Shafaq News/ Iraq’s economy is projected to contract by 1.5% this year, highlighting a complex economic reality fueled by falling oil prices and widening fiscal deficits, according to the International Monetary Fund (IMF) and financial experts. However, Iraqi government officials have disputed the IMF’s forecast, describing it as overly pessimistic and based on outdated data.
In its latest outlook, the IMF forecasted a 1.5% contraction in Iraq’s economy for 2025, with a modest recovery of 1.4% growth expected in 2026. The Fund attributed the negative projection to declining oil prices and the risk of a global economic slowdown driven by ongoing trade conflicts. According to the IMF, Iraq would require an oil price of $92 per barrel to balance its government spending this year, whereas Brent crude futures are currently trading around $65 per barrel.
Concerns Over Fiscal Strain
Financial experts warn that Iraq’s heavy dependence on oil revenues makes it particularly vulnerable to price fluctuations. Kadhim al-Touki, a member of the Parliamentary Oil Committee, told Shafaq News that lower oil prices would significantly impact Iraq’s economy only if the decline persists over time. If the downturn proves temporary, Iraq could mitigate budget shortfalls by tapping into its reserves of gold and cash.
Al-Touki linked oil price volatility to global developments, including the Russia-Ukraine war, the energy policies of US President Donald Trump, and the state of US-Russia relations. He suggested that improved ties between Washington and Moscow could boost Russian oil exports, affecting global supply dynamics and market prices.
Mudhhir Muhammad Salih, the financial adviser to the Iraqi prime minister, also pushed back against the IMF’s assessment, labeling it “unjustifiably pessimistic.” Speaking to Shafaq News, Salih asserted that Iraq’s economy remains robust, ranking third among Arab economies after Saudi Arabia and the United Arab Emirates.
Salih cited a 4% rise in Iraq’s non-oil GDP in 2024, describing it as the strongest political and economic revival Iraq has experienced in two decades. He argued that the IMF’s forecast may have been based on “outdated or inaccurate perceptions,” overlooking recent regional and international cooperation efforts and the domestic reforms Iraq has undertaken.Salih further predicted that the ongoing trade disputes between China and the United States, along with the Russia-Ukraine conflict, would be “short-lived,” setting the stage for a new era of global development and renewed demand for oil.
Contraction Reflects Structural Weaknesses
Despite government assurances, some experts argue that the IMF’s forecast accurately highlights Iraq’s underlying economic vulnerabilities.International economics professor Nawar al-Saadi told Shafaq News that Iraq’s near-total reliance on oil revenues leaves it dangerously exposed to external shocks. He noted that when oil prices drop below $70 per barrel, Iraq faces serious fiscal challenges, including a widening deficit and reduced ability to fund public services and investment projects.
Al-Saadi emphasized that Iraq’s failure to diversify its economy keeps it dependent on volatile markets and extensive government support. Any shifts in oil prices or currency exchange rates, he explained, quickly trigger economic slowdowns or even outright contractions.He also pointed out the instability within Iraq’s currency market, warning that although the dinar has recently strengthened against the dollar, these gains stem more from administrative measures than from genuine monetary stability or improved trade balances.
2025: Most Difficult Year Since COVID-19
Economic researcher Ahmed Eid echoed these concerns, cautioning that 2025 could become one of Iraq’s most challenging economic years since the COVID-19 pandemic.
Eid noted that, according to IMF estimates, Iraq needs oil prices between $90 and $92 per barrel to achieve fiscal balance. However, current market prices, fluctuating between $65 and $72 per barrel, fall significantly short of this threshold. This disparity, he warned, “could place Iraq under intense fiscal pressure and further expand its budget deficit.”
He stressed the urgent need for Iraq to implement structural economic reforms, craft a comprehensive strategy to diversify national income sources, and empower the private sector. Eid warned that Iraq’s ongoing reliance on a rentier economic model had proven both fragile and unsustainable.He also reiterated that the recent appreciation of the dinar is only temporary, driven largely by external factors and technical interventions rather than genuine improvements in financial or monetary conditions.
Eid concluded that Iraq must focus on building a “resilient economic system” grounded in local production and diversified revenue streams. Only by doing so, he said, can Iraq achieve relative monetary independence and reduce its vulnerability to political and regional pressures.
