Shafaq News

Iraq entered its 16th consecutive month without approving a federal budget while more than 4,500 projects remain suspended across the country, exposing widening strains on public finances, investment planning, and essential services.

The stalled projects include hospitals, schools, bridges, tunnels, water networks, and sewage infrastructure, some frozen since 2014, according to parliamentary Services Committee member Safaa al-Jabri, who warned that delays are increasingly affecting critical sectors such as healthcare and education. “The current situation requires urgent intervention,” al-Jabri told Shafaq News, calling for a “realistic” 2027 budget focused primarily on unfinished and service-related projects rather than “traditional expenditure-based budgeting.”

The prolonged delay has left Iraq operating without a formally approved federal budget since the expiration of the country’s three-year budget cycle for 2023–2025, pushing state institutions deeper into temporary financing mechanisms and limiting the government’s ability to launch new investments.

Under Iraqi law, the government was required to submit the 2025 budget schedules to parliament before the end of 2024. Yet from January 2025 through May 2026, lawmakers neither voted on nor formally ratified the budget tables, leaving ministries and provinces dependent on restricted spending allocations carried over from previous fiscal periods.

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Prime Minister’s economic adviser Mudhir Mohammed Saleh said Iraq had effectively exited the three-year budget cycle at the end of December 2025 and was now operating under the Financial Management Law No. 6 of 2019. That mechanism allows spending based on the “1/12 rule,” enabling the government to finance salaries and operational expenses through monthly allocations equivalent to one-twelfth of previous annual expenditures.

Saleh told Shafaq News that the arrangement has so far prevented a complete financial breakdown by allowing the continuation of salaries, basic operational spending, and funding for projects already close to completion. However, he stressed that the system blocks the launch of new strategic or investment projects without parliamentary approval of a new federal budget. “The budget is no longer just a technical financial instrument; it has become a tool for economic stability and absorbing external shocks.” He linked the growing fiscal pressure to escalating geopolitical risks in the Gulf, particularly fears surrounding maritime trade disruptions and what he described as the “Hormuz shock,” referring to threats facing oil exports through the Strait of Hormuz.

The political deadlock surrounding the budget also remains unresolved. Finance Committee member Rebar Karim told Shafaq News that passing the 2026 federal budget depends on the formation of the next government and the submission of its program to parliament.

Karim said the committee was prepared to review and approve the budget “within a short timeframe” once the government submits the draft law, adding that parliament had received assurances there was currently no liquidity crisis and that public-sector salaries remained secured for the coming months.

Economic and financial expert Safwan Qusay argued that the crisis extends beyond procedural delays in passing a budget and instead reflects broader vulnerabilities in Iraq’s economic model. “The real challenge is declining oil revenues and the state’s diminishing ability to finance operational spending,” Qusay told Shafaq News.

He called for expanding partnerships with the private sector to reduce pressure on the public payroll system, proposing that some government-run sectors shift toward private operation models while maintaining state ownership. Qusay also urged Iraq to diversify its export routes away from excessive reliance on Gulf shipping corridors, pointing to alternative outlets through Aqaba, Baniyas, and Ceyhan, alongside expanded land transport options.

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The warnings come amid escalating Gulf tensions and growing fears over disruptions to oil flows through the Strait of Hormuz, which carries around 20% of global oil supplies.

Qusay also warned that weak non-oil exports and heavy import dependence continue to pressure Iraq’s foreign currency reserves and exchange-rate stability, calling for closer coordination between fiscal and monetary policy.

The absence of a budget has also intensified concerns over employment and recruitment, with ministries unable to move forward on large-scale hiring or development plans under temporary spending rules.

The debate comes as Prime Minister Ali al-Zaidi’s government attempts to frame its upcoming fiscal agenda around economic reform, diversification of state revenues, and reduced dependence on oil income. Al-Zaidi has recently pledged that the next budget will prioritize productive and service-oriented projects while tightening spending controls, combating corruption, and expanding job opportunities.

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Written and edited by Shafaq News staff.