Iraq Economic Outlook
Economic momentum is likely waning so far this year. Oil production flatlined in annual terms in January–April, weighed on by OPEC+ cuts and the suspension of 450,000 barrels per day of crude flows to Turkey in March. Tougher OPEC+ output curtailments from May will be further dampening the energy sector in the remainder of Q2. In addition, a dollar shortage has harmed the non-oil sector. In politics, the expansionary 2023–2025 budget presented in March has still not been approved by Parliament due to disagreements between Kurdish and Iraqi parties. This lack of approval will be capping government spending. Moreover, strained relations between Kurdistan and the federal government could complicate the resumption of oil exports to Turkey, hitting the external sector.
Inflation fell to 5.3% in March from 6.9% in February. Inflation should average lower in 2023 than in 2022 on easing external price pressures and the re-pegging of the dinar at a stronger rate. Key upside risks are the depreciation of the black-market FX rate and fiscal stimulus following the eventual approval of the budget.