meed-logo

line1 line2 line3
SIGN IN / REGISTER

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

https://image.digitalinsightresearch.in/uploads/NewsArticle/11760747/main.gif
James Gavin

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Kuwait awards oil contract to Baker Hughes

    18 August 2026

    Kuwait’s state-owned upstream operator Kuwait Oil Company (KOC) has awarded a multi-year contract to the Houston-based oil services company Baker Hughes, according to a statement from the US company.

    The contract is focused on accelerating technology innovation in the country’s upstream energy sector, the statement said.

    Baker Hughes did not disclose the contract value.

    It said that the deal positioned Baker Hughes as a key technology collaborator in the Ahmadi Innovation Valley (AIV), KOC’s flagship initiative aimed at establishing an in-country research and innovation hub to address its strategic oil and gas development priorities.

    Under the terms of the agreement, Baker Hughes and KOC will focus on developing and deploying technology solutions that optimise production as well as addressing other issues.

    Baker Hughes said it is planning to use its portfolio of digital and artificial intelligence (AI) automation solutions as part of the deal.

    These solutions are designed to help operators increase recovery from existing wells, lower operating costs, reduce water production and minimise power consumption, it said.

    Baker Hughes chairman and CEO Lorenzo Simonelli said: “Baker Hughes is committed to deeply understanding KOC’s development aspirations and providing the solutions needed to help achieve them.

    “Working together, we aim to deliver tailored technology solutions at scale that improve production performance and efficiency, supporting KOC’s goals to maximise value from their assets.”

    As part of the agreement, Baker Hughes will build a dedicated research and technology development centre in the AIV to deliver technology solutions and build local expertise.

    Kuwait’s oil and gas sector is currently in crisis due to the regional war that started after the US and Israel attacked Iran on 28 February.

    The war has severely disrupted exports through the Strait of Hormuz, which Kuwait relies on in order to ship crude exports.

    Shaikh Nawaf Saud Al-Sabah, deputy chairman and CEO of Kuwait Petroleum Corporation (KPC), the country’s state energy conglomerate, has described the current crisis as the biggest oil crisis the country has faced since Iraq’s 1990 invasion.

    Kuwait relies on the oil and gas sector for more than 90% of government revenues.

    Despite the dramatic reduction in crude exports, Kuwait’s state-owned oil companies continue to tender some projects.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18833241/main2359.jpg
    Wil Crisp
  • Firms submit Mid Island Parkway prequalifications

    18 August 2026

     

    Abu Dhabi’s Modon Infrastructure has received expressions of interest and prequalification statements for the next phase of Abu Dhabi’s Mid Island Parkway Project (MIPP), which will be developed as a public-private partnership.

    Modon Infrastructure will act as the lead developer and will hold a majority equity stake in the project company. It will award contracts for engineering, procurement and construction; operations and maintenance; and project advisory services.

    Phase two of the MIPP involves constructing about 11 kilometres (km) of highways, comprising a mix of three-, four- and five-lane sections. The highways will connect the Um-Yifeenah, Al-Jubail, Al-Sammaliyyah and Sas Al-Nakhl islands to Khalifa City and the E10 road.

    The scope also includes the construction of three interchanges – E20, E10 and Dumbbell – on Al-Sammaliyyah Island.

    The project includes several major structures, including the E20 interchange, which will feature cast-in-place box-girder and void-slab bridges, and the E10 interchange, which will feature cast-in-place box-girder bridges. It also includes I-girder bridges between Raha Beach West and Sas Al-Nakhl Island, as well as a causeway at Sas Al-Nakhl Island.

    Further elements include a cast-in-place balanced cantilever bridge between Sas Al-Nakhl Island and Al-Sammaliyyah Island; a tunnel between Al-Sammaliyyah Island and Bilrimaid Island; and a cut-and-cover tunnel on Bilrimaid Island. Another tunnel will connect Bilrimaid Island to Um-Yifeenah Island.

    Abu Dhabi awarded three packages for phase one of the MIPP in 2024. The contract for Package 1A was awarded to a joint venture of Turkish contractor Dogus Construction and UAE firm Gulf Contractors. Package 1B was awarded to a joint venture of Yas Projects (Alpha Dhabi Holding) and China Railway International Group. Beijing-headquartered China Harbour Engineering Company and the UAE’s Agility Engineering & Contracting Company won the contract for Package 1C.

    Phase one starts at the existing Saadiyat Interchange, connecting the E12 to the MIPP, and ends at the recently constructed Um-Yifeenah Highway.

    It comprises a dual main road with a total length of 8km, including four traffic lanes in each direction, two interchanges, a tunnel and associated infrastructure works.

    READ THE AUGUST 2026 MEED BUSINESS REVIEW – click here to view PDF

    Saudi Arabia builds for the global stage; Rising uncertainty creates fresh set of challenges in the Maghreb; Gulf banks remain robust in the face of geopolitical tensions.

    Distributed to senior decision-makers in the region and around the world, the August 2026 edition of MEED Business Review includes:

    > MARKET FOCUS: Maghreb fortunes diverge
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/18830452/main.png
    Yasir Iqbal
  • Adnoc selects contractors for new LNG project in the UAE

    18 August 2026

     

    Abu Dhabi National Oil Company (Adnoc) has selected contractors for a design competition it is overseeing for a major project to build a new liquefied natural gas (LNG) export facility along the UAE’s eastern coast.

    The proposed onshore LNG liquefaction facility – whose precise location Adnoc has yet to reveal – will have a nameplate output capacity of 4 million tonnes a year (t/y) and will mainly serve export purposes, MEED reported in June. The facility will receive sales-gas-quality feedstock via pipelines from Adnoc’s gas processing facilities in Abu Dhabi and will export LNG via a loading jetty.

    MEED previously reported on Adnoc’s intention to execute work on the project through a design competition or front-end engineering and design (feed)-to-engineering, procurement and construction (EPC) contest.

    Under this model, the project operator selects contractors to carry out feed work. The operator then awards the EPC contract to the contractor with the most competitive feed proposal, while compensating the other contestants for their work.

    The Abu Dhabi energy giant has selected the following three entities to undertake feed work on the planned onshore LNG liquefaction facility, according to sources:

    • Saipem (Italy) / Larsen & Toubro Energy Hydrocarbon (India)
    • Technip Energies (France) / JGC Corporation (Japan)
    • Tecnimont (Italy)

    Adnoc issued draft letters of award to the selected contractors between 11 and 12 August, the sources added.

    In addition to the contractors picked by Adnoc, MEED previously reported that the following contractors were shortlisted for the feed-to-EPC contest:

    • McDermott (US)
    • Samsung E&A (South Korea)
    • Wison (China)

    MEED reported that Adnoc issued the expression of interest (EoI) document for the planned LNG facility project on 2 June, with contractors submitting responses by 5 June.

    Given the strategic importance of the project, Adnoc is understood to be fast-tracking the tendering exercise, issuing the main tender for the feed-to-EPC contest within days of the EoI submission. The company sought proposals from participating contractors by 1 July, sources said.

    In its EoI document, Adnoc said it intends to award the main EPC contract in the third quarter of this year.

    Adnoc has yet to specify where it plans to build the LNG complex, stating only in the EoI document that it will be located at a coastal site in the UAE.

    MEED understands Adnoc may be considering a site near one of the UAE’s eastern port facilities in the emirate of Fujairah. The blockade of the Strait of Hormuz in recent months has increased interest in prioritising exports and maritime trade through ports on the Gulf of Oman.

    The scope of work on the planned LNG facility covers the following units:

    LNG facilities:

    • An onshore LNG liquefaction facility in a coastal location, with a nominal output capacity of 4 million t/y;
    • Process units necessary to bring sales feed to a liquefaction-quality feed gas (i.e. carbon dioxide removal, dehydration, mercury removal and total sulphur reduction);
    • Common facilities including inlet receiving facilities, refrigerant storage and flares;
    • Utilities to support the facility, allowing it to be self-sufficient, including but not limited to local power generation and any necessary tie-ins;
    • LNG export facilities, including a jetty and berth;
    • Structures including control buildings, amenities, a laboratory, a warehouse, workshops and administration buildings, to fully support the plant operation.

    LNG storage facilities:

    • LNG storage tanks, handling of boil-off gases (BOG) and potentially a BOG reliquefaction unit to facilitate major shutdown operations for bidders opting to compete with a single liquefaction train option.

    Feed gas supply:

    • Supplying and installing an additional identical gas compressor to be located at an existing compression station near Adnoc Gas’ Habshan complex in Abu Dhabi, to provide additional capacity in an existing gas pipeline system;
    • A new feed gas pipeline, approximately 160 kilometres long, to route sales gas quality feed gas from an existing pipeline network to the LNG facility.

    Modifications to upstream facilities (alternative scope):

    • Installation of sulphur removal beds in Habshan to bring feed gas to required LNG quality at the upstream gas conditioning facility, rather than at the LNG facility. This may be selected by bidders to avoid additional investment for processing the regeneration gas.

    Construction facilities:

    • Temporary construction facilities, laydown area and material offloading facility, to support EPC execution requirements;
    • Construction labour accommodation camp.
    Adnoc LNG output capacity

    Adnoc has an LNG liquefaction capacity of 6 million t/y, which is set to more than double to 15 million t/y when its under-construction LNG terminal complex in Abu Dhabi’s Ruwais enters operations in 2028.

    The upcoming LNG export terminal in Ruwais will have the capacity to produce about 9.6 million t/y of LNG from two processing trains, each with a capacity of 4.8 million t/y.

    Adnoc awarded the full EPC contract and reached the final investment decision for the Ruwais LNG terminal project in June 2024. A consortium of France’s Technip Energies, Japan-based JGC Corporation and Abu Dhabi-owned NMDC Energy – a subsidiary of NMDC Group – was awarded the $5.5bn EPC contract. In March of that year, Adnoc issued a limited notice to proceed to the consortium of contractors led by Technip Energies for early EPC works on the Ruwais LNG terminal project.

    The complex will feature process units, storage tanks and an export jetty for loading cargoes and LNG bunkering, as well as utilities, flare handling systems and associated buildings.

    The planned LNG facility will run on electric-powered rotary equipment and compressors instead of gas-fired units. Adnoc awarded a $400m contract in October 2023 to US-based Baker Hughes for the supply of all-electric compression systems for the project. The LNG trains will run on energy-efficient Baker Hughes technology, including compressors driven by 75MW electric motors.

    Adnoc has also signed agreements with international energy companies to divest a total stake of 40% in the Ruwais LNG project. UK energy producer BP, Mitsui & Co, Shell and French energy producer TotalEnergies will each hold 10% stakes in the Ruwais LNG terminal project, with Adnoc retaining the majority 60% stake in the facility.

    Adnoc Group subsidiary Adnoc Gas will acquire its parent company’s 60% stake in the Ruwais LNG facility at cost in the second half of 2028, when first production from the complex is due.

    To date, Adnoc has secured offtake agreements totalling 8 million t/y, representing approximately 90% of the Ruwais LNG project’s output capacity.

    Photo for illustration only

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18829520/main.jpg
    Indrajit Sen
  • Saudi Arabia extends bid deadline for Round 7 solar projects

    18 August 2026

     

    Saudi Arabia’s principal buyer, Saudi Power Procurement Company (SPPC), has extended the deadline for developers bidding for four solar projects under the seventh round of the National Renewable Energy Programme (NREP).

    Round seven of the NREP comprises solar photovoltaic (PV) and wind independent power producer (IPP) projects with a combined capacity of 5,300MW. The renewables programme is being led and supervised by the Ministry of Energy.

    The four solar PV projects comprise:

    • 1,400MW Tabjal 2 solar PV IPP (Tabrijal, Al-Jouf province)
    • 600MW Mawqqaq solar PV IPP (Mawqqaq, Hail province)
    • 600MW Tathleeth solar PV IPP (Tathleeth, Aseer province)
    • 500MW South Al-Ula solar PV IPP (Al-Ula, Medina province)

    The projects were tendered in January, with submissions previously expected by 30 August. The new deadline is 13 September.

    The programme also includes the 1,300MW Bilgah and 900MW Shagra wind IPPs. The bid submission deadline for these projects is 14 September.

    As previously reported by MEED, procurement for the seventh round of the NREP opened in August 2025 when SPPC issued a request for qualification. 

    In January, MEED reported that 16 developers qualified to bid as both managing and technical members for the four solar PV projects. A further six companies qualified to bid as a managing member only.

    For the wind IPPs, SPPC qualified 13 developers in the managing and technical members category, and a further six companies in the managing member category only. The request for proposals for both wind and solar IPPs was issued that same month. 

    The renewable energy programme aims to supply 50% of the kingdom’s electricity from renewable energy by 2030.

    Earlier rounds under the NREP have already put in place large capacities. Last October, SPPC awarded contracts to develop and operate five renewable energy projects under round six of the NREP.

    These comprise four solar PV IPP projects and one wind IPP project with a total combined capacity of 4,500MW.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18828963/main.jpg
    Mark Dowdall
  • Construction begins on phase two of Cairo Metro Line 4

    18 August 2026

    Egypt’s National Authority for Tunnels (NAT) has begun implementing the second phase of Cairo Metro’s Line 4, spanning about 27 kilometres.

    The main construction works contract was awarded to a joint venture of local firms, including Arab Contractors, Hassan Allam, Petrojet and Concord Engineering & Contracting.

    Cairo Metro Line 4 will stretch from Fustat station to Zahraa Nasr City station in New Cairo. The line will comprise 21 stations, 15 underground and six elevated.

    According to data from regional projects tracker MEED Projects, the scope also covers:

    • Construction of a tunnel route starting from Al-Fustat station, following Salah Salem Road, and intersecting with the sixth metro line at Sayeda Aisha station
    • An extension along Hafez Ibrahim Street, intersecting the Shinzo Abe Axis and linking Ahmed Al-Zomor and Al-Mithaq streets
    • A section running via Nasr Road and Nasr City to Anwar Al-Mufti Street, with an interchange with the East Nile Monorail at Aviation station
    • Construction of a depot at the Omra El-Gasima site
    • Integration of interchange stations with existing lines, including Line 1 and Line 2
    • Construction of structures over and under major roadways, including the Ring Road and Cairo-Suez Road
    • Earthworks and site preparation, including elevated foundations and underground excavations
    • Construction of all other associated infrastructure

    Local media reports said construction work on the first phase of Line 4 is expected to be completed in 2028.

    The joint venture of Arab Contractors, Hassan Allam, Petrojet and Concord Engineering & Contracting is also undertaking the main works on the first phase.

    The Japan International Cooperation Agency (Jica) provided half of the $4bn funding required for Line 4’s first phase.

    The media reports added that NAT is currently studying the third and fourth phases of Line 4.

    The third phase aims to connect the Ashgar Gardens and Al-Hosary areas via a rail line spanning more than 16km.

    The fourth phase will be more than 38km long and will connect the Al-Rehab area with the capital’s international airport east of Cairo.

    Once completed across all phases, Line 4 will link 6th of October City with southern and eastern Cairo, the New Administrative Capital and Capital International airport, making it one of the longest transport networks in the country.

    In April last year, MEED reported on Egypt’s future rail project plans, which include eight key projects spanning metro, high-speed rail and light rail transit.

    READ THE AUGUST 2026 MEED BUSINESS REVIEW – click here to view PDF

    Saudi Arabia builds for the global stage; Rising uncertainty creates fresh set of challenges in the Maghreb; Gulf banks remain robust in the face of geopolitical tensions.

    Distributed to senior decision-makers in the region and around the world, the August 2026 edition of MEED Business Review includes:

    > MARKET FOCUS: Maghreb fortunes diverge
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/18825481/main.jpg
    Yasir Iqbal