Iraq Economic Outlook
The economy should have been one of the region’s star performers last year, with growth benefitting from looser average OPEC+ quotas. In 2022, crude production increased around 10% year on year. However, failure to pass a 2022 budget will have hampered public spending, and investment was likely contained by institutional gridlock and sociopolitical instability. Turning to 2023, momentum is easing; in January, oil production fell from December and was up less than 5% in annual terms on the back of tighter OPEC+ quotas since late last year. Moreover, the parallel exchange rate weakened substantially in January, hurting purchasing power; the Central Bank responded by re-pegging the currency at a stronger rate against the dollar. In politics, the country is yet to pass a 2023 budget, which will be containing government expenditure.
Iraq Inflation
Inflation jumped to 7.2% in January from 4.3% in December, likely on the weaker parallel exchange rate. Inflation should average lower this year than last due to easing commodity prices and the new stronger official dinar rate. However, further depreciation in the parallel FX rate, disruptions to Ukrainian agricultural exports and fiscal stimulus are upside risks.