Meed | Iraq economic revival faces headwinds

Iraq economic revival faces headwinds

10 May 2024

The ambitious new $17bn Iraq Development Road project, linking Basra to Turkiye’s Mersin port, puts the country’s economic trajectory on a long-term geopolitical setting that will aim to take full advantage of Iraq’s position as a key link in trade routes between Asia and the Mediterranean.

But before this vaunted plan takes root, Prime Minister Shia Al Sudani’s government faces a host of knotty economic challenges, not least a challenging fiscal position aggravated by the expansionary budget announced in 2023.

Lack of parliamentary consent has largely insulated the country from the negative impacts of that $153bn budget. That has meant large amounts of planned state spending have not been disbursed, leaving the state finances in better shape than they would have been otherwise.

Fitch Ratings expects that low execution of capital spending and limited transfers to the Kurdistan region will help limit the size of the deficit.

“We expect growth to rebound in 2024 (1.2%), driven by public spending under the expansionary three-year budget and continued recovery in non-oil GDP. We expect non-oil growth to benefit from stronger private consumption, as inflation edges down,” says Mohamed Afifi, Fitch Ratings’ primary analyst for Iraq.

Budget deficit

Even so, reduced oil revenues have impacted Iraq’s economy, turning a budget surplus of 10.8% of GDP in 2022 into a deficit of 1.9% of GDP in 2023. Fitch sees the fiscal deficit widening, reaching 3.7% in 2024 as declining oil prices and Opec-imposed production cuts drive oil revenue down, while a heavier wage bill pushes expenditure.

The government’s debt-to-GDP ratio is also likely to rise in 2024-25, from 43.4% in 2023 to 48.7%, with Fitch attributing this to larger budget deficits that will be funded from borrowing and deposit drawdowns. However, these figures include some $40bn of legacy debt that Iraq faces no pressure to service.

The big concern is that the 2023-25 budget programme will add hundreds of thousands of workers to an already bloated public sector payroll, crowding out the private sector.

“We estimate that the expansionary three-year budget will hinder the private sector’s development by providing a sharp increase in the public workforce,” says Afifi.

“We estimate that the budget will add 600,000 employees, most of which are currently working under temporary contracts, to the public sector payroll. This would bring the public sector wage bill (salaries and pensions) to 25.8% of GDP by 2025, from 15% in 2022.”

As the IMF warned in a March 2024 commentary, higher economic growth will be needed to absorb the rapidly expanding labour force, boost non-oil exports and broaden the tax base.

In this context, urged the Fund, the Iraqi authorities should seek to enable private sector development, including through labour market reforms, modernisation of the financial sector and restructuring of state-owned banks, pension and electricity sector reforms, and continued efforts to improve governance and reduce corruption.

That is a hefty checklist for a country that is still facing myriad security, political and developmental challenges.

Al Sudani can at least counter the gloomier prognoses with the revival in non-oil sector growth, and lower inflation. Real non-oil GDP is estimated to have grown by 6% in 2023. Headline inflation declined from a high of 7.5% in January 2023 to 4% by year-end, reflecting lower international food and energy prices, and the impact of the February 2023 currency revaluation, according to the IMF.

International reserves increased to $112bn in 2023. Fitch sees FX reserves providing payment coverage above 12 months and a substantial financial buffer until the end of 2025.

Other positives will come through increased foreign direct investment, notably from the Gulf states. Saudi Arabia’s Public Investment Fund allocated $3bn for Iraqi investments last year, while Qatar’s Estithmar signed a series of memorandums of understanding worth $7bn in June 2023, covering hotel, real estate and healthcare projects.

Banking reform

One area of focus for the government is its banking sector, which remains underdeveloped and largely unfit for purpose, dominated by state-owned banks with opaque finances.

As Aysegul Ozgur, head of research at Iraq-focused Rabee Securities, says, 93.7% of currency issued was outside banks in Iraq at the end of 2022.

But, says Ozgur, the Central Bank of Iraq (CBI) is looking to strengthen financial inclusion and increase the cash inside the financial system through a series of projects.

“The salary domiciliation project of 2017 is the most prominent one among them, aiming for public sector employees to transfer their salaries to bank accounts by enabling them to receive and withdraw salaries easily through available payment channels (bank branches, ATMs and POS) and providing the ability to obtain credit facilities and bank loans by showing their salaries as collateral,” she says.

A number of other developments underscore the CBI’s concerted efforts to modernise Iraq’s financial landscape and promote economic stability.

“As a measure to control the FX flow into the banking system, the CBI now allows a limited number of banks to participate in the CBI foreign currency window and engage in US dollar transactions,” says Ozgur. “Due to the restricted number of banks permitted to engage in such activities, they benefit from an expanded market share in US dollar transactions.”

The Central Bank has also moved towards tougher oversight of the country’s 61 commercial banking institutions, made up of 54 private banks and seven state banks.

Since the CBI revised the guidelines for foreign currency transactions across borders to curb illicit financial flows in February 2023, says Ozgur, the banks that have direct correspondent banking relationships have played an active role in international money transfers and increased their commission and FX income significantly.

“The outstanding growth in current account deposits with these transfers resulted in significant growth in assets. Bank of Baghdad, National Bank of Iraq and Al-Mansour Bank are among the banks benefiting the most from these developments due to having direct correspondent banking relationships,” says Ozgur.

In February 2024, eight local commercial banks were banned from engaging in US dollar transactions, in a move to reduce fraud, money laundering and other illegal uses of the greenback. This followed a visit to Baghdad by a senior US Treasury official to Baghdad.

Such moves should, over time, help restore confidence in the financial system and – crucially – help build local insinuations that are credible players in the local economy, able to facilitate Iraq’s private sector growth ambitions, whether domestically or as part of the Iraq Development Road projects.

Al Sudani struggles to maintain Iraq’s political stability

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James Gavin

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Nakheel awards $259m Dubai Islands buildings contract
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Morocco plans second high-speed rail phase to Agadir
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Riyadh tenders King Salman Stadium works
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Saudi Arabia raises electricity tariffs
26 October 2026

Saudi Energy, formerly Saudi Electricity Company, has announced revised electricity tariffs, which will take effect on 1 January 2027.

The revised tariff schedule, published on the company’s official website, covers residential, commercial, industrial, agricultural, charitable and government customers.

The largest percentage increase in consumption rates is 16.7%, for residential customers using up to 6,000 kilowatt-hours (kWh) a month. Residential customers will pay 21 halalas/kWh for monthly consumption of up to 6,000kWh, up from 18 halalas. For consumption above 6,000kWh, the rate will rise from 30 to 33 halalas/kWh, a 10% increase.

The industrial tariff will increase by 15%, from 20 to 23 halalas/kWh. Commercial customers, private healthcare facilities and private educational facilities will pay 25 halalas/kWh, up from 22 halalas, for consumption up to 6,000kWh a month, and 35 halalas/kWh above that level, up from 32 halalas.

Tariffs for charities and government customers will also increase. In addition to consumption-based charges, customers will pay a fixed monthly fee based on the capacity of their electricity meter. This replaces the previous separate charge for meter reading, maintenance and billing, with VAT applied to the revised tariffs.

Electricity investment

The new tariffs coincide with changes to water consumption tariffs announced by the National Water Company, also effective from 1 January 2027.

King Salman Bin Abdulaziz Al-Saud directed support measures following a proposal presented by Crown Prince and Prime Minister Mohammed Bin Salman Bin Abdulaziz Al-Saud.

This includes raising the minimum wage required for Saudi nationals to count as full employees towards private sector localisation quotas under the Nitaqat programme.

The tariff changes come as Saudi Arabia plans substantial investment in its electricity infrastructure. In September 2025, Saudi Energy announced plans to invest SR220bn ($58.7bn) in power infrastructure projects between 2025 and 2030.

A June 2025 report by Fitch Ratings forecast negative free cash flow of about SR16bn a year over the period and rising leverage, reflecting the financial demands of the programme.

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Mark Dowdall
Dubai Municipality confirms AED3bn Tasreef drainage awards
26 October 2026

Dubai Municipality has confirmed it has awarded four contracts worth AED3bn ($817m) to expand the emirate’s stormwater drainage network by about 100 square kilometres under phase three of the Tasreef programme.

The projects will cover Jumeirah, Umm Suqeim, Al-Quoz, Al-Barsha, Al-Wasl and Al-Marmoom. The works include constructing and extending main stormwater drainage lines with diameters of up to three metres.

The four packages are part of Dubai’s AED30bn Tasreef programme, which aims to increase the emirate’s stormwater drainage capacity by 700% and reduce costs associated with pumping stations, network operations and maintenance by 20%.

The contracts have been awarded to China State Construction Engineering Corporation (CSCEC) and three local firms: Arifco Group, Nael Construction & Contracting (NCC) and Detech Contracting. Dubai Municipality did not state which projects the awards relate to.

According to sources, the contract awards include packages TF-15-C1, TF-15-C2 and TF-13-C1.

The first package, TF-15-C1, involves the construction of 21 kilometres of main and secondary drainage lines along Al-Wasl Road and in surrounding areas. It will cover Za’abeel 2, Al-Wasl, Jumeirah 1 and 2, Al-Bada’a, Al-Satwa and Dubai World Trade Centre. The estimated $100m contract was awarded to Detech in July, as exclusively reported by MEED.

The second package, TF-15-C2, covers the corridor between Sheikh Zayed Road and Al-Khail Road. It includes about 14km of main drainage lines serving Al-Quoz Industrial Areas 1, 3 and 4, and Al-Barsha 1. In July, MEED reported that CSCEC had won the engineering, procurement and construction contract for this project.

The third package, TF-13-C1, covers Al-Marmoom, where 23km of drainage infrastructure will be developed. According to a source, Arifco has been awarded this contract.

The final package covers Jumeirah and Umm Suqeim, where about 42km of main drainage lines will serve Umm Suqeim 1, 2 and 3; Umm Al-Sheif; Jumeirah 3; Al-Safa 1 and 2; and Al-Manara.

In May, MEED reported that NCC had been awarded a contract to build a sewage and stormwater drainage system, DS-204. However, it is unconfirmed whether this relates to the same project.

Earlier, in February, the municipality confirmed it had awarded contracts for five new projects under phase two of the programme to expand and strengthen Dubai’s stormwater drainage network.

These included two contracts awarded to Detech and one to CSCEC for stormwater drainage infrastructure. In addition, two consultancy contracts were awarded for the study and design of drainage systems in selected areas across the emirate.

Cumulatively valued at AED2.5bn, the new projects will serve 30 vital areas, spanning approximately 430 million square metres and supporting an estimated population of three million residents by 2040.

Previously, in April 2025, an earlier package of awards was announced under phase one of the Tasreef programme. The overall masterplan aims to expand Dubai’s rainwater drainage capacity by 700% by 2033.

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Nakheel awards $259m Dubai Islands buildings contract
26 October 2026

Dubai-based master developer Nakheel, part of Dubai Holding Real Estate, has awarded local firm Parkway International Contracting a construction contract valued at about AED950m ($259m) for phases two and four of Bay Grove Residences on Dubai Islands.

The package covers 617 residential units across eight buildings, ranging from one to four bedrooms, together with basement structures, infrastructure and community amenities including swimming pools, sports courts and fitness centres.

Phase two comprises 360 homes across four buildings, with main construction scheduled for completion in late 2028.

Phase four includes 257 homes across four buildings, with completion targeted for the second quarter of 2029.

The award follows an earlier contract valued at about AED800m ($218m) awarded to local contractor Metac General Contracting Company for phases one and three, covering 537 homes across seven buildings.

Together, the two contracts total more than AED1.75bn ($476m) and account for all 1,154 planned homes across the 15 buildings of Bay Grove Residences.

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Morocco plans second high-speed rail phase to Agadir
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The pipeline forms part of the government’s 2026-31 programme, presented to parliament last week.

The Marrakech-Agadir link is estimated to cost close to MD55bn ($5.5bn) and will cover a 240-kilometre (km) route through the High Atlas Mountains via Chichaoua. Civil engineering structures, including tunnels and viaducts, are expected to account for nearly 70% of the alignment.

In September, the government issued a decree declaring the Marrakech-Agadir and Chichaoua-Essaouira rail corridors to be of public utility, paving the way for land acquisition and expropriation procedures.

Under the long-term masterplan Plan Rail Maroc 2040, Essaouira is expected to connect to the network via a separate line branching off at Chichaoua, designed for operating speeds of up to 200km an hour. The mainline to Agadir is designed for speeds of up to 320km/h.

The 2030-35 cycle also includes rehabilitating the Casablanca-Khouribga-Oued Zem line; constructing a new line between Oued Zem and Beni Mellal via Bejaad, with a branch to Fquih Ben Salah; doubling and upgrading the 140km Benguerir-Safi line; expanding capacity on the Fez-Oujda corridor; and building new-generation passenger stations.

The plans follow Morocco’s ongoing MD134bn ($13.4bn) 2024-30 rail investment programme, which focuses on completing the Kenitra-Marrakech high-speed line ahead of the 2030 Fifa World Cup.

The programme also includes developing regional express network services across five regions, electrifying the Fez-Oujda line and completing a freight rail link to the Nador West Med port.

Work on the Kenitra-Marrakech line had reached about 30% by May 2026, with commercial services targeted to begin in September 2029.

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Riyadh tenders King Salman Stadium works

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Saudi Arabia’s Sports Ministry has tendered a contract covering early works at King Salman International Stadium in Riyadh.

The scope includes enabling works, site preparation and initial construction activities.

The tender was issued on 11 October, with a submission deadline of 19 November.

The stadium will cover about 660,000 square metres (sq m) and seat 92,000. Facilities will include a 150-seat royal suite, 120 hospitality suites, 300 VIP seats and 2,200 dignitary seats.

The wider development will include sports facilities covering more than 360,000 sq m, including two training fields and fan zones; a closed sports hall; an Olympic-sized swimming pool; an athletics track; and outdoor courts for volleyball, basketball and padel.

The stadium is set to host the final of the 2034 Fifa World Cup and will serve as the Saudi national football team’s main base.

US-based architectural firm Populous is the lead architect for the stadium.

Construction of the stadium is expected to be completed by 2029.

The stadium will be located next to King Abdulaziz Park.

Firms submitted prequalification statements for the main design-and-build contract in February.

Saudi stadium plans

In August 2024, MEED reported that Saudi Arabia planned to build 11 new stadiums and refurbish four facilities for the 2034 Fifa World Cup.

Eight stadiums will be located in Riyadh, four in Jeddah and one each in Al-Khobar, Abha and Neom.

A further 10 cities will host training bases: Al-Baha, Jazan, Taif, Medina, Alula, Umluj, Tabuk, Hail, Al-Ahsa and Buraidah.

There are expected to be 134 training sites in the kingdom, including 61 existing facilities and 73 new venues.

Saudi Arabia was officially selected to host the 2034 Fifa World Cup during an online convention of Fifa member associations at the Fifa Congress on 11 December 2024.

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