Iraqi Banking Sector Growth and Financial Inclusion in 2024
In 2024, the Iraqi banking sector has witnessed significant growth and progress in financial inclusion, despite facing numerous challenges and shocks. The sector has shown resilience, especially in the areas of financial inclusion and an increase in bank assets while maintaining the volume of deposits [1].
Economic Resilience and Growth
The domestic stability in Iraq has improved since the new government took office in October 2022, enabling the passage of the country's first three-year budget, which involved a substantial fiscal expansion that began in 2023 [1]. This fiscal expansion supported a strong recovery in Iraq's non-oil economy following a contraction in 2022. While Iraq was largely unaffected by the ongoing regional conflicts, domestic inflation declined to 4% at the end of 2023, thanks to lower international food prices, the currency revaluation as of February 2023, and the normalization of trade finance [1].
Financial Inclusion Efforts
The International Labour Organization (ILO) and the Central Bank of Iraq have launched initiatives to promote financial literacy and enhance financial inclusion in Iraq, particularly in southern regions [3]. These efforts aim to empower individuals and businesses with financial literacy skills, encouraging savings and enhancing financial inclusion. The collaboration between the ILO, the Italian Agency for Development Cooperation (AICS), and the Iraqi government is geared towards promoting decent work, green jobs, and a sustainable future in the south under the project titled "Towards More and Better Employment through Enhanced Support to Private Sectors in Southern Iraq - with a Focus on Green Business" [3].
The World Bank has also been mobilizing financial and technical assistance to support Iraq's efforts to stabilize its economy, improve governance, and rebuild livelihoods [2]. The Bank is working closely with international partners to support economic reforms, with a focus on results achieved from a range of multi-sectoral projects [2].
Challenges and Future Prospects
However, imbalances have worsened due to the large fiscal expansion and lower oil prices. The ongoing fiscal expansion is anticipated to boost growth in 2024, but at the expense of a further deterioration of fiscal and external accounts, increasing Iraq's vulnerability to oil price fluctuations [1]. Without policy adjustment, the risk of medium-term sovereign debt stress is high, and external stability risks could emerge [1].
The traditional retail banking market in Iraq is experiencing significant growth and evolution in response to changing customer preferences and local special circumstances [5]. Customers are increasingly seeking convenient and accessible banking services, driving traditional retail banks to invest in digital infrastructure and enhance their technological capabilities [5].
The Role of SMEs
SMEs play a crucial role in the financial landscape of Iraq. A project funded by KFW aims to provide sustainable access to financial services for already operating SMEs as well as for startups in Iraq, with a special focus on youth and women [6]. The project is designed to enhance the productivity of SMEs and their potential for job creation, contributing to Iraq's private sector development [6].
In summary, the Iraqi banking sector's growth and progress in financial inclusion in 2024 are commendable. Despite facing challenges, the sector has shown resilience and commitment to enhancing financial services and promoting economic stability.
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