Iraq's Economy: Recovery and Debt Levels in 2024
In 2024, Iraq's economy has undergone a significant transformation, with a marked recovery and a notable decline in internal and external debts.
Economic Recovery
Iraq's economic recovery in 2024 is attributed to several factors, including the stabilization of domestic inflation, which fell to 4% by the end of 2023, and a strong recovery in the non-oil sector after a contraction in 2022. The International Monetary Fund (IMF) projects that Iraq's real GDP growth will reach 1.4% in 2024 and accelerate to 5.3% in 2025. This growth is expected to be driven by a large fiscal expansion starting in 2023, facilitated by Iraq's first three-year budget since the new government took office in October 2022.
Debt Levels
Despite the positive economic outlook, Iraq's fiscal deficit is projected to widen to 7.6% of GDP in 2024 from 1.3% in 2023, primarily due to lower oil prices and increased government spending. Public debt is expected to increase significantly, from 44% of GDP in 2023 to 86% by 2029. However, the IMF notes that Iraq's debt level, while rising, is relatively manageable compared to global standards.
Internal Debt
Iraq's internal debt surpassed 70 trillion dinars in 2023, reaching the highest point since 2003. Approximately 37% of this debt arises from loans granted by commercial and government banks, with the remaining 62% owed by government institutions to the Central Bank of Iraq. A critical concern is that most of these debts are operational expenses rather than investments, resulting in additional costs for the state budget in the form of interest payments imposed by internal and external creditors.
Outlook and Challenges
The ongoing fiscal expansion is expected to boost growth in 2024, at the expense of a further deterioration of fiscal and external accounts and Iraq's vulnerability to oil price fluctuations. Without policy adjustment, the risk of medium-term sovereign debt stress is high, and external stability risks could emerge.
Key Downside Risks
Key downside risks include much lower oil prices or a spread of conflict in the region. To mitigate these risks, Iraq requires an ambitious fiscal adjustment to stabilize debt in the medium term and rebuild buffers.
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