Iraq's Looming Budget Crisis: Oil Dependency's Effects on 2025 Finances

Iraq faces a potential budget crisis in 2025 due to declining oil prices, the primary source of government revenue. Despite an increased budget in 2024, fiscal discipline and reinforced non-oil revenue collection are crucial. Salaries and pensions are prioritized to maintain social stability, amid concerns of a global oil market downturn.

Iraq faces a budget crunch in 2025 due to a slump in oil prices, the main source of government revenue, a top economic adviser to Prime Minister Mohammed Shia al-Sudani said.

"We don't anticipate major problems in 2024, but we need stricter financial discipline for 2025," Mudher Saleh told Reuters. As OPEC's second-largest producer, Iraq's economy is heavily dependent on oil revenues, which make up 90% of state revenue.

This dependence makes Iraq particularly vulnerable to global crude price fluctuations. Despite this vulnerability, Iraq increased its 2024 budget to 211 trillion dinars ($161 billion) from 199 trillion dinars ($153 billion) in 2023, maintaining a projected deficit of 64 trillion dinars.

The budget assumes an oil price of $70 per barrel in 2024, around $6 less than this year's likely average. Ensuring timely payment of salaries and pensions, which account for over 40% of the budget, remains a government priority. "Salaries are holy in Iraq," Saleh said.

Infrastructure projects might be refocused on the most strategic areas if financial strain occurs. To bolster finances, Iraq aims to increase non-oil revenues through improved tax collection. However, Iraq loses up to $10 billion annually due to tax evasion and customs issues. These financial concerns reflect challenges in the global oil market, impacted by weakening demand, particularly from China.

(With inputs from agencies.)