Financial shocks await the new Iraqi government… What is required of its economic program?
Financial shocks await the new Iraqi government… What is required of its economic program?
2025-11-21
Shafaq News – Baghdad
Four economic experts agree that Iraq today has an important opportunity to reformulate its economic policies as it enters a transitional phase following the end of the term of Mohammed Shia al-Sudani’s government and its transformation into a “caretaker government” by a decision of the Federal Court.
This stage highlights the need for the next government to accelerate the adoption of serious reforms that enhance the stability of public finances and reduce the economy’s vulnerability to fluctuations in oil markets.
With the Iraqi economy almost entirely dependent on oil revenues, experts warn that any decline in oil prices or disruption to exports could plunge the country into a widespread financial crisis.
Therefore, economists believe that policymakers have an opportunity to adopt a safer and more sustainable economic path if practical and urgent measures are taken.
volatile economy
In this context, Mazhar Muhammad Salih, the financial advisor to caretaker Prime Minister Muhammad Shia al-Sudani, affirms that Iraq, with its major natural and human resources according to global standards, “is heading in the medium and long term towards a prosperous economic future,” especially if there is strict adherence to the paths of the recently announced Iraq Vision 2050.
But Saleh stressed during his interview with Shafaq News Agency that the short-term economic landscape remains dependent on two main external factors. The first is the impact of geopolitics, including hard and soft wars around energy belts and markets, and the resulting impact on the stability of global demand for oil and energy.
The second factor relates to growth trends in the global economy, where the elasticity of global demand for crude oil typically ranges between 0.3% and 0.7% for every 1% growth in global output, depending on prices, environmental policies, and the shift towards renewable energy, according to Saleh.
He believes that these indicators “are not unknown but are highly volatile,” which casts a heavy shadow on the stability of the current account and the general budget in Iraq, as they are external factors that impose direct shocks on the macroeconomy.
It shows that the reliance of public finances on oil revenues in a rapidly changing world means that any drop in prices can put strong pressure on the budget, especially since government spending represents about 50% of GDP, while its effects on economic activity exceed 88%.
He adds that Iraq does not face an “imminent catastrophe” thanks to its high foreign reserves and productive capacity, but it remains vulnerable to uncertainty unless it accelerates its shift from a rentier economy dependent on a single resource to a diversified, productive economy.
This transformation is considered to necessitate launching an urgent strategic partnership between the state and the private sector as the first line of defense against global economic shocks.
Increasing dependence on oil
For his part, economist Mustafa Al-Faraj confirms that the Iraqi economy faces “escalating risks” as a result of fluctuating global prices and its almost total dependence on oil, explaining that more than 90% of the state’s revenues come from this single resource, which makes public finances vulnerable to fluctuations that may threaten economic stability.
Al-Faraj, speaking to Shafaq News Agency, points out that the next government is required to set clear economic priorities, which are to reduce dependence on oil revenues, encourage religious and cultural tourism, activate the banking sector to finance small and medium projects, and support agriculture to enhance food security and increase export opportunities.
The economist also calls for a package of reforms that includes controlling public spending, reforming the wage scale, and improving the collection of non-oil taxes.
Al-Faraj stresses the need to take urgent steps, most notably the establishment of a sovereign stabilization fund to manage oil revenues, the launch of investment and tourism projects, the implementation of a comprehensive reform of the banking sector, and the acceleration of partnerships with international institutions.
The economist emphasizes that these measures “are not a luxury but a necessity to avoid a potential financial crisis that could worsen with any drop in oil prices.”
Crossroads
For his part, economist Ahmed Abdel Rabbo warns that Iraq is “approaching a critical stage” if the financial situation continues without serious reforms, explaining that the sharp fluctuation in oil prices and the delay in reform measures make the economy vulnerable to any external shock, despite the country having good financial reserves.
Abdul Rabbo confirms to Shafaq News Agency that controlling government spending and eliminating unnecessary expenditures represent the first step towards stability, in addition to setting a realistic budget based on a conservative oil price, while stressing at the same time the need to develop non-oil revenues and increase collection, as it is “a necessity that cannot be postponed.”
He adds that the medium term requires reforming the banking sector, activating electronic payments, and improving the business environment to attract investment, while the long term requires developing the energy sector and oil-related industries, in addition to investing in education and training to create a workforce that supports a diversified and sustainable economy.
He believes that “Iraq is not heading towards economic collapse, but it stands at a crossroads, and that adopting reforms is capable of changing the course towards stability.”
The edge of the unknown
Economic researcher Ahmed Eid says that Iraq “stands on the brink of an unknown economic fate” if it continues to manage its economy in the current rentier style that depends almost entirely on oil.
Eid explains to Shafaq News Agency that the global trend towards clean energy and price fluctuations make the Iraqi economy vulnerable to any market turmoil.
He emphasizes that avoiding the crisis requires a genuine reform of inflated expenditures and linking spending to clear development plans, in addition to expanding non-oil revenues through controlling taxes and customs and combating corruption.
He also stresses the need to empower the private sector, reform the banking system, reduce reliance on cash, and invest current surpluses in infrastructure, agriculture, industry, and renewable energy.
At the end of his speech, Eid warns that ignoring these reforms could make Iraq pay a “heavy price” for any sudden drop in oil prices.
shafaq.com
