by the 1970s. Around 12% of Iraq's land is cultivable, but irrigation capacity has been severely depleted. Once the irrigation facilities are improved, Iraq has the potential to be self-sufficient in agriculture. The decline in the production of fertilizers also has a negative impact on agricultural production . The country's annual fertilizer requirement is estimated at 1,5 million tons of phosphate fertilizers and 1 million tons of nitrogenous fertilizers. Production of both products stood at 1,2 million and 1 million tons respectively prior to the Gulf war, but has declined significantly owing to lack of spare parts.
The development of private sector industries slowed down significantly following nationalization in the 1960s. There was focus on industrial development in the 1970s, yet civilian industrial output increased only modestly. The industrial sector remains divided into a small number of large capital intensive, mainly public sector firms, and numerous small scale units. Focus should now be on encouraging investment in both small and large scale ventures, developing the technical and managerial skills and introducing a proper regulatory framework.
Iraq had twelve oil refineries with a total capacity of 700,000 b/d, but effective capacity has been reduced significantly to around 415,000 b/d. The quality of output is also poor and major investments are needed to restore the refineries. Given the large gas reserves, there is significant scope for the development of downstream petrochemical industries and it is likely that this sector will attract important investments in the coming years.
Iraq also has important limestone reserves, making the country a competitive and low cost producer of cement. Cement production from 18 plants was around 8,2 million tones per year, but plants have been operating at low capacity due to decline in demand. Demand for cement has picked up due to increase in construction activity and demand is estimated to grow at 20% per year.

Future prospects

Iraq maintains an open trade and investment regime and applies a 5% custom duty on imports, but there are many exemptions. The country submitted a request for WTO accession in 2004.
All sectors are open for foreign investment, except ownership of natural resources involving primary extraction and initial processing.
The Central Bank of Iraq reported net international reserves of US$ 7,4 bullion at the end of 2004. In 2004, the Paris Club also agreed to debt reduction terms for Iraq to be implemented in three stages and amounting to a total of 80% debt reduction. Yet, external debt is still estimated to be some US$78 billion, or the equivalent of three times the GDP.
Additional stages of debt reduction under the Paris Club agreement are thus necessary.
Medium term economic outlook appears satisfactory if the oil production proceeds without interruption and world oil prices remain favourable. Future scenarios include smooth reconstruction, restoration of security and stability. Overall GDP growth could then reach 17% in 2006 and decline to 7% by 2010. Recovery is based upon a resumption of the oil production to 2,4 million b/d in 2006 and 3,5 million b/d in 2010. Non-oil real GDP growth is projected to remain strong, sustained by high levels of public investment.
Rebuilding the economy and the infrastructure while improving at the same time the standard of living will place significant demands on the country's limited resources. It is therefore essential to speed up investment in infrastructure and to put in place a coherent strategy. Structural reforms are needed as well, including the restructuring of the state banks and other state-owned enterprises and strengthening the financial sector.

There has been a market deterioration in Iraq's human development indicators over the past 20 years. In 1990, Iraq was ranked 50th on the United Nations Development Progrmme's Human Development Index: a decade later it was ranked 126th. Although reliable date are limited, the UNDP reports that about 7% of households are considered poor, 96% receive monthly food rations, 23% of children aged between six months and five years suffer from chronic malnutrition. Net primary school enrollment is 79% and 22% of the adult population have never attended school. The youth (15-24 yars) literacy rate is 74% , the adult literacy rate is 65%.

Sources.: Iraqi authorities and International Monetary Fund.

            Sources.: Arab League, Unified Arab Economic Report