Iraq is under growing financial strain, as falling oil prices and global uncertainty challenge its economy. A recent IMF mission revealed that urgent reforms are needed. The Iraq fiscal reform challenge is now at the center of policy discussions.
The IMF team met with Iraqi officials in Amman and Baghdad for the 2025 Article IV consultation. They reported slowing growth and rising budget pressure. As well as Iraq’s non-oil economy grew only 2.5% in 2024, down sharply from 13.8% the year before. For 2025, non-oil GDP is expected to slow further to just 1%.
Inflation remained low, ending 2024 at 2.7%. But oil production declines caused total GDP to shrink by 2.3%. In addition Imports surged, and Iraq’s current account surplus dropped from 7.5% to 2% of GDP.
The country’s 2024 budget deficit widened to 4.2% of GDP. Spending on wages and energy has outpaced revenue, while oil income fell. As well as The IMF warned that Iraq needs to contain its deficit, boost non-oil tax revenue, and limit the public wage bill.
The Iraq fiscal reform challenge requires bold measures. The IMF advised reducing spending, reviewing capital projects, and postponing non-essential expenses. So They urged Iraq to raise taxes on goods and services and broaden the tax base.
Debt concerns are growing. Iraq’s budget now needs oil prices near $84 per barrel to stay balanced—far above 2020 levels. Financing pressures have led to unpaid government bills, especially in energy and infrastructure.
The IMF strongly opposed monetary financing. They warned it could cause inflation, reduce foreign reserves, and hurt the Central Bank of Iraq (CBI). Instead, they recommended broader financing options and fiscal consolidation.
On banking, the IMF praised the CBI for trade finance reforms and digital progress. But they stressed the need to finalize bank restructuring and strengthen private banks. They encouraged more work on liquidity management and currency stability.
Electricity remains a serious problem. In 2024, Iraq lost 55% of its power through theft and illegal connections. The IMF backed the use of smart meters and better billing. They called for gradual tariff hikes, with support for low-income households.
Corruption and weak governance continue to block development. The IMF urged full enforcement of transparency laws, stronger oversight of state firms, and judicial independence.
To grow the private sector, Iraq must reduce red tape, improve the business climate, and reform hiring rules. More women should be able to work, and job training must align with market needs.
The IMF estimates that full reform could double Iraq’s non-oil growth over the next few years. But success depends on swift action and long-term planning. The Iraq fiscal reform challenge must now be met with serious and sustained effort.