The International Monetary Fund (IMF) announced on Tuesday that Iraq's overall Gross Domestic Product (GDP) growth is expected to decline in 2023 and 2024 due to a drop in the country's oil production, including production cuts from the OPEC+ alliance. The substantial fiscal expansion observed in the country's three-year budget law poses medium-term risks.
Despite projections that Iraq will achieve 5% growth in its non-oil GDP for 2023, the IMF anticipates that the shutdown of the oil pipeline between Iraq and Turkey, along with OPEC+ production constraints, will diminish overall GDP growth for this year and the next.
Inflation rates are expected to stabilize in the coming months, thanks to the stringent monetary control policy implemented by the Central Bank of Iraq along with other influences, according to the fund.
In June 2023, a three-year budget was approved, aiming to support developmental projects, marking a significant shift in Iraq's financial planning.
Although the budget's implementation started late, it is expected for the fiscal balance to move from a significant surplus in 2022 to a deficit in 2023. Moreover, the deficit is likely to widen in 2024 due to the impact of recent measures, especially concerning public employment and pensions.
The fund noted that the state-led economy, heavily reliant on oil and gas, requires profound structural reforms to diversify and achieve sustainable growth.
The priorities include providing equal opportunities for the private sector by implementing reforms in the banking and electricity sectors, reducing distortions in the labor market, and continuing efforts to enhance governance and reduce corruption, as mentioned in the IMF statement.
The IMF team expressed its readiness to support the authorities in their reform efforts and showed appreciation for the constructive discussions during the mission.
Iraqi Prime Minister, Mohammed Shia al-Sudani, has prioritized economic reform at the top of his government's agenda. However, he faces a daunting challenge in a country where the state is the largest employer and where bureaucracy and outdated laws hinder the private sector's function.
