Iraq's Financial Landscape: External Loans and Repayments in 2024
Iraq has indeed maintained a cautious approach to external borrowing, resulting in a relatively low level of external debt compared to its repayment obligations [1]. This fiscal discipline has been a strategic choice, influenced by the country's historical debt burden and a desire to avoid undue financial constraints [3].
Fiscal Policy and Economic Recovery
The Iraqi government's fiscal policy in 2024 has been centered around a three-year budget, the first of its kind [1]. This budget, marked by a significant fiscal expansion, played a crucial role in the country's economic recovery following a contraction in 2022 [1]. The budgetary expansion supported a robust non-oil sector, which was essential in stabilizing the economy [1]. Additionally, domestic inflation declined to 4 percent by the end of 2023, partly due to lower international food prices and the normalization in trade finance [1].
Oil Dependency and Fiscal Expansion Risks
Despite these positive developments, Iraq's fiscal and external balances have been strained due to the large fiscal expansion and lower oil prices [1]. The continued reliance on oil revenues, which account for nearly 96% of total income, has limited the government's ability to diversify the economy and address high poverty rates [3]. The fiscal expansion, while boosting growth in 2024, has also led to a deterioration of the fiscal and external accounts, increasing Iraq's vulnerability to oil price fluctuations [1].
Debt Sustainability and Economic Diversification
To address these challenges, the International Monetary Fund (IMF) has emphasized the need for sound macroeconomic policies and structural reforms that promote fiscal and debt sustainability [1]. Directors at the IMF underscored the importance of economic diversification and the advancement of a private sector-led growth model to secure Iraq's financial stability and promote inclusive economic growth [1].
Budgeting and Investment Strategies
In an effort to stimulate the economy and diversify income sources, Iraq has embarked on ambitious investment projects in the oil and gas sector [2]. A trilateral investment agreement worth USD 27 billion over 25 years was signed in July 2024, aimed at increasing oil production and improving the country's electricity supply [2]. This strategic move is expected to reduce Iraq's import bill and contribute to the gradual increase in oil production as OPEC+ quotas are phased out between September 2024 and December 2025 [2].
Challenges and Outlook
Despite these initiatives, Iraq faces significant challenges. The ongoing fiscal expansion and high dependence on volatile oil prices pose downside risks to the economy [1]. Moreover, the risk of medium-term sovereign debt stress is high, and external stability risks could emerge if policy adjustments are not made [1]. The government's ability to manage these risks will be critical for Iraq's long-term economic health [1].
In conclusion, Iraq's approach to external loans and repayments in 2024 is characterized by a careful balance between fiscal expansion and debt management. The country's fiscal policy and investment strategies aim to diversify the economy and address structural vulnerabilities, while the ongoing challenges related to oil dependency and fiscal imbalances require vigilant policy adjustments.
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