Iraq’s budget deficit reached 21.24 trillion Iraqi dinars during the first half of 2026. The latest figures show a sharp reversal from the previous year’s financial position. Iraq recorded a 5.29 trillion dinar surplus during the same period in 2025.
The change represents a deterioration of 26.53 trillion dinars within one year. Ministry of Finance consolidation accounts provide the figures across 48 federal spending entities. Economic analyst Manar Al-Obaidy examined the data and highlighted the growing pressure on public finances.
Iraq budget deficit widened mainly because oil revenues fell sharply during the period. Total government revenue dropped from 62 trillion dinars to 35.95 trillion dinars. That represents a decline of about 42% compared with the first half of 2025.
Oil and mineral revenues suffered the largest decline. Receipts fell from 57.05 trillion dinars to 28.51 trillion dinars. The 50% drop created a revenue shortfall that non-oil income could not offset.
Non-oil revenues actually recorded strong growth during the same period. Collections increased by 50.3% and reached 7.44 trillion dinars. However, the additional 2.49 trillion dinars covered less than 9% of the oil revenue decline.
Several factors contributed to the increase in non-oil revenue. Commodity and production taxes increased by 46.7%. Public-sector enterprise profits also rose by 18.3%, while miscellaneous receipts increased by 102%.
Despite lower revenues, government spending did not decline. Total expenditure reached 57.19 trillion dinars during the first half of 2026. That figure represents a 0.8% increase from 56.71 trillion dinars during the same period last year.
Iraq budget deficit also reflects the difficulty of reducing operational spending. Current expenditure increased by 3.6% to 54.67 trillion dinars. Meanwhile, investment spending fell sharply as authorities faced pressure to protect essential payments.
Employee compensation increased by 2.5% to 30.77 trillion dinars. Social welfare spending also rose by 6% to 13.86 trillion dinars. Together, those two categories consumed 44.63 trillion dinars during the six-month period.
Those payments accounted for about 78% of operational spending. They also exceeded Iraq’s total revenue by nearly 8.7 trillion dinars. This imbalance limits the government’s ability to reduce spending quickly during periods of lower oil income.
Investment spending absorbed much of the fiscal adjustment. Capital expenditure fell by 36.3% to 2.51 trillion dinars. Several sectors recorded major reductions in development spending during the first half of the year.
Education investment declined by 71.5%, while transport and telecommunications spending fell by 56.8%. Regional development programs also dropped by 51%. Building and municipal services investment declined by 38.5%.
Energy and industrial investment moved in the opposite direction. Spending in that sector increased by 10% during the period. The increase reflects government efforts to prioritize oil and gas infrastructure.
The sharp reduction in capital spending could create longer-term economic challenges. Infrastructure investment supports private-sector growth and economic diversification. Cutting those projects may therefore make it harder for Iraq to reduce its dependence on oil.
Iraq budget deficit has also increased pressure on government borrowing. Current debt-service payments jumped 75.1% to 3.99 trillion dinars. The increase points to greater reliance on domestic borrowing and treasury instruments to finance government needs.
Higher domestic borrowing could also affect private-sector financing. Banks may direct more funds toward government securities instead of commercial lending. That could make credit more difficult or expensive for private businesses.
Spending patterns also changed across major government institutions. Actual disbursements to the Kurdistan Regional Government increased by 21.6% to 6.29 trillion dinars. Ministry of Finance spending rose by 14.3%, partly because of pensions and higher debt-service costs.
Meanwhile, Ministry of Trade spending declined by 19.8%. Spending on non-ration subsidies and secondary grants fell from 1 trillion to 410 billion dinars. Food basket allocations increased from 600 billion to 870 billion dinars during the same period.
The latest figures show that increasing non-oil revenue alone cannot solve Iraq’s fiscal challenges. The government needs stronger expenditure controls alongside revenue reforms. It also needs to protect productive investment that can create jobs outside the oil sector.
Payroll reforms could help improve fiscal flexibility over the longer term. Digital tax systems could also strengthen collections and reduce revenue leakage. Customs modernization could provide another source of sustainable non-oil income.
Iraq also needs to protect capital investment during periods of fiscal pressure. Development projects can strengthen infrastructure and support private businesses. Maintaining such investment could help create the economic base needed for future revenue diversification.