meed-logo

line1 line2 line3
SIGN IN / REGISTER

Iraq hits the spend button

11 May 2023

MEED's latest coverage on Iraq includes:

> GOVERNMENT: Sudani makes fitful progress as Iraq's premier
> POWER: Iraq power projects make headway
> UPSTREAM DEVELOPERS: No place like Iraq for international oil firms
> CHEMICALS: Iraq continues technical studies for $8bn chemical project
> SOLAR: Total continues 1GW Iraq solar talks
> TRANSPORT: Baghdad approves funds for metro and airport projects

 

After a year of turmoil, Iraq has found itself in a better place economically in 2023, with an improved fiscal and external position on the back of high oil prices and production and two years of budget surpluses.

That is the good news. Analysts fear that this relative strength may lead the government into dangerous territory. A 2023 budget submitted to the Council of Representatives amounts to ID199tn ($153bn) of spending – an unprecedented fiscal programme for Iraq, even if oil revenues look flush.

“Iraq remains vulnerable to swings in oil prices, especially given spending pressures, the difficulty of passing meaningful budget reforms and the shallowness of domestic financing options,” says Toby Iles, head of Middle East and Africa sovereign ratings at Fitch Ratings. 

“The proposed budget for 2023 pencils in large spending increases, including for sticky items such as salaries. This would increase Iraq’s vulnerability to oil price volatility.”

Previous episodes of low oil prices, in 2015-16 and 2020, quickly led to financing challenges and recourse to central bank borrowing, notes Iles.

The last time Iraq attempted to push through reforms was after the 2020 collapse in oil prices. But the recovery of prices, together with other factors, removed the immediate pressure for change and snuffed out these attempts. “One could argue that it was a wasted crisis,” says Iles.

Most of the budget is current spending – about three-quarters of it, leaving investment spending at ID49.5tn ($38bn). The budget anticipates a sizeable deficit of ID117.3tn ($89bn).

The deficit would be financed by a mix of funding from the Ministry of Finance’s account at the Central Bank of Iraq and foreign financing of investment projects. This would necessitate domestic borrowing of ID31.5tn ($24bn), according to an analysis by Ahmed Tabaqchali, chief strategist of the AFC Iraq Fund.

Cleared path for spending

The Iraqi authorities’ thinking is that now the political logjams of recent years have, for the most part, been removed, the timing is ripe to open the purse strings.

“They are sitting on $115bn of sovereign reserves, which they haven’t been able to spend for a couple of years,” says Michael Knights, a fellow at the Washington Institute for Near East Policy.

“And now they’ve got a fully empowered government. Soon they’re going to have a fully empowered budget. So they see it as time to splurge all the oil income that’s been built up.”

There is a logic to this. Yet the sheer scale of the financing programme is the issue here. The $153bn budget is one and a half times the last authorised budget in 2021, says Knights.

And if the budget is approved as part of a three-year programme – which remains an option – it leaves the state finances particularly vulnerable should oil prices slip.

“If you play out the numbers, you can see that if they spend at these record high levels for three years, they’ll wipe out the majority of their sovereign reserves. And they’ll be down to very close to import cover levels,” says Knights.

One particular concern is that the government intends to increase the size of the public sector by bringing hundreds of thousands of civil servants on board and paying them more. Public sector salaries and pensions are projected to account for 41 per cent of operating expenditures, according to Tabaqchali’s analysis.

In Knights’ view, this approach falls under “out populist-ing the populists, keeping people happy while the government cements its control over the military, the judiciary and intelligence services”.

Risk-fraught gambit

It may still be risky, given that Iraq struggled with the last major oil price drop in 2020. Having to cope then with the degree of public sector fixed expenses, it could be much harder to carry this off now.

Iraq’s single commodity dependence is more acute than other Middle East and North Africa (Mena) oil exporters. Oil revenue accounts for almost all of the government’s revenue and export revenue.

“This high commodity dependence is the key vulnerability, while weak governance and political risk undermine prospects for a stronger non-oil economy,” says Iles.

The undeveloped banking sector is also an important weakness, hampering non-oil development and limiting government financing options during times of fiscal deficit.

“Buoyant oil prices have improved many of Iraq’s sovereign credit metrics, but the absence of structural, economic or fiscal reforms and persistence of political risk constrain the rating (B-),” says Iles.

There will be positives that will emerge from the substantive spending programme. For one thing, there will be a substantial liquidity boost that will drive economic growth. It will also help insulate the government against protests.

For a country that, in the words of the World Bank, has suffered from a combination of corruption, weak state institutions and patronage – leaving 9 million Iraqis living below the poverty line and unemployment as high as 14 per cent – this spending will come as a soothing balm.

Currency crisis averted

Another plus is that the country’s currency crisis of previous months, which led to a shortage of dollars, appears to have been contained.

“The dollar shortages that we have seen in Iraq since late 2022 reflect governance issues and political risk, rather than any fundamental economic imbalances. The central bank’s foreign reserves are at record high levels,” says Iles.

The constraints on FX supply came from long-standing concerns about the ultimate recipients and uses of FX sold via the central bank’s daily auctions. However, notes Iles, now there are higher volumes again in the central bank’s daily auctions and the premium of the unofficial exchange rate over the official rate has narrowed to some extent, reflecting gradual adaptation to the central bank’s new procedural requirements.

If more robust and transparent procedure bed in and normalise, this will have ultimately been positive.

And yet, if the 2023 budget gets passed and Iraq commits itself to a highly expansionary three-year fiscal cycle, fresh vulnerabilities will be baked into the Iraqi economic system that could store up troubles for later generations of Iraqis to deal with. The clock is ticking.

https://image.digitalinsightresearch.in/uploads/NewsArticle/10835821/main.gif
James Gavin

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

Click here to register
Exclusive from Meed
Related Articles
  • Neom plans Oxagon freight rail connection with SAR network

    15 September 2026

     

    Register for MEED’s 14-day trial access 

    Saudi gigaproject developer Neom has floated an expression of interest (EoI) notice to consultants for the design of a freight rail network connecting to the Port of Neom at Oxagon.

    The scope of work includes project feasibility studies, concept design and route alignment.

    The EoI notice was issued on 14 September, with a submission deadline of 16 September.

    The estimated 400-kilometre (km)-plus rail line is expected to connect the Port of Neom with Saudi Arabia Railways’ (SAR) North-South Railway at the Al-Baseeta junction.

    SAR’s North-South Railway is a 2,750km network built primarily to move minerals from mines in the north of the kingdom to industrial and export hubs on the Gulf coast. Its core route links the Al-Jalamid and Baitha phosphate and bauxite mines to Ras Al-Khair, Jubail and Dammam, with branch lines to Riyadh and to the Jordanian border at Al-Haditha.

    Al-Baseeta junction, where Oxagon's proposed line would connect, sits on this network in Al-Jawf province, in the northwest of the country. The railway also carries a passenger service between Riyadh and Qurayyat, and has transported commercial freight such as sulfur and phosphoric acid.

    The Port of Neom currently has no rail link to the rest of Saudi Arabia, meaning cargo landing there depends on road transport or a further sea leg to reach Riyadh, the Gulf coast or export markets beyond.

    Connecting to the North-South network at Al-Baseeta would give the port direct rail access to the kingdom’s interior and, via existing branch lines, to Jordan and the Gulf coast industrial cluster around Ras Al-Khair, Jubail and Dammam.

    The proposed link would also give SAR’s network a new outlet to the Red Sea. Until now, the North-South Railway has been oriented around Gulf coast export points, but a connection to Oxagon would provide a second maritime gateway on the opposite coast, allowing mineral and freight traffic from the north of the kingdom to reach either coastline.

    The latest development follows Saudi Arabia’s Public Investment Fund (PIF) naming Neom as one of six strategic ecosystems in its 2026-30 strategy.

    The backing comes as Neom’s operational focus appears to be evolving in response to shifting regional dynamics and global economic conditions. For example, on 15 April Neom posted on its official X account about a new Europe-Egypt-Neom-GCC corridor, describing it as a faster route for time-sensitive goods.

    Oxagon project progress

    Several major projects have made steady progress at Oxagon. Earlier this month, Saudi artificial intelligence (AI) company Humain and data centre developer DataVolt started construction on an AI data centre at Oxagon. 

    Last month, construction works on the $8.5bn Neom Green Hydrogen project at Oxagon were completed, and the facility has now entered the commissioning stage ahead of commercial operations targeted for 2027.

    The project is designed to produce up to 600 tonnes a day of green hydrogen, which will be converted into green ammonia for export. It is supported by about 4GW of solar and wind power generation capacity, with the renewable power generated being used to produce hydrogen through electrolysis.

    In 2024, Neom awarded an estimated SR4bn ($1bn) contract to a joint venture of El-Seif Engineering Contracting, Hassan Allam Construction and China Harbour Engineering Company for Terminal 1.

    The Duba port expansion has progressed in two phases, awarded respectively to Boskalis/Besix/Modern Building Leaders and Deme/Archirodon.

    The port has operated since 2022 and currently handles 250,000 twenty-foot equivalent units (TEUs), with capacity planned to reach 1.5 million TEUs by 2030.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/19663898/main.jpg
    Yasir Iqbal
  • Miral commits $3.2bn Yas Island investments

    14 September 2026

    Abu Dhabi’s Miral has announced plans to invest over AED12bn ($3.2bn) in Yas Island over the next five years.

    According to a statement, the investment will fund a pipeline of new projects, as well as expansions and enhancements to existing attractions, supporting Abu Dhabi’s Tourism Strategy 2030.

    The next phase of development will focus on expanding Yas Island’s theme parks and attractions, while introducing new immersive rides and experiences that reflect changing visitor expectations.

    The investment will also strengthen the island’s hospitality offering through additional hotel rooms and enhancements to its overall accommodation portfolio.

    The investment is separate from the previously announced Disney project. 

    Miral recently started the expansion works of its Harry Potter-themed expansion at the Warner Bros World Yas Island entertainment destination in Abu Dhabi.

    The scope of the Warner Bros World phase two expansion includes adding 63,000 square metres (sq m) to the existing theme park.

    This will include a Harry Potter-themed zone with three new rides called Diagon Alley, Hogwarts Castle and The Forbidden Forest, along with retail outlets and food and beverage facilities.

    Yas Waterworld

    Miral has developed a series of theme parks and other entertainment-related attractions on Yas Island, working with several local and international contractors.

    In July last year, Miral opened a new 16,900 sq m expansion of its Yas Waterworld park to the public.

    The expansion added 3.3 kilometres of slide sections to the park. The addition of 18 new rides and attractions, bringing the total number of rides to more than 60, is expected to increase visitor capacity by 20%.

    Construction was carried out by local contractor Alec.

    Disney park

    The Walt Disney Company and Miral signed an agreement in May to build a Disney theme park resort on Yas Island.

    Disney, which is based in the US, said the Abu Dhabi site will be its seventh theme park resort. The others are in California and Florida in the US, Paris in France, Hong Kong and Shanghai in China, and Tokyo in Japan.

    In a statement, Disney noted that the UAE is located within a four-hour flight of one-third of the world’s population, making it a significant gateway for tourism. It is also home to one of the world’s busiest airline hubs, with 120 million passengers travelling through Abu Dhabi and Dubai each year.

    The Disney theme park resort in Abu Dhabi will include entertainment areas, themed accommodations, dining venues and retail experiences.

    In 2023, Miral opened SeaWorld Abu Dhabi, also on Yas Island. Alec was the contractor for the estimated $565m project.

    In 2018, Miral opened the Warner Bros theme park on Yas Island. Belgium’s Besix was the contractor for the estimated $531m project.

    Other Miral projects have included the Etihad Arena and the indoor climbing and skydive centre Clymb. Bam International of the Netherlands was the contractor for the arena and Germany’s Zublin was the contractor for Clymb.

    Yas Island was launched as a project in 2006 by local developer Aldar Properties. The original centrepiece attractions were the Yas Marina Circuit, which hosts Formula 1 motor racing’s annual Abu Dhabi Grand Prix, and the Ferrari World theme park.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/19645816/main.jpg
    Yasir Iqbal
  • Contractors prepare bids for Oxagon wastewater plant

    14 September 2026

     

    Contractors are preparing to submit bids to build a wastewater treatment plant for Oxagon, Neom’s industrial cluster.

    The industrial wastewater treatment package will have an initial capacity of 35,000 cubic metres a day (cm/d), supplied in modular trains of 5,000 cm/d each. A separate sanitary wastewater treatment package will have a capacity of 1,000 cm/d.

    The contract is structured as a design-build-operate project and covers the supply, installation and commissioning of industrial and sanitary wastewater treatment packages, as well as three years of operation and maintenance.

    Bids are due on 2 October, a source close to the project told MEED.

    It is understood that Neom’s water utility Enowa issued the request for proposals earlier this year. The plant is designed to provide “interim wastewater treatment” capacity for Neom’s Oxagon Industrial Quarter as industrial development in the area progresses.

    Enowa has described the treatment systems as interim and de-mountable, allowing them to be installed and subsequently removed or relocated as requirements at Oxagon develop. The plant can be expanded to a maximum of 45,000 cm/d.

    The tender documents also state that Neom may consider export credit agency (ECA) financing for the project, with the strength of bidders’ ECA financing proposals forming part of the commercial evaluation.

    The project follows an earlier tender for the Oxagon Village Water Recycling Plant, which was cancelled despite contractors submitting bids in 2024.

    MEED reported at the time that Beijing-based PowerChina, the local Alfanar Company and Cairo-headquartered Orascom had submitted bids for the project. It is understood that these firms are also likely to participate in the latest tender.

    The earlier scheme included truck receiving facilities, pretreatment, biological treatment using food chain reactor technology, tertiary treatment, sludge handling and recycled-water storage.

    The latest procurement appears to represent a reworked approach to wastewater treatment at Oxagon Industrial Quarter, with the previous engineering, procurement and construction scheme replaced by an interim, modular and de-mountable facility.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/19640903/main.jpg
    Mark Dowdall
  • Saudi Arabia shuts East-West oil pipeline after drone strikes

    14 September 2026

    Saudi Arabia has temporarily closed its 1,200-kilometre East-West pipeline after it was targeted by multiple drones launched from Iraq, disrupting one of the kingdom’s most critical energy export routes and threatening global oil supplies already strained by conflict across the region.

    The Ministry of Energy said the pipeline, which connects the Abqaiq oil field in the east to the Red Sea port of Yanbu, was hit in the Riyadh and Medina regions on 12 September. Specialised teams have begun securing the facility and assessing damage. A Foreign Ministry statement said the attack resulted in injuries and “some damage that is currently being addressed”.

    The closure removes about 4 million barrels a day from the global market, representing 4% of world oil supply. The pipeline’s role has become increasingly critical since the US-Iran conflict forced a near-complete shutdown of flows through the Strait of Hormuz in March.

    Saudi Arabia has been using the East-West route to bypass the chokepoint, but the assault has left the kingdom dependent on substantially reduced Hormuz exports and Red Sea shipping routes now threatened by Iran-backed Houthi forces in Yemen.

    Iraqi Prime Minister Ali Al-Zaidi’s office confirmed the drone strike on the East-West Pipeline originated in the Maysan province, which borders Iran. The government formally condemned the attack, announced an investigation into the Maysan operations command and dismissed its commander. No armed group has claimed responsibility, but security analysts attribute the strike to Iran-backed militias operating from Iraqi territory.

    Riyadh said it was not retaliating “at this stage”, choosing instead to support Iraqi efforts to prevent further strikes from its territory. 

    The attack comes amid wider regional upheaval. Houthi forces have rapidly advanced along Yemen’s coast, seizing the strategic Mokha port and the Zuqar Island in the southern Red Sea, moving closer to the Bab El-Mandab strait. Saudi authorities said the group simultaneously launched dozens of drones and missiles at the southern kingdom on 11 September, striking civilian and economic targets and injuring 73 people.

    Oil analysts and traders reported that Yanbu’s storage capacity, estimated at around 35 million barrels, now holds supplies sufficient for only five to seven days of exports without pipeline operations. Storage facilities at Egypt’s Ain Sokhna and Sidi Kerir ports have similar constraints. Repair timelines remain uncertain, with sources citing estimates ranging from days to five or six weeks.

    The dual disruption of both the pipeline and Red Sea shipping has compressed global energy supplies. Energy analysts warned that without pipeline repairs, oil prices could return to the $120-a-barrel peak reached earlier in the regional conflict.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/19641513/main.gif
    Colin Foreman
  • WSP wins Dammam airport expansion design works

    14 September 2026

    WSP Middle East, the regional arm of Canadian engineering firm WSP, has won a design contract to expand King Fahd International airport in Dammam, Saudi Arabia.

    Dammam Airports Company (DACO) awarded the contract.

    The scope includes designing passenger terminal expansions, facility upgrades, and improvements to airport entrances and access roads.

    It also covers the development of baggage-handling systems, digital services and other associated infrastructure.

    The expansion works will be carried out in line with the airport’s approved masterplan, which targets serving more than 19 million passengers a year by 2030.

    The plan also aims to increase air cargo capacity to more than 600,000 tonnes a year and raise aircraft operational capacity to 77 movements per hour, supported by comprehensive expansions to infrastructure, runways and general aviation facilities.

    This contract forms part of DACO’s ongoing efforts to strengthen the airport ecosystem, enhance operational efficiency, and support the Aviation Programme and Saudi Vision 2030 objectives.

    King Fahd International airport is the kingdom’s third-largest airport by annual passenger traffic, behind Jeddah’s King Abdulaziz International and Riyadh’s King Khaled International.

    DACO was formed in July 2017 to manage, operate and develop King Fahd International airport in Saudi Arabia’s Eastern Province.

    It was established as part of the broader Saudi Vision 2030 privatisation and economic reform programme to corporatise the aviation sector, increase operational efficiency, upgrade infrastructure, and transition state-run airports into commercially viable, world-class regional aviation hubs.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/19639910/main.jpg
    Yasir Iqbal