The rise of the coronavirus pandemic accompanied by the drastic fall in oil prices and a case of political deadlock led to a significant economic downfall for Iraq in 2020 and 2021. The country’s economy bounced back in 2022, mainly driven by booming global oil prices, collecting a record-breaking $115 billion from oil sales during that year.
In compliance with the OPEC+ production cuts, Iraq announced in April that it was cutting oil production by 211,000 barrels per day starting from May and effective until the end of 2023.
The World Bank report said that Iraq’s GDP growth during the first quarter of 2023 fell to 2.6 percent, as a consequence of the oil production cuts. The country’s GDP growth had risen by seven percent in 2022.
Iraq’s overall GDP is expected to contract by 1.1 percent in the ongoing year attributed to a projected contraction of oil GDP by 4.4 percent. Non-oil GDP, however, is projected to have an accelerating growth during this year.
“Low appetite for reforms, even amid softening oil prices, and modest non-oil growth potential, in part due to a deteriorating business environment and continued widespread corruption, are expected to constrain long-term economic growth,” read the report.
Iraq has brought in an estimated revenue of $44.4 billion in the first six months of 2022, which is a significant drop from the oil revenue of the first half of 2022 which was placed at $61.3 billion.
The report also criticized the newly-passed Iraqi federal budget bill for the excessive expansion of expenditure by 59 percent, while assuming an oil price of $70 per barrel at a rate of 3.5 million barrels exported per day. It said that the oil price would need to be set at $112 per barrel if the country seeks to cover all expenditure using the oil revenue. The threshold set in the budget would result in a fiscal deficit of $39.7 billion if the country is only depending on oil for revenue.
“The budget does not sufficiently address longstanding structural challenges, including on economic diversification, improving public financial management, addressing fiscal rigidities, and boosting domestic revenue mobilization.”
Iraq did not have an approved budget for 2022, and spent the first six months of 2023 without passing the bill either. Included in the budget is a record $152 billion in spending.
The Iraqi dinar has been experiencing a major depreciation in recent months, attributed to corruption, smuggling dollars into Iran, and pressure from the United States. The report said that the depreciation of the dinar had raised inflation to 7.2 percent year-on-year in January 2023.
Lack of structural reforms, over-reliance on oil revenue, and lack of banking sector reforms were also highlighted as factors for risking the country’s economic outlook.
Oil revenue is Iraq’s main source of income, and the federal government relies on oil sales to cover its costs and pay the salaries of its civil servants.
