Iraq flag Iraq: Economic and Political Overview

The economic context of Iraq

Economic Indicators

Iraq's gradually rebounding economy was severely hit by Covid-19, weighing on domestic demand and macroeconomic balances, as well as lower global oil prices and OPEC output quotas. GDP contracted to an estimated 15.7% in 2020 - by far the lowest performance since 2003 - but grew back to 7.7% in 2021 and 7% in 2022, a recovery to pre-pandemic levels. Buoyed by rises in public expenditure and robust agricultural output, real non-oil GDP is projected to have expanded by 6% in 2023 following a stagnant performance in 2022 (IMF). However, the overall GDP growth rate was negative by an estimated 2.7%. The momentum of non-oil growth is expected to persist into 2024, but substantial declines in oil prices or prolonged OPEC+ cuts could exert pressure on fiscal and external accounts. Looking ahead, over the medium term, non-oil growth is forecasted to stabilize around 2.5% due to prevailing obstacles to private sector development. The IMF projects overall growth at 2.9% this year and 4% in 2025.

Concerning public finances, although the expansionary budget was under-executed due to delayed Parliamentary approval, the fiscal balance still declined from a surplus of 10.8% of GDP in 2022 to a deficit of 1.3% in 2023, due to lower oil revenues and an increase in expenditures by 8 percentage points of GDP, of which salaries and pensions contributed 5 percentage points as the authorities started hiring in line with the budget law. Absent new policy measures, the fiscal deficit is expected to reach 7.6% in 2024 and widen further thereafter as oil prices are projected to gradually decline over the medium term. As a consequence, public debt would almost double from 44% in 2023 to 86% by 2029 (IMF). Achieving an ambitious fiscal adjustment is imperative to stabilize debt in the medium term and to rebuild fiscal buffers, all while safeguarding essential capital spending. Additionally, the authorities should focus on enhancing public financial management and mitigating fiscal risks. Headline inflation dropped from a peak of 7.5% in January 2023 to 4% by the end of the year, driven by reduced international food and energy prices, alongside the effects of the February 2023 currency revaluation. The current account is anticipated to have registered a surplus of 2.6% of GDP, with international reserves climbing to USD 112 billion. According to the IMF recommendations, Iraq requires higher and more sustainable non-oil growth to accommodate the rapidly expanding labor force, boost non-oil exports and government revenue, and mitigate the economy's susceptibility to oil price fluctuations. Key reform priorities encompass adopting a comprehensive employment strategy, expediting financial sector reform to enhance credit accessibility, implementing a thorough pension reform, combating corruption, improving governance, and eliminating other barriers hindering private sector development.

According to the World Bank, the unemployment rate stood at 15.3% in 2022 (latest data available). As per the Ministry of Planning, the poverty rate in the country has escalated to 25%, marking an uptick of approximately three percentage points from the pre-pandemic level. The country has a low GDP per capita, estimated at USD 10,865 in 2022 by the World Bank (PPP).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 261.14254.99271.47281.79291.56
GDP (Constant Prices, Annual % Change) 7.0-2.72.94.03.6
GDP per Capita (USD) 6,1815,8836,1046,1766,228
General Government Gross Debt (in % of GDP) 44.949.254.661.468.6
Inflation Rate (%) n/a5.33.62.92.4
Current Account (billions USD) 45.05-4.94-11.72-16.62-20.75
Current Account (in % of GDP) 17.3-1.9-4.3-5.9-7.1

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Iraq's 45.5 million population includes a workforce of 11.3 million. The agricultural sector accounts for only 2.9% of GDP and employs around 8% of the labor force (World Bank, latest data available), due to the prevalence of less modern and productive methods. About a quarter of the total land area is suitable for intensive cultivation and animal husbandry. Most of the agricultural activity is concentrated in the fertile lowlands in the Mesopotamian plains that are irrigated from the Tigris and the Euphrates, and include cereals, pulses, and dates. Nonetheless, Iraq is still a net food importer.

Industry accounts for 62.7% of GDP and employs 28% of the workforce (World Bank). Its relative share in the economy continues to pick up after hitting a 30-year low in 2015 but remains much lower than levels seen in the early 2000s. Iraq's largely state-run economy is dominated by the oil sector, which provides roughly 90% of government revenue and 80% of foreign exchange earnings (OPEC). The manufacturing sector as a whole is estimated to account for only 2% of the country’s GDP. Iraq’s public sector manufacturing output reached an estimated value of USD 1 billion in 2023, according to the country’s industry minister.

The services sector is estimated to constitute 34.8% of Iraq's GDP and employs 64% of the workforce (World Bank). Iraq is one of the Middle East's most underbanked countries, but the banking sector, which is still mostly state-owned, is taking significant steps toward financial inclusion thanks to a new electronic payments system to disburse government salaries and welfare to some seven million citizens. The public sector holds significant dominance in Iraq's retail industry, particularly in the realm of food products.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 19.8 21.3 58.9
Value Added (in % of GDP) 2.9 62.7 34.8
Value Added (Annual % Change) -10.6 11.2 1.1

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Sources of General Economic Information

Ministries
Ministry of Interior
Ministry of Foreign Affairs
Ministry of Oil
Ministry of Industry and Minerals
Ministry of Finance
Statistical Office
Central Statistical Organization
Central Bank
Central Bank of Iraq
Stock Exchange
Iraq Stock Exchange
Economic Portals
Arabian Business
Arab Economic Portal
 

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Latest Update: April 2024