PM’s adviser says Iraq faces fiscal austerity in 2025 as oil prices plunge

By Timour Azhari

BAGHDAD (Reuters) – Iraq will face a budget crisis in 2025 due to falling oil prices, a key source of government revenue, a top economic adviser to Prime Minister Mohammed Shia al-Sudani said.

“We do not foresee major problems in 2024, but we need more stringent financial discipline for 2025,” Mudher Saleh told Reuters in an interview late on Monday.

Iraq, OPEC’s second-largest producer, is heavily dependent on oil revenues. The hydrocarbon sector accounts for the vast majority of export earnings and about 90% of the state’s revenues.

Iraq’s heavy dependence on oil makes it particularly vulnerable to fluctuations in global oil prices.

Still, Iraq increased its budget in 2024, even after record spending in 2023, when it hired more than half a million additional workers in an already bloated public sector and launched a capital-intensive nationwide infrastructure upgrade.

The budget for 2024 rose to 211 trillion dinars ($161 billion) from 199 trillion dinars ($153 billion) in 2023, maintaining the projected deficit of 64 trillion dinars, Saleh said.

The budget assumes an oil price of $70 a barrel in 2024, about $6 less than the likely average price this year.

Saleh said the timely payment of salaries and pensions remains a top priority. They account for 90 trillion dinars ($69 billion), or more than 40% of the budget, and are a key factor in Iraq’s social stability.

“The government will pay salaries even if it costs everything. Salaries are sacred in Iraq,” he said.

Meanwhile, infrastructure development could be redirected to the most strategic projects, such as key road and bridge works in the capital, Baghdad, if the country finds itself in financial difficulties, he added.

To improve its financial situation, Iraq is focusing on increasing non-oil revenues by improving tax collection, but is not considering introducing any new taxes, Saleh said.

He estimated that Iraq loses about $10 billion a year due to tax evasion and customs problems.

The concerns about the 2025 budget reflect a difficult global oil market. Oil prices have been falling since mid-2022, with Brent crude, the international benchmark, falling from more than $120 a barrel to below $75 in recent days.

The decline is largely attributed to weakening global demand, especially from China, the world’s largest oil importer, whose economic growth is slowing. $1 = 1,300 dinars

(Reporting by Timour Azhari; editing by Mark Heinrich)