Mounting financial pressures threaten the 2026 budget
The government faces an early challenge in preparing the 2026 budget, amid declining oil revenues and escalating financial pressures, which puts it in front of limited options between presenting an austerity budget or temporarily continuing spending according to the 1/12 rule. Meanwhile, economic experts and specialists believe that the 2026 budget will face major financial challenges due to declining revenues, which may push it to reduce spending or postpone its approval.
Budget preparation
Nermin Maarouf, a member of the Finance Committee in the previous parliamentary session, confirmed in an interview with Al-Sabah that the government, if formed soon, still has time to submit the draft budget law, noting that its approval in previous years was often delayed until May or June.
She added that the preparation of the budget in Iraq traditionally relies on simple items based on the allocations of the previous year, but she pointed out that there is no legal basis that allows for continued spending according to the (1/12) rule for two consecutive years in the absence of a budget.
Compound impact
For his part, crisis management expert Ali Al-Fariji believes that the 2026 budget is no longer just a matter of timing, but a test of the state’s ability to deal with a “compound shock” that includes a decline in oil revenues and export disruptions as a result of regional tensions, in addition to the continued rise in operational spending within an economy that is almost entirely dependent on oil.
Al-Fariji explained in an interview with “Al-Sabah” that preparing a budget in the near term seems unlikely, due to the absence of stable assumptions related to oil prices and export levels, which suggests that the (1/12) rule will continue to be used temporarily until the financial vision becomes clear.
Dependence on oil
He added that the main challenges are structural in nature, most notably the dependence of revenues on oil by nearly 90%, the high operating expenses which account for more than 70% of total spending, as well as cash pressures and weak efficiency of investment spending.
Oil revenues
In the same context, economist Jalil Al-Lami confirmed in an interview with Al-Sabah that the option of submitting a full federal budget seems difficult in the short term, suggesting that the (1/12) rule will continue to be used temporarily, especially with the clear decline in oil revenues.
Al-Lami pointed out that Iraq used to rely on oil exports of around 3.5 million barrels per day with monthly revenues ranging between 7 and 9 billion dollars, before they decreased to about 2 billion dollars or less at some times, while the country needs at least 8 to 10 billion dollars per month to cover operating expenses, creating a financial gap that may reach 6 billion dollars per month.
Austerity budget
Al-Lami predicted that if the budget is prepared, it will be an austerity budget, based on an oil price between $60 and $65 per barrel, with a total size between 130 and 150 trillion dinars, and an expected deficit between 20 and 30 trillion dinars, which is subject to increase depending on
Regarding developments in the oil market.
He added that the anticipated budget will not include an expansion in appointments or the launch of new projects, but will focus on completing existing projects and securing basic expenditures, with the possibility of resorting to internal borrowing or drawing from the cash reserve in the event that the crisis continues.
Temporary disbursement
He pointed out that “estimates indicate that the 2026 budget will either be a deferred budget managed through temporary spending, or an austerity budget focused on containing the crisis, at a time when the Iraqi economy is facing a real test to readjust the spending model and avoid slipping.”
Towards a liquidity crisis in the near term.
The parliamentary finance committee expressed its position on borrowing from the central bank to finance domestic expenditures, noting that this issue is linked to the formation of the government.
Borrowing proposal
Committee member Ribwar Karim told the Iraqi News Agency, as reported by Al-Sabah newspaper, that "the proposal to borrow from the Central Bank to finance domestic expenditures is on hold."
On forming the government.
He added that "there is a conviction among the political parties and blocs that there are serious attempts to appoint the next prime minister As soon as possible.
He explained that “if a government is formed, there will be no need to borrow, as a fully empowered government will begin its duties,” noting that “borrowing from the Central Bank is merely an opinion put forward by some members of parliament.”
He stated that “this proposal is primarily linked to the formation of the government, and if that happens, there will be no need for this proposal.” link