Iraq

Economic activity to remain moderate

After the very sharp recession of 2020 prompted by the Covid-19 pandemic, followed by two particularly robust years due to very high hydrocarbon prices, growth eased in 2023 on back of softening oil prices and the temporary halt to Kurdistan's oil exports to Turkey. In 2024, growth is therefore likely to remain modest as a result of OPEC's decision – Iraq is its second-largest producer – to maintain its production cuts, oil prices moderated by a still sluggish global economy and the revaluation of the dinar in February 2023, which weakened the local currency equivalent of exports. Non-oil GDP growth will be driven by investment projects, stimulated by the USD 150 billion budget approved by Parliament in June 2023 for the period 2023-2025. This will enable infrastructure projects to be rolled out, including the reconstruction of Mosul airport that was partly destroyed in 2017 during fighting against Daech, which began in 2022 and is expected to continue into 2024. The large budget will also allow for significant current public spending, such as raising the minimum wage, which will support private consumption. The latter will also be stimulated by the return of inflation to a moderate level due to the easing of global food prices, as well as the revaluation of the dinar, which will limit imported inflation.

Twin deficits on the rise

High hydrocarbon prices fuelled a large current account surplus in 2021 and 2022. Prices will still be high in 2023, although on the wane. The current account will move into deficit in 2024, through the trade balance, due to the fall in oil exports and the increase in the volume of imports to meet the rise in private consumption and the need for capital goods and materials generated by infrastructure projects.

The budget deficit will widen as a result of the expansionary budget voted for the period 2023-2025, which will increase public consumption and investment. It will also be adversely affected by the decline in government revenue from oil (which accounts for around 90% of total revenue), given the less buoyant state of this sector.

The deficits will be financed by drawing on foreign exchange reserves (equivalent to 9.7 months of imports by the end of 2022) and debt. The latter will remain at a sustainable level, alleviated in particular by the revaluation of the Dinar, with 56% of public debt denominated in foreign currencies. However, this composition continues to expose public debt to significant exchange rate risk. As 75% of public debt is held by official creditors, the refinancing risk will remain low.

Relative political stabilisation, but ongoing challenges

Following the death in April 2021 of President Idriss Déby who was killed by rebel forces, his son Mahamat Déby took office with the consent of the African Union, given the urgent security situation, despite challenges to his legitimacy. In September 2022, the "transitional" President was given broad executive powers by a meeting of co-opted persons such as the new Prime Minister, Saleh Kebzabo. The transition, which can last up to two years (from September 2022) is still ongoing. While 2024 will probably see elections (presidential and legislative) resulting in a cabinet reshuffle, Mahamat Déby may stand as a candidate and retain the Presidency. While no elections have taken place in the country since 2015 (successive postponements owing to the security context and the subsequent death of Idriss Déby), the next elections will take place in a tense context. The army is omnipresent and the repression of opposition is severe (as was the case of the anti-government demonstrations on 20 October 2022, in response to the announcement of the extension of the transition and the eligibility of members of the transition for the next elections, which were violently repressed, resulting in more than 100 deaths and 300 injuries), in addition to the security threat from Sudan, which is high. The conflict in Sudan could also be a source of instability due to the large influx of Sudanese refugees via the introduction of a humanitarian corridor amid a state of food emergency that was declared in Chad in 2022 and a serious humanitarian crisis. Furthermore, although the junta intends not to take sides in the conflict affecting its neighbour, the geographical proximity of the two countries, as well as the proximity of their communities (the President's family is from the Zaghawa ethnic group, which is in the majority in Sudanese Darfur, one of the two main areas of fighting) and their history, has exacerbated fears of increased tensions within the country and a resurgence of the terrorist threat.

Le déficit du compte courant devrait se réduire en 2024, dans le sillage d’exportations dynamiques qui participeront à l’élargissement de l’excédent commercial. Cependant, il sera encore entretenu par une balance des services (principalement de transports) déficitaire (5 % du PIB), et le rapatriement de bénéfice des sociétés étrangères (principalement dans le secteur minier). L’instabilité politique et sécuritaire persistante continuera de limiter les entrées d’IDE et l’aide extérieure.

Last updated: August 2023