Economic Outline

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).

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