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, recovering to pre-pandemic levels. Nevertheless, Iraq’s oil-dependent economy contracted for two consecutive years in 2023 and 2024 (by 2.9% and 0.9%, respectively, according to the World Bank), driven by limited crude oil production. The GDP contraction reflected the OPEC+ production agreement from June 2024, which extended the initial production cuts through to the end of 2025 and prolonged the additional voluntary cuts of 2.2 Mbps by select countries, including Iraq, until the end of November 2024. Medium-term economic prospects will be closely tied to global oil demand and the government's fiscal policy. From 2024 to 2026, real GDP growth is expected to average 2.9%, driven by the oil sector, assuming adherence to the September 2024 OPEC+ agreement through to the end of 2025 and growing production capacity in 2026. Meanwhile, non-oil GDP is forecast to slow due to moderated government spending and other growth constraints.

Regarding public finances, Fitch projected Iraq’s budget deficit to widen to 8% of GDP in 2024, up from 2% in 2023, driven by a drop in revenue and a surge in spending. Revenues were expected to fall to 38.4% of GDP in 2024, mainly due to a 2pp decline in oil income caused by lower production and oil prices. At the same time, total spending was forecast to rise to 46.4% of GDP, largely due to an increased wage bill and pension transfers ahead of the 2025 elections, while capital expenditure remained stable at 7.1% of GDP. Looking ahead to 2025–2026, Fitch expects the deficit to average 12.4%, with revenues averaging 34.1% of GDP as lower oil prices outweigh gains from higher output and non-oil revenue remains constrained. Total expenditure is set to average 46.5% of GDP, with current spending staying elevated at 41.5%, reflecting limited flexibility in adjusting wages and transfers. Fitch estimated that Iraq’s government debt-to-GDP ratio would rise to 47.7% by the end of 2024 and reach 56.5% by 2026, up from 44.2% in 2023, as the government ramps up borrowing to cover widening deficits. Most of this financing is expected to come from the Central Bank of Iraq (CBI), primarily through indirect purchases of government securities. Iraq has seen notable inflation swings in recent years. Annual inflation was 5% in 2022 and rose to 6.6% in 2023, largely due to currency fluctuations and spillover effects from the Russia-Ukraine war. By the fourth quarter of 2024, however, inflation had eased to 2.8%, according to the Central Bank of Iraq (CBI). Core inflation, which excludes volatile food and energy prices, also fell to 2.5%, down from 4.5% in the same period of 2023.

According to the World Bank, the unemployment rate stood at 15.4% in 2023 (latest data available). Based on the upper middle-income poverty line (USD 6.85), the poverty rate stood at 24.7% in the same year. Disparities in resource distribution remain a challenge in Iraq, with poverty and limited access to basic services still concentrated in rural and southern governorates. Overall, the country has a low GDP per capita, estimated at USD 14,756 in 2024 by the IMF (PPP).

Any Comment About This Content? Report It to Us.