Baghdad, Asharq Al-Awsat—Iraq’s economy must diversify to reduce its decades-long reliance on oil as the main contributor to its GDP, said the country’s former planning minister, despite a recent uptick in oil production leading to expectations that OPEC’s second-largest oil producer will be among the region’s best-performing economies in 2014.

Speaking to Asharq Al-Awsat this week, Mahdi Al-Hafez, who also heads the Coalition of Iraq, said: “The desired tasks for economic reform require the reduction of the domination of oil revenue on the economic situation and the adoption of a policy of diversifying the economy and developing other productive sectors such as industry, agriculture, communications and tourism, to make them genuine productive sectors which can contribute effectively to GDP.”

He added: “The priority in the forthcoming change in Iraq must start with the economy because our problems start and end with it  . . Since the massive political change in 2003, the tasks of economic reform have emerged as the most prominent in economic development, due to the signs of underdevelopment which blighted the national economy before that date.”

Hafez, who heads the Institute for Progress of Development Policies in Iraq, said this “shift to a market economy was the first task which was called for by the advocates of change at the time [2003],” adding that despite many laws being passed in this regard, “the results did not come out as desired during the last 10 years.”

He described the course of economic development in Iraq as “faltering or regressive for a number of reasons,” and said that Iraq could not achieve sound economic progress unless it addressed the obstacles to development and the imbalances in its economy. “Oil, for instance, is the main productive commodity and still dominates Iraq’s finances, and the public sector is still an inflated sector which is not economically viable in these difficult times,” he said.

But the country’s economy is expected to grow 6 percent this year, according to IMF predictions, on the back of rising oil production and exports. Oil exports from Iraq rose to a record 2.8 million barrels per day (bpd) on average in February, and production rose to 3.5 million bpd. As a result of the increased oil export receipts, Iraq’s foreign currency reserves jumped from 7 billion US dollars to 78 billion by the end of 2013 over a period of 10 months.

Despite its optimism, the IMF also said the country needed to scale down its bloated public sector and restructure a number of state-owned banks in order to give private companies more of an opportunity to compete for government business.

Hafez also sees the private sector as playing a central role in the economy’s future. “Among the important tasks are to develop the private sector and the middle class in Iraq on the grounds that a market economy relies mainly on making the private sector a leader in the economy,” he said.

He added: “Some recent statistics indicate that the share of the private sector is around 33 percent of GDP and that the majority of workers in this sector are contractors for government institutes and totally dependent on their resources, and therefore, all opportunities and incentives must be made available to develop the private sector and its institutions.”

Iraq’s central bank is currently pressing ahead with the process to reform the country’s financial sector, with a new central bank, commercial bank and payment system all in the pipeline.

This comes as Iraqi’s are set to go to the polls on April 30 for parliamentary elections. The ratification of the country’s budget for 2014, which was meant to have been approved by March, has been postponed until after the vote following wrangling between Baghdad and the autonomous Kurdistan region, which demanded a larger share of the budget.

Disputes with the Kurdistan Regional Government also extend to the latter’s desire to export oil independently from Baghdad via the Kirkuk–Ceyhan pipeline to Turkey. Baghdad is demanding that the region exports all its oil under the supervision of Iraq’s state-owned oil company.