The International Monetary Fund (IMF) has warned that Iraq's fiscal situation is deteriorating amid low oil prices, emphasizing that external balances have declined significantly and calling for urgent reforms.
Iraq's non-oil GDP declined to 2.5% in 2024 and is expected to slow to 1% in 2025 due to financing constraints and weak investment, with overall growth contracting to 2.3% and inflation falling to 2.7%, according to the final statement of the 2025 Article IV consultations.
"The fiscal deficit widened to 4.2% of GDP in 2024 (compared to 1.1% in 2023), with the current account surplus narrowing from 7.5% to 2%. However, foreign reserves remained at a strong level of $100.3 billion.
The IMF called for "containing the deficit by increasing non-oil revenues, such as imposing selective taxes, reducing the public wage bill, and completing the reform of government banks, while warning of the danger of resorting to cash financing due to its inflationary and negative effects on reserves."
He also stressed "the importance of reforming the labor market, improving the business environment, fighting corruption, as well as restructuring the electricity sector, which recorded a loss of 55% in 2024 due to thefts and illegal connections."
He emphasized "the need to address the structural challenges facing the Iraqi economy through a comprehensive reform agenda that includes the financial sector, governance, and diversifying the economy away from oil, warning that delaying reforms will lead to a deeper financial crisis in the near term.
In concluding the statement, the IMF praised the central bank's efforts to improve the banking system and trade finance, but emphasized that there is still a long way to go to strengthen financial stability.
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