Iraq’s economic “perfect storm”: Experts warn the crisis is structural and social
Shafaq News
Iraq’s economy is no longer facing a passing squeeze or a short-lived downturn. The country is sinking into what Iraqi economists describe as a structural financial crisis, one built into how the state earns money, how it spends it, and how it manages risk. With oil revenues dominating the budget, operational spending swallowing public resources, and policy uncertainty shaking investor confidence, experts warn that Iraq’s financial fragility is increasingly spilling into the social fabric— testing cohesion, trust, and stability.
Taken together, the warnings from Shafaq News’ interviewed experts —economist Ahmed Abd Rabboh, economic researcher Ahmed Eid, economist Kareem Al-Hilu, and economic expert Manar Al-Obaidi— converge on one conclusion: Iraq is running out of room to postpone hard reforms, and the cost of delay is no longer measured only in numbers, but in public confidence and social endurance.
A Budget Trapped By Oil
For Ahmed Abd Rabboh, the central problem is Iraq’s near-total dependence on oil: it makes the budget “hostage” to global price swings, turning any sudden drop into an immediate fiscal shock that can freeze or slash investment projects, especially infrastructure and basic services.
He stresses that oil accounts for more than 90% of budget revenues, meaning volatility is not a side risk —it is the system’s default condition. In such a model, long-term planning becomes nearly impossible, because the state’s ability to finance strategy depends on a market it cannot control.
Sustain Spending But Stalls Development
A second fault line, Abd Rabboh adds, is the dominance of operational spending —especially salaries (about 60%), subsidies, and transfers— over investment. In other words, the budget increasingly sustains the state’s payroll and routine expenses, while starving the kind of capital spending that creates jobs, productivity, and non-oil growth.
This imbalance, he argues, weakens Iraq’s flexibility in facing shocks: when revenues dip, the easiest cuts often hit investment first, because operational obligations are politically and socially harder to touch.
Weak Financial Management And Uncertainty
Economic researcher Ahmed Eid echoes the view that the risks are “real, not temporary,” driven by the same twin pressures: oil dependence and rising operational costs —particularly salaries and allowances— without a durable reform cover.
But Eid adds another layer: weak financial management and exchange-rate volatility deepen uncertainty and disrupt development planning. In a market that relies heavily on imports, currency instability quickly feeds into prices, costs, and expectations, making businesses and investors hesitate, and turning “long-term projects” into financing gambles unless Iraq tackles structural distortions and activates real economic diversification.
His prescription is that “Iraq must move beyond slogans into practical diversification, improving non-oil revenues and reducing reliance on oil as the sole lifeline.”
Read more: Iraq under US financial scrutiny: When corruption meets sovereignty
Payroll Distortions, Leakage, And The Missing Private Sector
Economist Kareem Al-Hilu focuses on what he describes as Iraq’s most punishing internal drain: a swollen public wage structure, weak revenue enforcement, and a private sector too underpowered to absorb labor or replace the state’s role.
He highlights the cost of “multiple salaries,” saying they burden the state by more than $18 billion annually, alongside high pay and privileges for senior officials and public employees whose roles are poorly defined. For Al-Hilu, this is not simply an accounting flaw; “it is an economy shaped around public consumption rather than production.”
On revenues, he points to weak collection from taxes, real estate, state rents, and border crossings. He cites 2025 figures indicating imported goods worth roughly $70–80 billion, while revenues collected did not exceed $35 billion, with the remainder allegedly lost through leakage and smuggling abroad.
Al-Hilu argues the exit route is not mysterious, but politically difficult: tighter revenue control, disciplined payroll management, and a pivot toward domestic and foreign investment, including strategic projects such as the al-Faw industrial city, to reduce the economy’s oil addiction and energize productive sectors like industry and agriculture.
The Numbers Reflect The Imbalance
The fiscal picture reinforces the experts’ diagnosis. Iraqi Finance Ministry data for 2025 show total revenues exceeding 114 trillion dinars, with 100 trillion dinars from oil (about 88% of the budget), while non-oil revenues stood at 13.4 trillion dinars.
On the spending side, the expenditures reached 106.7 trillion dinars, including 55 trillion for employee salaries, 17.3 trillion for retirees, and 5.1 trillion for social welfare —evidence that the largest share of public resources goes to operating the state, not investing in growth.
The Eco Iraq Observatory reported that the fiscal deficit through the end of October 2025 reached about 24.6 trillion dinars, and that 75% of public spending goes to salaries and services, an allocation that keeps the system running today, while raising the pressure on sustainability tomorrow.
From An Economic Crisis To A Crisis Of Trust
Economic expert Manar Al-Obaidi pushes the warning beyond budgets and spreadsheets. Iraq, he says, is no longer “approaching” an economic storm; it is already inside it. Temporary fixes and “painkillers” no longer work, and the crisis has exceeded what state institutions can contain alone.
For Al-Obaidi, the most dangerous dimension is social: the crisis will test whether Iraq can preserve cohesion and unity under financial stress. Failure, he warns, risks “serious social collapse,” fragmentation of the national fabric, and potential security spillovers.
He identifies the core obstacle to any genuine reform path as the loss of trust between the state and the citizen. In his view, the thin remaining link is the state’s ability to meet immediate financial obligations. Any talk of deep restructuring —especially measures requiring painful sacrifices —will be met with anger and rejection unless trust is restored first.
Al-Obaidi warns that the approach of consuming current and future resources merely to maintain a thin thread of stability is nearing its limit. The country’s capacity to continue this way, he argues, is approaching its final stages.
What Solutions Do Experts See?
Across these expert assessments, the solutions fall into three connected tracks:
1) Reduce oil vulnerability through real diversification
Both Abd Rabboh and Eid emphasize that Iraq must stop treating diversification as a slogan. That means building non-oil revenue streams, strengthening productive sectors, and protecting development planning from oil cycles.
2) Rebalance spending from operations toward investment
A recurring theme is that operational spending —especially payroll— dominates the budget at the expense of investment. Unless Iraq creates fiscal space for infrastructure and productive projects, growth will remain shallow and job creation limited.
3) Restore trust through transparency and accountability
Al-Obaidi argues that the reform gateway is political and social, not only financial: transparency and “absolute clarity,” including opening budget files since 2003 and reopening corruption cases without exception. Even if cutting senior privileges is not a full fiscal solution, he says it is a powerful symbolic step that narrows the gap between society and the ruling class, and can help rebuild trust.
He also warns against attempting to “sedate the street” by implying there is no need for real reform or that obligations can be paid indefinitely without cost. That, he suggests, is inflating a delayed bubble—one that eventually bursts.
The Social Fabric Under Strain
Iraq’s economic crisis is increasingly felt as a social crisis: when purchasing power weakens, services stagnate, and job opportunities fail to grow, communities absorb the stress through heightened polarization, resentment, and declining faith in institutions.
What makes this moment especially sensitive, the experts imply, is that Iraq’s current model buys stability through spending, but the same model limits the state’s ability to build a diversified economy that could sustain stability without constant oil windfalls. That contradiction is now reaching a breaking point.
The experts Shafaq News spoke to are not describing a routine deficit cycle. They are describing an economic structure that amplifies shocks, prioritizes operational survival over development, leaks revenues, and struggles to convince the public that reform is fair or credible.
In that sense, Iraq does not need to fix numbers, but to rebuild a contract: a budget that invests, institutions that enforce, and a state that can ask society to endure change because it first proves it is serious about fairness, transparency, and accountability.
If those conditions are not met, the crisis will not remain confined to the economy, because, as Al-Obaidi warns, what comes next may be measured in social cohesion itself.
Read more: Iraq’s economy in 2025: Oil dominance and delayed reforms
Written and edited by Shafaq News staff.
