Introduction

The fiscal policy is considered one of the main pillars of macroeconomic policy. It bears the responsibility of organizing the financial framework through its tools—namely public expenditures and revenues—in order to achieve all desired economic objectives and ensure stability. Accordingly, fiscal policies occupy a crucial position within macroeconomic policies, as they represent the other side of economic activity. The paths taken by both the financial and real sectors are expected to move in harmony to achieve economic stability and avoid creating inflationary or deflationary trends, especially when one sector lags behind the other. In Iraq, fiscal policy plays a central role in the allocation and distribution of financial resources based on the needs and requirements of the national economy. This contributes to the provision of essential services, both from an economic and social perspective.

The Importance of the Research

The importance of this research lies in the role of fiscal policy in Iraq in diversifying income sources and reducing dependence on a single rentier resource (the oil sector). This dependence poses economic and financial risks that threaten the economy, hindering diversification and impacting financial resources, especially given the crucial role of oil prices in determining Iraq's financial future.

The Research Problem

For decades, the Iraqi economy has suffered from near-total reliance on oil revenues as its primary source of national income, making it vulnerable to economic and financial risks stemming from fluctuations in global oil prices. After 2003, despite the economic and political transformations the country has undergone, the implemented fiscal policies have not been clearly successful in achieving the desired economic diversification.

The Research Hypothesis

Fiscal policy in Iraq after 2003 has had a limited and ineffective impact on diversifying income sources due to excessive reliance on oil revenues and the weak direction of public spending and investment towards non-oil sectors. Research Objective

This research aims to analyze the effectiveness of fiscal policy in Iraq after 2003 in achieving diversification of national income sources, by studying fiscal policy tools (such as public spending and public revenues), identifying the obstacles facing the economic diversification process, and proposing ways to enhance the role of fiscal policy in supporting non-oil sectors and achieving sustainable development.

Section One

Fiscal Policy (Concept and Tools)

The emergence of financial thought is largely linked to the rise of governmental systems when a public body assumes the management and regulation of a country's financial affairs. This aims to regulate the relationships between all economic activities and sectors, on the one hand, and the individuals within society, on the other, and the resulting transactions and exchanges. Interest in studying societal financial matters has been largely tied to the extent of government intervention in managing economic, social, and political affairs. This intervention did not occur on a large scale until modern times, serving as a starting point for developing new and modern perspectives on addressing various crises and achieving economic stability. This necessitates the design and implementation of macroeconomic policies, including fiscal policy, to address the causes of imbalances and their impact on GDP and employment.

First Requirement: The Concept of Fiscal Policy:

The concept of fiscal policy varies according to different historical periods and economic, intellectual, and social conditions. One such definition describes it as "a set of measures taken by the government through changes in its spending or taxation levels to have a comprehensive impact on the economy in general, in order to achieve specific objectives, including price stability, full employment, and economic growth." [1].Fiscal policy is also defined as a mechanism that links government revenues and expenditures, designed to address economic fluctuations, reduce or eliminate unemployment and inflation rates, and ultimately achieve economic growth[2].

Fiscal policy may be expansionary when the goal is to stimulate aggregate demand, as is the case during recessions. In this situation, the government may employ one of the following policies: a deficit spending policy, a deficit without spending policy, or a spending policy without a deficit. Conversely, during periods of economic boom leading to inflation, the government may adopt a contractionary fiscal policy, which essentially involves implementing the aforementioned policies.[3] The concept of fiscal policy refers to the relationship between government spending and revenues, which it uses to counter economic fluctuations in order to reduce or eliminate unemployment and inflation rates, as well as to achieve sustainable and manageable economic growth [4].

After reviewing the preceding concepts, fiscal policy can be defined as a set of measures employed by the government, specifically the Ministry of Finance, aimed at achieving economic stability. It is a tool at the disposal of the state, enabling it to utilize revenues and expenditures to achieve specific objectives, including developing and advancing the national economy, addressing inflation and recession, and redistributing income and wealth among members of society.

Second Requirement: Tools of Fiscal Policy

Fiscal policy is considered one of the most important tools used by the government to achieve economic stability and stimulate growth. It encompasses decisions related to public revenues (such as fees and taxes) and public expenditures. Through this policy, the state seeks to influence aggregate demand levels and guide the economy towards goals such as increasing production, reducing unemployment, and controlling inflation.

First: Public Government Spending

This refers to the spending program that aligns with the nature of the state in various economic, social, and political aspects of life. It aims to address the expenditures of the government and its affiliated local bodies. The evolution of public spending reflects the development of the state and its responsibility towards achieving economic stability and the consequent availability of the right conditions that lead to economic development and social justice in countries around the world [5].

Second: Public Revenues:

These are the cash amounts that the state receives from its public bodies, whether economic or sovereign revenues, which enter the state treasury permanently and are neither refundable nor divisible, and are intended to finance public spending [6].

Third: Taxes:

Taxes are among the most important tools of fiscal policy because they are a significant source of public revenue that flows into the state treasury. A tax is defined as a sum of money that individuals are legally obligated to pay to the state or one of its agencies as a final contribution to public expenses, without any private benefit in return for paying that tax. Taxes are divided into direct taxes, such as income tax and capital gains tax, which are levied on individuals, and indirect taxes, such as sales taxes and production taxes. Taxes affect the volume of economic activity, increasing or decreasing it according to the prevailing conditions of the national economy[2].

Fourth: Public Debt:

Public debt is a modern tool used in fiscal policy. It is an integral part of fiscal policy, whether it is domestic or international debt. Modern fiscal theory emphasizes the legitimacy of deficit financing for the general budget. It also contributes to financing productive projects and driving economic development. Therefore, it is a tool capable of guiding economic activity, provided that this debt is used appropriately[7].

Section Two: The Reality of Fiscal Policy in Iraq and its Challenges After 2003

Iraq witnessed profound political and economic transformations after 2003, which directly impacted its financial and economic structure. The political change led to a comprehensive restructuring of state institutions, including the financial system, posing significant challenges for policymakers in formulating and implementing an effective fiscal policy that responds to the new realities. Despite the availability of oil resources, which constitute the primary source of public revenue, fiscal policy in Iraq faced numerous difficulties, including excessive reliance on oil revenues, weak economic diversification, and escalating rates of corruption and financial mismanagement.

The importance of studying the reality of fiscal policy in Iraq after 2003 stems from the growing need for deep financial and structural reforms aimed at achieving economic stability, ensuring equitable resource distribution, and enhancing the efficiency of public spending. Furthermore, the challenges that accompanied this period, such as security and political crises and fluctuating oil prices, necessitate an analysis of the implemented fiscal policies, identifying shortcomings and proposing solutions.

The first requirement: The main challenges facing fiscal policy in Iraq after 2003

Iraq after 2003 witnessed significant political and economic transformations that directly impacted the management of financial and economic affairs. Political changes, accompanied by security and structural instability, contributed to a complex environment in which fiscal policy faced considerable challenges. While fiscal policy is a fundamental tool for achieving economic stability and stimulating development, Iraq encountered numerous difficulties in this area. These difficulties included near-total dependence on oil revenues, weak economic diversification, a growing budget deficit, widespread administrative and financial corruption, and a weak institutional framework. Furthermore, regional and international circumstances, along with internal challenges, affected the state's ability to formulate and implement effective fiscal policies.

First: Primarily Reliance on Oil Revenue:

Iraq is considered one of the most oil-dependent countries in the world. Over the past decade, oil revenues have constituted more than 99% of its exports, approximately 85% of its general budget revenues, and nearly 42% of its GDP. This excessive reliance on oil exposes the Iraqi economy to macroeconomic fluctuations. The decline in oil revenues, resulting from the COVID-19 pandemic, had a significant impact on GDP in 2020, which contracted by 15.7%. This decline in oil revenues also led to a substantial decrease in public spending, particularly investment spending, further exacerbating the contraction of the Iraqi economy in 2020[8].

Second: The State Budget Deficit

The Iraqi economy is exposed to factors such as economic recession, tax evasion, and flawed demographic, political, and financial policies that lead to public expenditures exceeding public revenues, resulting in a state budget deficit. Below is a table showing the surplus and deficit during the period from 2004 to 2020.

Source: Official website of the Central Bank of Iraq

As shown in the table above:

1. Total actual revenues amounted to approximately 1,296.284 billion dinars. The highest revenue percentage was achieved in 2012, reaching approximately 9%, followed by 2013 (9%), and then 2019 (8%).

1. Actual expenditures amounted to 1,144.731 billion dinars.
2. The actual budget deficit for the years 2015, 2016, 2019, and 2020 amounted to approximately 33.652 billion Iraqi dinars.

Third: Weakness of the Tax System

The tax system generally suffers from weak revenues, as well as a lack of diversity in tax bases in most developing countries, including Iraq. This is due to the numerous challenges and obstacles facing the implementation of tax policy as a component of the budget and a tool for stimulating economic growth and stability in Iraq. Therefore, there are several obstacles and reasons that lead to the weakness of the tax system in Iraq, including: [9]-

1. Reliance on oil revenues to finance the budget weakens the role of taxes, relegating them to the secondary source of funding for public spending.
2. Weaknesses in tax administration and tax collection have led to a decline in revenues. This is due to a lack of information and data from taxpayers, as well as administrative and financial corruption and the proliferation of ill-conceived tax exemptions after 2003.
3. The absence of an accounting system in the private sector makes revenue collection difficult. Furthermore, the widespread informal sector has resulted in lost tax revenue.
4. A lack of cultural awareness in society regarding the role of taxation in developing the financial system and its contribution to economic development and improved services.
5. The low level of education and technical expertise among tax officials, coupled with a lack of skills and training, leads to a decline in tax revenues.
6. Weak oversight, whether internal or external, hinders the development of the tax system and has led to widespread tax evasion.

The second requirement: Policies and implementation methods

Administrative and operational policies are an essential part of any organization or business entity, as they define the general framework within which operations are managed and decisions are made. These policies aim to ensure the efficient and effective achievement of strategic objectives, adherence to regulations and laws, and the promotion of good governance.

Implementation methods refer to the mechanisms and procedures followed to implement these policies in practice. These methods include developing implementation plans, defining responsibilities, and establishing monitoring and evaluation standards to ensure compliance and address any deviations. Understanding the complementary relationship between policies and implementation methods is key to ensuring improved institutional performance, providing the highest quality services, and enhancing the satisfaction of both beneficiaries and employees.

First: Tax system reform

The tax system is a fundamental pillar of any national economy, as it constitutes the primary tool upon which the state relies to finance its public expenditures and achieve its economic and social objectives. To develop and reform the tax system in Iraq, there are a number of procedures, which are: [4]

1. Oil revenues cannot be relied upon to cover current expenditures. Instead, they should be allocated to increasing capital accumulation, whether in the production of goods or services.
2. The government must rely on taxes as a secondary source of funding for current expenditures. Indirect taxes, which are unsuitable for primitive societies and fail to achieve social justice, unlike direct taxes, should not be relied upon.
3. The tax administration must develop and improve its treatment of citizens to gain their satisfaction and trust. This is crucial for the successful implementation of its policies.
4. To reduce obstacles in the tax system, tensions between taxpayers and the tax authority must be alleviated, fostering exchange, trust, and cooperation.
5. The tax law in Iraq must be developed and amended, as these laws are influenced by the economic and social ideologies adopted by the ruling authority. This amendment may involve increasing, decreasing, or eliminating certain taxes.

Second: Combating Administrative and Financial Corruption:

Administrative corruption can take many forms, such as bribery, embezzlement, nepotism, favoritism, forgery, abuse of political influence, arbitrary decision-making in processing transactions, leaking sensitive information, neglecting and misusing public funds, and extorting citizens and residents by imposing fictitious fees to facilitate administrative transactions. This corruption varies in its levels; it may appear through a corrupt employee in a ministry who accepts bribes, for example, or it may extend to an entire department involved in administrative crimes through the collusion of the director with his subordinates[10].

Administrative corruption can be combated through a set of measures, which are:[11]

1. Streamlining work processes and setting deadlines for completing transactions are key factors in combating corruption.
2. Regular employee transfers can facilitate and reduce the prevalence of bribery.
3. Establishing specialized committees to develop a comprehensive employee performance system, conducting periodic inspections across departments and ministries, and preparing related reports.
4. Creating a classification system that categorizes public sector jobs according to the nature of their duties into classes and ranks requiring a consistent level of qualifications and knowledge (i.e., adopting a standard of competence and experience).
5. Determining a salary scale for each category within the classification system after conducting a comparative study of similar jobs in the public and private sectors.
6. Establishing an effective and independent oversight system tasked with supervising and monitoring the practices of ministers and employees in every ministry and institution.
7. Activating service management, meaning that it should encompass all public departments, institutions, and municipalities, with priority given to public service departments.
8. Working to find the necessary ways to escape the tunnel of corruption and terrorism without falling into a vicious cycle, which begins with repairing the massive damage to the value system, patterns of thinking, and the accompanying ills such as opportunism, negativity, and distorted communication with oneself and others.
9. Spreading ethical, religious, cultural, and civilizational awareness among all citizens.

Third: Adopting a Program and Performance Budget

A program and performance budget is a type of budget that aims to link public expenditures to specific objectives. Through it, the objectives to be achieved are defined, and the amount of expenditures required to implement the programs planned for inclusion in the budget is estimated, with the goal of achieving those objectives. This budget also includes setting objective standards and metrics that help measure the extent of program implementation and evaluate its efficiency and performance.

The US Economic Development Commission defined program and performance budgeting as a set of methods that enable program managers to focus precisely on implementing the objectives within their responsibilities, with the ability to compare progress in achieving these objectives in terms of working hours, materials used, and time[12].

Section Three: Fiscal Policy Mechanisms in Iraq for Diversifying Income Sources

Diversifying income sources is a strategic objective pursued by all countries with rentier economies, such as Iraq, to ​​reduce their excessive dependence on the oil sector. Since 2003, Iraqi fiscal policy has faced significant challenges in this area due to political instability, weak institutions, and the absence of a clear economic vision. With the recurring crises resulting from fluctuating global oil prices, the urgent need has arisen to adopt effective fiscal policy mechanisms aimed at broadening the economic base and activating non-oil sectors. These mechanisms include reforming the tax system, stimulating domestic and foreign investment, supporting small and medium-sized enterprises (SMEs), and adopting financial plans that ensure the sustainability of revenues independent of oil revenues. This research aims to analyze the most prominent fiscal policy mechanisms employed in Iraq to diversify income sources and to evaluate their effectiveness in light of current economic challenges.

First: Diversifying Economic Sectors Contributing to the Gross Domestic Product (GDP)

This indicator represents the contribution of the productive, distributive, and service sectors of the economy, generated by individuals within the country and resident foreigners, to the Gross Domestic Product (GDP) over a specific period, usually one year. GDP measures all goods and services produced within a country during a given timeframe, encompassing all economic activities. Therefore, it serves as an indicator of the size of a nation's economy, as it measures the total output of goods and services, thus accurately and clearly reflecting the economic situation of a country.[13] In addition to encompassing the performance of all its constituent sectors, the GDP data allows for forecasting current and future trends in the country's economic development, enabling us to formulate policies for the future.[14] In Iraq, three main sectors contribute to the formation of the gross domestic product, as we mentioned previously. These sectors consist of sub-activities. The first is the productive sectors (agricultural, industrial, oil, electricity-water, and construction). The second is the distribution sectors (transport, wholesale-retail, insurance, and finance). The third is the services sector (housing, social development, and personal services). These sectors, over the course of two decades, have remained diverse in their formation of the gross domestic product. When tracing the composition of the gross domestic product of the Iraqi economy, we find that it has been characterized by structural imbalance due to the primary and main dependence on oil to finance its resources. Extractive industries have taken the lead in their contribution to the formation of the gross domestic product at the expense of the decline in the productivity of the basic economic sectors represented by agriculture, manufacturing, and other activities, which has resulted in the failure to achieve economic balance. The continued decline in the contribution of productive sectors to GDP, coupled with a clear government tendency to support commodity-based activities at the expense of service and distribution activities, has led to structural imbalances in the relative distribution of the national economy's sectors.

These imbalances constitute obstacles to progress and development, ultimately resulting in fluctuating productivity in non-oil sectors, a low contribution to GDP, and a high degree of dependence on the oil sector. The following table illustrates the contribution of the main economic sectors to GDP during the period 2004-2022.

Table (2)

The development of the contribution of local sectors to the formation of the gross domestic product (GDP) in Iraq for the period (2004-2020)

Table (2) shows the dominance of the oil sector over other productive sectors such as agriculture and industry. Its contribution in 2004 reached approximately 58%, while the agricultural sector contributed 6.9% and the industrial sector 1.8% in the same year. One reason for the low contribution of the agricultural sector (6.9%) and the industrial sector (1.8%) is that the government allowed an open-door policy for imports, which led to the influx of many cheap, high-quality foreign goods. Consequently, local products were unable to compete with these goods, resulting in a decrease in their contribution to the gross domestic product.

Furthermore, the agricultural sector is a major occupation for a large segment of Iraqi farmers and agricultural workers, providing numerous job opportunities in villages and rural areas, estimated at (30%) of the Iraqi workforce. However, the conflicts and unrest that the country witnessed after the political regime change in 2003 contributed to significant tension and instability, negatively impacting both the agricultural and industrial sectors. At that time, these sectors were in dire need of substantial investments to improve agricultural infrastructure and develop agricultural and industrial technologies and practices. This coincided with a shortage of fertilizers, pesticides, and water resources essential for agriculture, negatively affecting agricultural and industrial production. This shift led to the allocation of fewer resources to both the agricultural and industrial sectors [15].

The oil sector began to experience a gradual decline in its contribution after 2005 and continued to do so until 2010. This decline was attributed to the drop in oil prices due to the global financial crisis, from around $120 per barrel before the crisis to approximately $60 per barrel. Consequently, its contribution to GDP decreased. This was followed by the 2014 crisis and the resulting drop in international oil prices, in addition to the security instability caused by terrorist groups. The industrial sector, on the other hand, witnessed slight growth (2.3%) compared to 2004 (1.8%). This modest growth was due to government support for the industrial sector, including loans, tax reductions, and the imposition of customs tariffs on imported goods, which encouraged production. The agricultural sector, however, had a low contribution of 5.2%, compared to 6.9% in 2004. This decline was due to water scarcity, which prevented farmers from cultivating their land. Furthermore, the rising prices of fertilizers and pesticides led to a decrease in the agricultural sector's contribution to GDP. The contribution of the oil sector declined sharply in 2015, reaching 33.8%, due to a dual crisis: the drop in oil prices and the war against ISIS terrorist groups, which controlled most of the northwestern provinces. Iraq was unable to export oil through its northern ports, resulting in a decrease in crude oil exports compared to pre-war levels. The average daily oil export rate, which was approximately 3.5 million barrels, fell to below 2.5 million barrels per day. Furthermore, the decline in global oil prices led to a decrease in oil revenues compared to previous years and the higher levels achieved. The agricultural sector also declined to 3.9% in 2016. This was because terrorist groups seized all agricultural lands in the five northern provinces, including the most productive agricultural areas. They shipped one million tons of food and grain to Syria, depriving approximately 400,000 farmers of their income. They also seized agricultural equipment, used irrigation pipes to make improvised explosive devices, and cut off water supplies to farmers as punishment.[16] Consequently, its contribution to the formation of the gross domestic product decreased, not to mention the policy of dumping and opening the door to imports of agricultural products at low prices.[17] The industrial sector did not make progress, although some factories in the northern governorates closed, but its contribution remained constant throughout the period.

The agricultural sector's contribution to GDP increased to 6.2% in 2020 as a result of the impact of the COVID-19 pandemic and the increased demand for agricultural products. The government also boosted domestic production to reduce its dependence on food imports and enhance self-sufficiency. The sharp decline in oil prices prompted the government to strengthen agriculture and improve agricultural technologies and practices, leading to increased production. Consumer consumption habits also shifted towards healthier agricultural products. It is worth noting that the decline in the oil sector's contribution was the reason for the increase in the industrial sector's contribution in Iraq during 2020.[18]، The agricultural and industrial sectors declined once again due to the dominance of the oil sector. This was a result of Iraq's increased share of production coupled with rising global prices, which made the oil sector the largest contributor to GDP. Other sectors fluctuated, experiencing both growth and decline due to a mix of positive and negative factors.

The transport and communications sector led other distribution sectors such as the trade of goods, food commodities, and daily necessities in retail and wholesale quantities, as well as the insurance, banking, and finance sectors. In 2004, the transport and communications sector contributed approximately (8.3%), while the wholesale and retail sector contributed (6.1%) and insurance (1.2%) for the same year. The transport and communications sector's leading position resulted from the expansion of commercial activity and the transport of goods, services, and imported commercial merchandise, in addition to the recovery of the tourism sector, as travel to certain countries required only a personal ID card. This increased the sector's contribution to the gross domestic product, although its contribution percentages were considered low. Furthermore, the contribution of telecommunications and internet services in providing information services, monitoring global prices, and facilitating flight booking methods also contributed to this. Maritime transport suffered from a lack of investment, both domestically and internationally, due to poor infrastructure and a shortage of transport equipment. Most land routes were damaged and destroyed as a result of bombing and sabotage operations, not to mention the vandalism, looting, and theft that affected main roads, such as the security wall and traffic signals.[19] The insurance and finance sector did not make a significant contribution to GDP despite economic liberalization with global markets, increased imports, and rising oil revenues. This was due to the lack of strategic planning for future projections and the continued focus on exporting crude oil for the resulting financial surpluses. The transport and communications sector declined by 5.8% in 2010 as a result of the global financial crisis and a decrease in domestic and international travel. The wholesale and retail trade sector recorded slight growth of 7.7%, driven by increased domestic consumption, higher demand for imported goods, and a growing population that reached approximately 33 million, compared to around 28 million in 2004. The contribution of the insurance and banking sectors remained unchanged, even considering government support and the number of licenses granted for establishing private banks to serve various sectors. In 2016, the transport and communications sector's contribution rose to 11.5%, and the wholesale and retail trade sector's contribution increased to 9.4%, while the insurance and banking sectors did not register significant growth. (1.7%), after which the contribution rate witnessed a slight decrease to reach (10.4%) in the year (2020). This is attributed to the impact on the transport and communications sector and the greater decrease in air and domestic travel, as many flights were canceled at the tourist and commercial (carrying goods and merchandise) level, which negatively affected airlines, causing them to incur significant financial losses, and public transport services were halted and replaced by personal means of transport.[20] The contribution then fluctuated, reaching 10.4% in 2020. It subsequently declined to 10% in 2021. This decrease in the sector's performance is attributed to reduced efficiency, with funds and resources being directed primarily towards operational expenses (salaries and wages), as well as increased spending on healthcare, including the purchase of medical equipment and treatments for those infected with the virus. Furthermore, investment spending and support projects were suspended until further notice.

The social development and real estate services sector had high contribution rates, reaching 15.6% in 2004 and rising to 27.5% in 2015. However, due to the repercussions of the health crisis, the high number of COVID-19 infections, and the lack of control over its spread or the availability of a vaccine, the government had no option but to provide service expenditures. These expenditures contributed approximately 33% to the GDP in 2020.

It is clear from the above that the Iraqi economy has suffered from significant distortions in its development and the achievements of these sectors. This is a result of their declining contribution to the GDP, particularly in the goods sector. This necessitates the adoption of reform policies. These policies should not be limited to enacting legislation but should embrace a clear philosophy for these reforms and implement a set of programs that represent the legislative and institutional frameworks, as well as infrastructure reform. The goal is to create an investment-friendly environment and prioritize private sector development.

Second: Developing the Agricultural Sector

Many economists have discussed the importance of the agricultural sector's role in economic development and have contributed to this topic through studies and research. They have highlighted the role of agricultural production resources in generating income that contributes to the general budget, and its responsibility for providing food for the population, in addition to its industrial and commercial importance. Therefore, the issue of developing and improving the agricultural sector in Iraq should be given special attention. This is facilitated by Iraq's vast agricultural lands and sufficient water resources, which are necessary to bring about a qualitative leap in the development of the agricultural sector, leading to increased agricultural production and, consequently, economic diversification.[21]

Therefore, the government can take successful practical measures to activate the role of the agricultural sector in the structure of the Iraqi economy, particularly in economic diversification. This can be achieved through a set of measures, including:

1. . Developing water resources and activating methods for their development and conservation. Emphasis must be placed on achieving Iraqi water security as an effective means of achieving sustainable agricultural development. To achieve this, cooperation between the Iraqi Ministry of Agriculture and the Iraqi Ministry of Water Resources is necessary in preparing strategic policies for developing surface and groundwater resources, protecting them from pollution, expanding the use of non-conventional water in agriculture, and improving the efficiency of irrigation water use. This also requires resolving water issues with neighboring countries to preserve Iraq's rights [22].
2. Expanding agricultural lending and financing, and attracting direct investment. This can be achieved by facilitating the establishment of financial institutions in rural areas to expand lending in these regions and encouraging farmers to save in banks.
3. The banking system should be flexible enough to meet the requirements of private sector investors in agriculture. Foreign capital, particularly European and Arab capital, should be encouraged to invest in the agricultural sector by offering more facilities and flexibility in selecting investment projects. This will expand high-quality production and ensure excellent quality.
4. A special budget should be allocated to the agricultural sector for its development, recognizing its leading and vital role and its interconnectedness with all other economic sectors through forward and backward linkages. This makes it a link in the chain of sectors that comprise the national economy.
5. Large banks should be established to provide loans and credit to help farmers develop and improve their farms. These loans should be conditional on low interest rates and specifically allocated for the purpose of reforming the agricultural sector [23].
6. Establishing an agri-food processing sector that allows for the addition of high value to manufactured products, especially agricultural crops in which Iraq often has a comparative advantage, such as poultry, date palms, and tomatoes. This can be achieved by using modern technology in establishing these investments, which will increase the competitiveness of these products, contribute to job creation, and thus diversify the economic base[24]._.
7. The necessity of establishing a strategic reserve of basic food commodities and developing a system for its implementation and management, given its significant importance in achieving and maintaining Iraqi food security, as well as its role in providing food commodities and maintaining their prices in light of sudden global changes in the prices of imported agricultural commodities and products.[25] Therefore, it is necessary to work on building a national strategic reserve of the most important Iraqi food commodities and products, especially grain products, to enable Iraqi citizens to have continuous access to food under all circumstances.
8. Providing adequate transportation links between rural towns, local markets, and other governorates, as this will encourage the expansion of local markets and act as a positive incentive for increased production[26].
9. Conduct a comprehensive survey of all fertile and infertile agricultural lands and determine their total area in order to clarify the reasons for their underutilization and the reasons for their low productivity. This is because the diversification processes taking place within the broader development effort necessarily require the development of agricultural, land, and water resources, and the utilization of the results of mechanical and biological technological advancements to improve agricultural production.[27] ،The use of appropriate technology plays a key role in increasing agricultural production and improving its quality. Furthermore, utilizing agricultural experts with specialized knowledge and expertise in this field, combating desertification of agricultural lands, and fully utilizing these lands effectively, including by cultivating climatically tolerant fruit-bearing varieties and rehabilitating and expanding irrigation and drainage projects, are all crucial[28].
10. The need to raise the efficiency and productivity of workers in this sector through agricultural training and extension centers, and by holding comprehensive theoretical and practical courses covering all aspects of the sector. This includes working to strengthen the competitiveness of agricultural products in local and international markets by expanding agricultural production and developing high-quality products, as well as establishing and implementing efficiency standards and specifications for agricultural products[29].
11. The state or the private sector should establish a closed-system fish farming project and increase its quantity and quality in order to meet local demand on the one hand and export the surplus to neighboring countries on the other. Such projects are characterized by the low volume of water used, the small area of ​​land on which the project is built, and the small number of workers required. In addition, these projects generate high financial revenues and contribute to providing food security for the country. Therefore, it can be said that the success of agricultural development in Iraq depends mainly on establishing a clear strategy that works to develop agricultural production and diversify its products in order to increase non-oil exports [30].
12. Protecting domestic products and preventing the entry of similar products if the product meets local needs, and imposing high taxes on imported agricultural products that compete with domestic products [25].
13. Creating partnerships with neighboring countries in the agricultural sector to serve as automatic buffers to defend local products in light of the unfair competition they are currently facing and to counter the dumping policies pursued by those countries.[19]

Third: Developing the Industrial Sector

The manufacturing sector contributes between 60% and 66% of the world's merchandise exports in the modern economy. This is a fundamental fact that rentier economies cannot ignore; they have no option but to diversify. When the export basket of rentier states consists solely of oil, expanding the commodity production base, particularly in export-oriented manufacturing, becomes a crucial prerequisite for economic development and, consequently, economic diversification. The industrial sector is unique in its ability to achieve production diversification through its numerous stages of production processes, which contribute to the production of diverse goods that enhance export capacity. Furthermore, it facilitates structural and technological transformation and the expansion of manufacturing .[29] The manufacturing sector is capable of generating employment opportunities and subsequently increasing them through its sequential processes until the manufacturing stage is complete. Afterward, expansion and the generation of new jobs shift to the tertiary sector. Generally, industrial development programs implemented in oil-producing countries have aimed to achieve overarching goals, including economic diversification, reducing dependence on oil revenues, providing employment opportunities for the workforce, developing and utilizing local resources, and promoting import-substitution industries [31].

The industrial sector also plays a significant role in driving economic development in developed countries and some transitional countries. This sector is a crucial source of funding for development and the growth of other economic sectors, second only to the oil sector. Manufacturing processes produce new goods from raw materials, diversifying production and increasing the volume of manufactured goods in non-extractive exports. This, in turn, contributes to diversifying income sources and thus increases its contribution to the gross domestic product (GDP). Therefore, this sector is considered a vital tool for diversification .[32]

The National Development Plan has set a vision for the industrial sector, embodied in an Iraqi industry that effectively contributes to diversifying the local economy within a competitive environment and global partnerships. This vision includes several key objectives, most notably increasing the industrial sector's contribution to the gross domestic product and encouraging the private sector to play its role in this vital area.[33]

It is worth noting that production diversification reduces the risk of economic vulnerability created by dependence on a single export commodity. A diversified export base leads to greater stability in revenues and, consequently, economic development. On the import side, diversification creates a commercial sector capable of meeting domestic needs under normal circumstances and during crises such as political disputes.[34]

Developing productive capacities through diversification requires economic policies that secure financial resources and invest in establishing industries that capitalize on the advantages of abundant natural resources. These industries include downstream industries based on the same exported materials, particularly petrochemicals and oil refining, in addition to other industries.[35] To achieve industrial diversification in the country's economy, a set of measures is required:

1. Defining development phases for this sector according to a specific program based on investment expenditures, starting with infrastructure that reduces costs for the sector, considering the relative importance of each industry, and beginning with industries that have the lowest costs, are most relevant to community consumption, have local raw materials, and whose products contribute to reducing imports[36]
2. Subject industrial facilities to continuous monitoring and evaluation to track their performance and economic and social benefits, especially those receiving loans and subsidies from the state, to prevent waste resulting from their economic unviability.
3. Work to overcome bureaucratic obstacles in providing and supporting investment opportunities through the state's role, removing all impediments and granting the Investment and Industrial Development Authority the necessary powers to support industrial investment and overcome all obstacles it faces. Direct all government departments to purchase their needs from locally produced goods that are characterized by quality, durability, and competitiveness with foreign goods.
4. Establish industrial cities located away from urban centers, possessing the necessary infrastructure and facilities to reduce transportation and transaction costs between industrial facilities. Being located in a single geographical area facilitates better interaction and the exchange of information and expertise within the industrial sector through these strategically located industrial cities.
5. Research and development centers can significantly support industry, especially modern research centers. The experiences of other countries in this field can be utilized, particularly given the ease of knowledge transfer facilitated by the significant economic openness brought about by the information revolution. These scientific innovations help increase diversification and productivity, reduce costs, and thus boost profits in both the private and public sectors.
6. Efforts should be made to conclude agreements with neighboring countries that exempt Iraqi goods intended for export from customs duties. Furthermore, industrialists should be encouraged to import modern technologies, such as machinery and equipment, by granting them licenses and providing incentives for advanced foreign companies that transfer and adapt technology within Iraq.
7. Local and foreign investments should be attracted to various industries, especially given the availability of substantial reserves of free sulfur and phosphate rock.[37]
8. Support small and medium-sized enterprises (SMEs) due to their locational flexibility stemming from their small size, enabling them to expand into small urban centers and rural areas. These enterprises contribute to increasing the gross domestic product (GDP), achieving a better distribution of employment opportunities, and reducing unemployment because of their capacity to employ a large workforce.
9. Combat corruption in the public sector by activating the necessary laws and procedures to mitigate its negative effects that restrict overall economic activity.
10. Develop the gas industry and stop the flaring of associated gas by establishing specialized systems for processing associated gas and ceasing imports from neighboring countries.

Fourth: Expanding the Productivity Base of Small and Medium Enterprises

Small and medium enterprises (SMEs) are among the most important pillars of the development process in the country and a key entry point for economic diversification, as they provide real job opportunities for unemployed youth and thus contribute to reducing unemployment. Furthermore, these enterprises serve as the cornerstone of the private sector's operations and its participation in economic activity.[38] In addition, small and medium-sized enterprises (SMEs) contribute to urban and spatial development and occupy an important position in the industrial sector in particular and the country's economic structure in general due to the locational flexibility resulting from their small size, and their ability to spread in small urban centers and rural areas.[39]

According to statistics from the Central Statistical Organization, Iraq has approximately 198 medium-sized industrial establishments across the country, employing 253 workers, with a total industrial production value of around 18,985 million dinars .As for small industrial establishments, their number reached approximately 25,747, employing around 7,965 workers, and the value of industrial production reached approximately 208,689 million dinars.[40] Expanding the base of small and medium-sized enterprises (SMEs) can contribute to spreading a culture of self-employment and productivity among young people, provide income-generating job opportunities for new entrants to the labor market, absorb thousands of unemployed individuals, and integrate youth economically, socially, and politically. The importance of this developmental requirement stems from the fact that SMEs are the dominant business model in Iraq, absorbing a large portion of the private sector workforce and contributing significantly to non-oil GDP. Therefore, strengthening and supporting these enterprises and creating a suitable environment for their operation paves the way for activating the role of the local private sector in the Iraqi economy. This reduces the national economy's exposure to the outside world, thereby expanding and diversifying its production base to facilitate economic reforms in line with and keeping pace with new developments in the global landscape. Among the means and methods that support the operation of these enterprises are the following:

1. Providing a suitable and supportive investment, economic, social, and legal environment conducive to the flourishing of such enterprises [34].

1. Developing a long-term mechanism and strategy to target promising productive sectors and strengthen ties and communication between (government, private sector, professional associations, and chambers of commerce and industry) to develop small and medium-sized enterprises [17].
2. Establishing a fund to provide initial capital, affordable financing, and loan guarantees to the private sector with the aim of expanding its activities and establishing small and medium-sized enterprises (SMEs) to increase competitiveness and promote innovation [37].
3. Facilitating the financing of small and medium-sized enterprises (SMEs) on easy and suitable terms, and removing difficulties in obtaining loans from commercial banks.[40]
4. Opening training courses for small business owners that include knowledge of marketing and promotion factors and the ability of markets to absorb production capacity, in order to help them sell their products and increase their ability to withstand local and foreign competition.[30]
5. Emphasize the adoption of modern administrative methods instead of simplistic administrative procedures, and entrust management to specialized individuals.
6. Streamline regulatory and legislative procedures for establishing projects that currently face difficulties in obtaining official licenses.
7. mplement social programs and funds that provide the necessary financing for small projects to expedite their establishment, with the aim of diversifying production and creating new job opportunities that contribute to employing the unemployed, especially young people[34].
8. Providing essential infrastructure and services in various regions to facilitate the establishment of small and medium-sized enterprises (SMEs).

Building institutional capacity for SME development by enhancing their competitiveness through grant matching programs to improve productivity, import substitution, and export promotion, and working to improve their access to financing for the transfer of modern technology and expertise.

Fifth: Developing the Tourism Sector

When discussing tourism as a sustainable economic resource in a country like Iraq, one cannot ignore its diverse tourism potential, encompassing religious, natural, and archaeological aspects. Despite these rich resources, the challenges Iraq has faced over the past decades have negatively impacted these assets, leading to a decline in their role as an effective economic driver.

For tourism to regain its prominence and become an economic pillar parallel to oil, the country's primary traditional resource, significant efforts in rehabilitation and strategic planning are required to revitalize the tourism sector. In this context, a number of proposals can be put forward to stimulate tourism in Iraq, including improving infrastructure, developing services, and effectively promoting tourist sites both domestically and internationally[41].

1. Investing in infrastructure, particularly in the transportation sector, through the development of ports, ships, ferries, and riverboats, especially on the Tigris and Euphrates rivers and lakes. This also includes expanding tourist facilities such as rest stops and gas stations on highways, in addition to investing in mobile phone networks.
2. Religious sites are among the most promising areas for investment, given their spiritual and religious significance, which attracts visitors from around the world. Religious tourism is characterized by its year-round continuity, with a significant increase in visitor numbers during religious seasons, necessitating greater attention and more comprehensive planning for this sector.
3. Attention should be given to the restoration and maintenance of antiquities, the recovery of stolen artifacts, and their transformation into prominent tourist attractions, with the necessary financial support provided through the establishment of tourist facilities in archaeological areas.
4. There is a clear shortage of directional signs and information to help tourists navigate Iraq and identify their destinations, requiring the development of clear and comprehensive signage.
5. The absence of essential services needed by tourists, especially at border crossings, such as rest areas, restaurants, and hygiene and personal services, is a significant drawback. This deficiency impacts the city's image and beauty and affects the visitor experience.
6. The weakness or absence of effective tourism planning in Iraq necessitates the collection of accurate data on the current tourism situation and the development of practical solutions within the allocated financial resources for this sector.
7. Tourism development has significant economic and social impacts, most notably increasing national income, improving the balance of payments, stabilizing prices, and creating new job opportunities. This contributes to reducing unemployment and increasing social welfare by enabling individuals to enjoy their leisure time.
8. Efforts should be made to rehabilitate and upgrade hotels to accommodate delegations and visitors, particularly in Baghdad, Karbala, and Najaf, given their status as important religious and tourist destinations and home to holy shrines.

. A comprehensive range of efficient public services and facilities is required, including airports, seaports, communication services, banks, modern transportation networks, and recreational facilities, to ensure a complete visitor experience.

Conclusions:

1. Fiscal policy is heavily reliant on oil revenues: Despite official efforts to diversify income sources, the general budget has remained heavily dependent on oil revenues, which constitute more than 90% of total public revenues in most years.
2. Weakness in the allocation of public spending: Fiscal policy tools (especially public spending) have not been effectively used to stimulate non-oil sectors such as industry, agriculture, and tourism.
3. Predominance of a rentier economy: The Iraqi economy has maintained its rentier character, which has increased the vulnerability of public finances to fluctuations in global oil prices.

Recommendations:

1. Develop non-oil revenue sources, activate tax collection, and improve the efficiency of tax collection, especially income tax and value-added tax, and achieve tax fairness to increase non-oil revenues.
2. Establish sovereign wealth and investment funds, and create an independent sovereign wealth fund to manage oil revenue surpluses and invest them in productive projects outside the oil sector to ensure sustainable future income.
3. Improve the business environment, encourage private investment, simplify administrative procedures, offer tax incentives to investors, and promote public-private partnerships in infrastructure and development projects.
4. Reform the government subsidy system, reduce unproductive subsidies, particularly in the energy sector, and direct them to those who truly need them. This will contribute to reducing financial waste and directing resources toward productivity.
5. Develop human capital and support the education and vocational training sectors to create a workforce capable of participating in a diversified economy, and encourage innovation and entrepreneurship.
6. Enhance financial transparency, combat corruption, and adopt a transparent financial and accounting system subject to independent oversight. This will improve the efficiency of public resource utilization and increase investor confidence.
7. Redistribute government spending, reduce operational expenditures, and increase investment spending on development projects, especially those that create long-term employment opportunities in non-oil sectors.
8. Reform the public budget system and adopt a program and performance-based budget that focuses on economic and developmental outcomes and evaluates projects based on their developmental impact, not just their financial size.
9. Developing a national strategy for economic diversification and formulating a comprehensive national plan with the participation of all stakeholders (ministries, the private sector, civil society) to achieve economic and financial diversification.