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Iraq has allocated more than $100 billion for projects covering infrastructure, power, water, housing and tourism for the next few years.
But OPEC’s second largest oil producer appears to be suffering from cash shortages, fueling speculation that it may not be able to fund all those projects.
Last month, Baghdad issued nearly $2.3 billion in bonds for local banks in an attempt to tackle the widening budget deficit, according to the Iraqi studies unit at the Amman-based Rawabet Research Centre.
“This decision has triggered wide argument and controversy about the economic and financial situation in Iraq and the strategies followed by the government to tackle this situation given its heavy reliance on crude exports,” it said.
The report noted that Iraq has allocated in excess of $100 billion for projects, adding: “This means spending is set to surge while oil prices seem to be weakening….the question is whether Iraq will be able to fund those projects.”
Borrowing spree
Despite recurrent official assurances that the financial situation is strong, Iraq’s recent actions have indicated quite the opposite.
As the 2025 draft budget remains locked in the cabinet drawers and parliament begging for its release, Iraq has stepped up borrowing.
In the first quarter of this year, the Finance Ministry issued bonds worth more than seven trillion Iraqi dinars ($5.4 billion) just to pay public servants.
But these funds were not sufficient. The cabinet last month authorized the Finance Ministry to withdraw nearly IQD3 trillion ($2.3 billion) from five-year tax savings.
A cabinet letter asked the Finance Ministry to use the tax funds to pay the salaries of civil servants for April and the following months.
The Arabic language letter, entitled “cabinet decision number 294, 2025”, said those funds could be returned to the tax savings once liquidity is available.
Nabil Al-Marsoumi, an economics professor at Basra University in South Iraq, said Baghdad netted more than IQD30 trillion ($23 billion) in oil export earnings in the first quarter of 2025 at an average crude price of about $72.
“Yet it issued bonds with a value of more than IQD7 trillion and has used over IQD3 trillion from tax savings just to pay government employees,” Al-Marsoumi said in a Facebook post last week.
“It appears that Iraq’s financial situation is deteriorating amid a decline in oil prices, which could continue to fall to reach $50 a barrel.”
Dependence on oil revenues
Iraq, which produces around four million barrels per day of crude, is heavily reliant on volatile oil sales, which provide nearly 90 percent of its national income.
Following a surge in spending and the absence of major revenue increases, Iraq has reeled under heavy fiscal deficits over the past years.
In local press comments last month, an adviser to Prime Minister Mohammed Al-Sudani said the 2025 budget includes a projected deficit of around IQD64 trillion ($49 billion) and the actual gap could widen in case oil prices remain below $70.
Mudhar Saleh told the official daily Al-Sabah that spending is forecast at nearly IQD200 trillion ($153 billion), equivalent to the 2024 budget.
“The deficit in this year’s budget is expected at around IQD64 trillion …it will be financed through domestic sources…it could rise in case oil prices remain below $70 a barrel and Iraq’s crude exports fall below 3.4 million barrels per day,” he said.
In mid-2023, Iraq approved its first three-year budget for the period 2023-2025 based on an average oil price of $70 a barrel and crude exports of 3.4 million bpd.
Annual spending was set at around $153 billion with a shortfall of $49 billion but Parliament allowed the Finance Ministry to alter expenditure through the year depending on oil market conditions.
(Reporting by Nadim Kawach; Editing by Anoop Menon)
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