Iraq Economic Outlook
The economy has lost steam so far in 2023 relative to 2022. Oil output was down over 3% year on year in January–July on OPEC+ cuts and the suspension of crude flows via a pipeline to Turkey in March. In addition, U.S. restrictions on dollar transfers to Iraq have created a shortage of hard currency and weakened the parallel market exchange rate, likely disrupting domestic economic activity. On the flipside, the expansionary 2023–2025 budget approved in June—which set annual expenditure over 50% higher than the prior budget approved in 2021—should be boosting government spending from H2. In addition, tens of billions of dollars in investment pledges so far this year from TotalEnergies and Gulf neighbors bode well for the energy and non-energy sectors in the longer term. That said, widespread corruption and political instability could stop at least part of the pledged funds from becoming reality.
Inflation was stable at May’s 3.4% in June, the joint-lowest level since January 2021. Inflation could rise in H2 from June levels on the weaker parallel-market dinar, the expansionary budget and the recent uptick in global energy prices. Over 2023 as a whole, the Consensus is for inflation to be close to its 2022 average.