Iraq is set to face significant budgetary pressures in 2025 due to falling oil prices, which are a major source of government revenue, according to Mudher Saleh, a leading economic adviser to Prime Minister Mohammed Shia Al-Sudani.
In an interview with Reuters on Monday, Saleh indicated that while 2024 may not present major issues, stricter financial discipline will be necessary for 2025.
As the second-largest oil producer in OPEC, Iraq heavily relies on oil revenues, which make up a substantial portion of its export earnings and about 90 percent of state income. This heavy dependence makes Iraq particularly susceptible to changes in global oil prices.
Despite this, Iraq’s budget for 2024 has increased to 211 trillion dinars ($161 billion) from 199 trillion dinars ($153 billion) in 2023. This increase follows a year of high spending, which included hiring over half a million additional public sector employees and initiating a large-scale infrastructure overhaul. The 2024 budget still anticipates a deficit of 64 trillion dinars.
The budget is based on an assumed oil price of $70 per barrel for 2024, which is about $6 less than the projected average price for the current year.
Saleh emphasized that ensuring timely payment of salaries and pensions remains a top priority. These payments, totaling 90 trillion dinars ($69 billion) or over 40 percent of the budget, are crucial for maintaining social stability in Iraq. “The government will ensure salaries are paid, even if it requires every resource,” Saleh stated. “Salaries are sacred in Iraq.”
If financial difficulties arise, Saleh suggested that infrastructure projects could be prioritized, focusing on essential developments such as key road and bridge works in Baghdad.
To strengthen its financial position, Iraq is working to increase non-oil revenues through better tax collection but is not considering new taxes. Saleh noted that Iraq loses up to $10 billion annually due to issues with tax evasion and customs.
The concerns about the 2025 budget come amid a challenging global oil market. Oil prices have been declining since mid-2022, with Brent crude falling from over $120 per barrel to below $75 recently. This drop is mainly due to reduced global demand, particularly from China, the world’s largest oil importer, as its economic growth slows.