For the next four years, Iraq has set aside almost $100 billion for initiatives including infrastructure, power, water, housing, and tourism. However, the second-biggest oil producer in OPEC seems to be running into liquidity problems, which fuels rumours that it may not be able to support all of its initiatives.
To address the growing budget deficit, Baghdad issued around $2.3 billion in bonds for local banks last month, according to the Iraqi studies arm of the Rawabet Research Centre based in Amman.
“This decision has generated a lot of debate on the financial and economic state of Iraq as well as the policies the government is using to address this state given its strong reliance on crude exports,” it stated.
Iraq has set aside more than $100 billion for projects, the report mentioned, adding, “This means spending is set to surge while oil prices seem to be weakening…The question is whether Iraq will be able to fund those projects.”
Loan Frenzy
Iraq’s recent actions have demonstrated the opposite, despite repeated official assurances that the financial condition is strong. The Gulf country has been stepping up borrowing as the 2025 draft budget stays sealed in the cabinet drawers and parliament begs for access.
The Finance Ministry issued bonds valued at more than seven trillion Iraqi dinars ($5.4 billion) specifically to pay public officials in the first quarter of this year. Still, these were inadequate resources. Recently, the cabinet authorised the Finance Ministry to remove over IQD3 trillion ($2.3 billion) from five-year tax savings.
A cabinet letter requested the Finance Ministry to pay civil servant salaries for April and the next months using the tax money.
The Arabic language letter, “Cabinet Decision number 294, 2025,” said that monies may be put back into the tax savings if liquidity becomes available.
With an average crude oil price of nearly $72, Baghdad generated over IQD30 trillion ($23 billion), according to Nabil Al-Marsoumi, an economics professor at Basra University in southern Iraq.
“Yet it issued bonds with a value of more than IQD7 trillion and has used over IQD3 trillion in tax savings just to pay government employees. It looks like Iraq’s financial situation is getting worse in line with declining oil prices, which might keep declining to reach $50 a barrel,” Al-Marsoumi wrote in a Facebook post recently.
Reliance On Income From Oil Sales
With about four million daily crude barrel production, Iraq depends mostly on unpredictable oil sales for around 90% of its national income. Iraq has struggled with significant budgetary deficits over the past several years after a spike in spending and a lack of significant income growth.
In local newspaper comments, an adviser to Prime Minister Mohammed Al-Sudani stated the 2025 budget has a projected deficit of roughly IQD64 trillion ($49 billion), and the actual gap could expand if oil prices continue below $70.
According to Mudhar Saleh in the official daily Al-Sabah, spending will exceed IQD 200 trillion ($153 billion), which is equal to the 2024 budget.
“A budget deficit of almost IQD64 trillion is expected this year…The sponsorship will come from Home Sources. The situation might escalate if Iraq’s crude shipments fall below 3.4 million barrels per day and oil prices stay below $70 per barrel,” the expert commented.
Based on an average oil price of $70 a barrel and crude exports of 3.4 million bpd, Iraq adopted its first three-year budget for the period 2023–2025 in mid-2023. Although there was a $49 billion shortage, annual spending was fixed at roughly $153 billion and Parliament let the Finance Ministry adjust expenditures over the year based on the state of the oil market.
International Lending Landscape
Iraq might progressively rely more on foreign financial institutions, including the World Bank, regional development banks, and the International Monetary Fund (IMF), to balance its budget and protect intended infrastructure spending.
Iraq has always been hesitant to accept strict terms tied to IMF loans, but the size of its present deficit may provide few options. Iraq might also seek bilateral partners like China, which has shown a keen taste for Middle Eastern strategic investments—often via infrastructure-for-oil arrangements.
Gulf nations like Saudi Arabia and the UAE may intervene, particularly if concerns about political alignment and regional stability are present. Any such participation, meanwhile, is probably dependent on Baghdad proving better fiscal openness and governance.
Iraq might have to aggressively promote private sector involvement through public-private partnerships (PPPs) given its present financial limits. By using private funds and experience running major projects, these models can enable the government to share financial risk.
Foreign and domestic investors could find sectors such as renewable energy, housing, and tourism especially appealing if Iraq can create regulatory clarity and reduce political and security concerns.
Although legal systems, including Iraq’s Investment Law No. 13 of 2006, have been changed to promote international investment, real application is still uneven. Simplifying processes, guaranteeing contract compliance, and providing sovereign guarantees could inspire investor confidence and help Iraq rely less on government financing.
Reform Programme
Whether from domestic, regional, or international sources, financial help will probably call for structural changes from Iraq. Top of the list is diversifying its economy outside of oil, thereby empowering sectors including services, manufacturing, and agriculture. Equally important are reforms of the bloated public sector, corruption control, improved revenue collecting, and institutional governance strengthening.
Under earlier IMF Stand-By Agreements, Iraq has already implemented modest fiscal changes, including payroll checks and subsidy cuts. Public opposition and ingrained political interests have, however, sometimes diluted execution. Driven by political unity and backed by technocratic leadership, a rejuvenated reform agenda might open much-needed financing and increase long-term fiscal sustainability.
Examining Iraq’s $100 billion project list closely reveals ambitious aims in many different fields. Rebuilding war-torn bridges and highways, modernising electrical systems, and growing metropolitan transit systems constitute part of the infrastructure expenditures. With multiple new gas and solar projects under development, Baghdad wants to boost capacity and lower reliance on Iranian electricity imports in the power industry.
Baghdad also prioritises improvements in water infrastructure, particularly in the southern provinces that are experiencing severe shortages. To meet a nationwide need, the government has proposed building well over one million reasonably priced homes.
Another area of emphasis with new hotels and facilities scheduled is tourism, especially religious and cultural travel focused on locations like Karbala and Najaf. Although these projects have enormous transforming power, their execution depends on institutional capacity as well as money.
Geopolitical Dangers
The geographic setting of Iraq also affects its capacity to draw and maintain financial inflows. Policy uncertainty has resulted from internal political unrest, regular leadership changes, and disputes between the federal government and the semi-autonomous Kurdistan Region. Externally, Iraq is still enmeshed in the power struggle between the United States and Iran, which frequently takes shape on Iraqi territory via militias and political proxies.
These characteristics increase the perceived risk of doing business in the nation, therefore complicating international investment and credit. Moreover, any escalation of regional conflicts—such as those involving neighbouring Syria or tensions in the Persian Gulf—could divert funds and impede project execution. Iraq will have to negotiate these geopolitical currents with a balanced foreign policy to keep investor trust.
Social Impact
Public morale, jobs, and social stability would all directly suffer depending on whether Iraq’s infrastructure aspirations succeed or fail. Project implementation delays could cause growing public discontent, particularly among young people who suffer high unemployment rates. On the other hand, if carried out properly, the $100 billion strategy may boost the quality of life for millions of people, promote private business, and generate jobs.
Managing expectations will depend mostly on open government communication on project progress, financial situations, and deadlines. Holding authorities responsible and guaranteeing efficient use of money will also depend much on civil society organisations, professional associations, and the media. Delivering on these promises might be a turning moment for national recovery at a period when social cohesiveness is brittle and public institution trust is low.