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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.

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James Gavin

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    Cairo’s mediation role in Gaza, particularly following the January 2025 ceasefire, has become the symbolic centrepiece of its foreign policy identity, but its efforts in this area ultimately stem from the conflict’s direct strategic relevance to Egypt.

    By convening an extraordinary Arab summit in March 2025 and advancing its own reconstruction framework, Cairo sought to position itself as a key custodian of Gaza’s next chapter and – more cynically – a potential beneficiary of the post-war process.

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    In this context, Cairo’s efforts reflect a bid to maintain diplomatic relevance and remain indispensable in a situation where it ultimately lacks decisive influence.

    A similar pragmatic logic shapes Egypt’s posture in the Horn of Africa.

    Faced with the unresolved Grand Ethiopian Renaissance Dam (GERD) dispute, Cairo has shifted away from diplomatic and legal confrontation towards alliance-building with Somalia and Eritrea, seeking leverage through regional networks.

    In Sudan, Cairo’s posture reflects a harder security logic. It supports the Sudanese Armed Forces out of a fear – arguably justified – of the outcomes that any further weakening of the central government in Khartoum could bring to Egypt’s borders.

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    Strategic breadth

    Aside from its broadly cautious posture, Egypt’s foreign policy and domestic economic policy also exhibit deliberate diversification and geopolitical hedging.

    In recent years, Cairo’s fragile position – amid the stymying of Suez Canal revenue flows – has intensified its outreach to diverse political and financial backers, including countries with which it has previously been at odds.

    Although the IMF remains a constant presence in Egypt’s fiscal landscape, the past few years have seen Cairo leverage its relationships with the UAE, Saudi Arabia, Qatar and Turkiye to attract billions of dollars in foreign direct investment and financial support.

    The recourse to support from Qatar and Turkiye is particularly notable given Egypt’s diplomatic decoupling from both in 2013 following the ousting of president Mohamed Morsi, whom both countries supported.

    Diplomatic ties with Turkiye were formally severed in 2013, and the relationship worsened in 2014 over Ankara’s support for a rival faction in the Libyan civil war. Cairo then cut ties with Doha in 2017 following the Gulf diplomatic crisis.

    Diplomatic ties with Turkey were formally severed in 2013 and the relationship further worsened in 2014 over Ankara’s support for a rival faction in the Libyan civil war. Cairo then formally cut ties with Doha in 2017 following the Gulf diplomatic crisis.

    These tensions were gradually eased from 2021: the Al-Ula Declaration rehabilitated relations with Qatar, while back-channel engagement with Turkiye led to the restoration of diplomatic relations in 2023.

    In this light, while the UAE’s $35bn in foreign direct investment and the $5bn in support from Saudi Arabia in 2024 align with past politics, the $7.5bn in support from Qatar in 2025 and the $350m defence deal with Turkey in 2026 represent the new.

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    Egypt’s accession to Brics in 2024 is a natural corollary of its growing ties with China.

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    Turning the corner

    The widening breadth of Cairo’s fiscal and financial backers is making it less reliant on any single source of support. While the IMF’s loans and reform programme underpin overall fiscal stability, Egypt’s outreach is increasingly enabling it to tackle outstanding liabilities.

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    That would be a significant achievement. And with domestic fortunes secured, Cairo could perhaps turn its attention outward again – towards projecting influence across the region.

    Image: Doha, Qatar – September 15, 2025: Egypt’s President Abdul Fatah Al-Sisi delivering his statement at the Emergency Arab-Islamic Summit to address the Israeli attack on Qatar

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  • MEED set to turn 69 years old next month

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    Register for MEED’s 14-day trial access 

    MEED celebrates its 69th birthday early next month – a journey characterised by huge transformations and upheavals in the region, but with one constant that MEED has lived by from day one: the goal of helping the world understand what is happening in the Middle East and how to benefit from it. 

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    The first issue of Middle East Economic Digest (MEED) was published on 8 March 1957 as a hand-printed newsletter in the wake of the Suez invasion.

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    “My job was to fill the 100-or-so envelopes of the subscribers and take them to the post office. Many people would pass by on press day to help collate and staple the newsletter,” he recalled.

    Collard, a feisty champion of Arab causes and the driving force behind MEED for its first two decades, had the foresight to realise the potential the Middle East offered to Western business. 

    A noted economic analyst on the developing world, Collard produced MEED from her one-roomed office on a hand-cranked Ronco printing machine, with the help of two part-time secretaries. 

    It is no coincidence that the first edition coincided with International Women’s Day, a fitting occasion for a remarkable woman who, by the late 1960s, was brought in to advise Prime Minister Harold Wilson on Middle East affairs. 

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    “This changed a little when oil peaked around the end of 1979 at $37.42 a barrel ($111 at today's prices), but we still preferred to take on graduates and train them on the job due to our high requirement for balanced reporting and tight, accurate writing, which also needed to be finely nuanced to avoid censorship in some countries.

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    Saudi Arabian gigaproject developer Roshn Group has signed an agreement with Kuwait’s Agility Logistics Parks (ALP) to establish a joint venture to develop a Grade A logistics park in the kingdom.

    The agreement was signed on the sidelines of the Public Investment Fund Private Sector Forum in Riyadh on 9 February.

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    The company also operates a 200,000 sq m logistics park in Dammam and a 871,000 sq m facility in Riyadh.

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

    Spending on oil and gas production surges; Doha’s efforts support extraordinary growth in 2026; Water sector regains momentum in 2025.

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  • Saudi Arabia seeks Qassim airport PPP interest

    10 February 2026

    Saudi Arabia’s Civil Aviation Holding Company (Matarat), through the National Centre for Privatisation and PPP (NCP), has issued an expression of interest (EoI) for a tender to develop the Prince Naif Bin Abdulaziz International airport in the Qassim region.

    The EoI notice was issued on 9 February, and companies have until 23 February to submit responses. 

    The project scope includes the redevelopment of the passenger terminal as well as other associated facilities such as airside infrastructure, including runway, taxiways and aprons.

    The project will be developed on a design, finance, construction, operations, maintenance and transfer basis.

    The latest development follows Matarat Holding and NCP prequalifying five teams to bid for a contract to develop the new Taif international airport project in Mecca province in January.

    According to local media reports, four consortiums and one standalone company have been prequalified to proceed to the next stage of the project.

    The new Taif International airport will be located 21 kilometres southeast of the existing Taif airport, with a capacity to accommodate 2.5 million passengers by 2030.

    The clients opted for a 30-year build-transfer-operate (BTO) contract model, including the construction period.

    Previous tenders

    The Taif, Hail and Qassim airport schemes were previously tendered and awarded as PPP projects using a BTO model.

    Saudi Arabia’s General Authority of Civil Aviation (Gaca) awarded the contracts to develop four airport PPP projects to two separate consortiums in 2017.

    A team of Tukey’s TAV Airports and the local Al-Rajhi Holding Group won the 30-year concession agreement to build, transfer and operate airport passenger terminals in Yanbu, Qassim and Hail.

    A second team, comprising Lebanon’s Consolidated Contractors Company, Germany’s Munich Airport International and local firm Asyad Group, won the BTO contract to develop Taif International airport.

    However, these projects stalled following the restructuring of the kingdom’s aviation sector.

    Saudi Arabia has already privatised airports, including the $1.2bn Prince Mohammed Bin Abdulaziz International airport in Medina, which was developed as a PPP and opened in 2015.

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