The “Credibility, Priorities, and Sustainability of the Iraqi Budget 2023-2025” provides a detailed analysis of Iraq’s recently approved three-year budget. It examines the budget’s composition, priorities, and its implications for fiscal sustainability, while also identifying challenges in its execution and alignment with Iraq’s development goals.
Key Findings:
- Three-Year Budget as a Milestone:
- For the first time, Iraq has adopted a three-year budget (2023-2025), marking a significant step toward fiscal stability. However, the lack of detailed allocations for 2024 and 2025 limits its utility as a true Medium-Term Expenditure Framework (MTEF).
- Budget Overview:
- Total expenditure for 2023 is set at 199 trillion IQD ($153 billion), with 75% allocated to current expenditures and 25% to investment spending.
- Revenues are projected at 135 trillion IQD ($104 billion), with an 87% reliance on oil revenue, exposing the budget to global oil price volatility.
- The deficit stands at 64 trillion IQD ($49 billion), or 18.7% of GDP, the highest in Iraq’s history.
- Challenges to Credibility and Execution:
- Unrealistic revenue targets, particularly a 106% increase in non-oil revenue, lack a clear mobilization strategy.
- Persistent inefficiencies in budget execution, with only 15.5% of the 2023 budget executed by April, underscore weak absorptive capacity.
- Sectoral Allocations:
- Economic Affairs dominate, receiving 50% of the budget, followed by General Public Services (15%) and Public Order and Safety (10%).
- Investments prioritize infrastructure, energy projects, and poverty alleviation but lack clear alignment with Iraq’s National Development Plan.
- Sustainability Concerns:
- The fiscal deficit exceeds the legally permissible 3% of GDP, raising debt sustainability risks. Public sector wages and pensions constitute 37.6% of the total budget, crowding out development spending.
- Climate and Energy:
- Minimal budget allocations for climate adaptation and mitigation contrast with Iraq’s substantial needs, estimated at $223 billion by 2040.
Note on Preparation
This report was authored by Arun Arya, Senior Public Financial Management (PFM) Advisor at GIZ, as part of the Strengthening Public Finance and Financial Markets (FFM) in Iraq program. The program is co-funded by the European Union and the German Federal Ministry for Economic Cooperation and Development (BMZ).