Prepared by Assistant Lecturer Abdulmahdi Rahim / Department of Business Administration The Balance of Payments is considered the mirror reflecting the nature of a country’s economic performance and the window through which it engages financially and commercially with the outside world. In the Iraqi case, economic indicators reveal a persistent surplus in the trade balance (the difference between merchandise exports and imports), which is positively reflected, at least superficially, in the overall Balance of Payments and the foreign reserves of the Central Bank. However, this surplus raises a profound structural dilemma oscillating between the hypothesis of genuine economic productivity and the reality of a rentier extractive economy that dominates the state’s foundations. The Structural Roots of Iraq’s Trade Surplus The surplus achieved in Iraq’s trade balance is not the result of a boom in industrial or agricultural production, nor does it reflect an improvement in the competitive capabilities of non-oil sectors. Rather, it is the direct outcome of a one-sided equation: exporting crude oil in large quantities at prices determined by global markets, while simultaneously relying on extensive consumer imports. Oil exports constitute approximately 95% of Iraq’s total export revenues. This absolute dependence means that any increase in global oil prices or production quotas is immediately translated into a rise on the credit side of the Balance of Payments. Consequently, the trade surplus becomes merely an “externally generated monetary phenomenon” linked more to international market fluctuations and geopolitical risks than to the internal dynamics of the Iraqi economy. Is Genuine Productivity Absent or Marginalized? When analyzing the concept of “real productivity,” it refers to the ability of the local economy to create added value through the diversification of goods and services, improving the efficiency of production factors (labor and capital), achieving relative self-sufficiency, and possessing the capacity to export abroad. In Iraq, the real productive sector suffers from a severe structural gap. The manufacturing industrial sector experiences near-total stagnation due to outdated technology, lack of investment support, as well as energy and infrastructure problems. Meanwhile, the agricultural sector faces challenges related to water scarcity, climate change, and unfair competition from imported goods. This weakness in local productivity prevents non-oil sectors from contributing effectively to exports and makes the domestic market entirely dependent on foreign goods to satisfy growing consumer demand. As a result, foreign currency revenues generated from oil are continuously drained abroad to finance the enormous import bill. The Dangers of the Rentier Reality on the Balance of Payments The “rentier reality” distorts Iraq’s economic cycle through what is known as the shadow economy and the phenomenon of “Dutch Disease.” Massive oil revenues flow into the state treasury and are transformed through the public budget into salaries and operational expenditures of a consumptive nature without productive outputs. This monetary injection raises domestic inflation levels and leads to an unrealistic valuation of the Iraqi dinar’s real exchange rate, thereby weakening the competitiveness of any emerging local product against cheaper imported goods. Moreover, the rentier trade surplus is extremely fragile, as the Balance of Payments remains vulnerable to sudden price shocks in the oil market. Any decline in oil prices quickly leads to the contraction of the surplus or its transformation into a deficit, forcing the state to draw from its foreign reserves or resort to borrowing, which threatens the country’s financial and monetary stability. Repercussions on Other Balance of Payments Accounts The trade surplus should not be viewed in isolation from the other accounts within the Balance of Payments Despite the surplus in the goods account, the “services account” suffers from a chronic and continuous deficit due to the weakness of local tourism, transportation, and insurance sectors, in addition to the reliance on foreign companies to implement major investment projects and manage oil operations. Likewise, the “income account” faces pressures stemming from the transfer of profits by foreign oil companies operating in the country, as well as remittances sent abroad by foreign labor. These factors confirm that the apparent trade surplus is partially depleted through other channels due to the non-productive nature of the economy. Toward Transforming the Rentier Surplus into Sustainable Productivity Transitioning the Iraqi economy from a fragile rentier surplus to a surplus based on genuine productivity requires adopting a comprehensive structural strategy founded on the following pillars: Establishing a Sovereign Investment Fund: A portion of oil surpluses during periods of high oil prices should be allocated to a sovereign investment fund and directed toward investing in productive assets and infrastructure rather than financing current expenditures. Activating Public–Private Sector Partnerships: This can be achieved through reforming the business environment, providing well-planned customs protection for local products, and offering credit facilities for small and medium-sized industrial and agricultural projects. Reforming the Financial and Tax Systems: This aims to regulate import channels, reduce capital smuggling, and ensure that bank credit is directed toward developmental sectors instead of merely financing consumer trade. In conclusion, the current trade surplus in Iraq’s Balance of Payments is a “temporary rentier surplus” governed by variables beyond local control, rather than a reflection of genuine domestic economic strength. Continuing to rely on this surplus without building a real productive base represents a serious risk to the future of economic stability. The real challenge does not lie in the of incoming financial flows, but rather in how these rentier revenues can be transformed into a driving force for building a sustainable development-oriented economy that is independent of fluctuations in global energy markets.