Iraq is battling a rising budget deficit and is unwilling to do anything about it. Economists and analysts warn that Baghdad may not be able to meet its bills but the elite are unmoved as usual.
Al Mada recently ran an article discussing the differences in opinion. Analyst Ramzi al-Sari was quoted as saying that the country’s budget problems have existed since 2003 with increasing spending on government salaries and pensions. It has now reached a critical stage. He quoted the IMF who said that Iraq needed to increase taxes and cut spending. A government economist countered that those measures are not necessary and that the Central Bank of Iraq’s foreign reserves would be enough to cover any deficit spending.
The latter expresses the view of Baghdad for the past two decades. Whenever oil prices decline and the budget runs into problems the elite believe that this is only a temporary event and that the market will recover and oil revenues will increase and everything will even out.
It also represents the fact that the ruling parties are dependent upon public sector jobs in their patronage networks to stay in power. Since they have failed to improve services dishing out government positions are the only thing they have left to offer the public. They therefore increase the number of jobs each budget increasing the burden on the state.
Even the Central Bank is warning that the situation is getting dire. It reported that its foreign reserves were under strain. Iraq earns dollars through its oil sales but petroleum prices have dropped $20 a barrel from 2024-25. The Bank is also selling more dollars. These are supposed to go to business buying foreign goods but is widely manipulated by the political parties and foreign governments that buy up dollars at the government exchange rate and then sell them on the black market for a profit.
Finally the government is already drawing down upon the reserves as well to cover the budget. From January to November Baghdad earned 97 trillion dinars from oil sales and only brought in 13 trillion dinars from non-oil revenues. During that same time it spent 150 trillion. 85 trillion of that went to public salaries, pensions and social welfare. That leaves a 40 trillion deficit.
Prime Minister Mohammed Sudani is sounding the alarm as well. In mid-December he ordered a review of government spending. It’s widely known that top government officials have huge salaries. The president gets up to $70,000 a month while ministers around $34,000. A regular government worker in comparison only earns $150-$160 a month. Unfortunately all of this is off limits because the ruling parties will not allow their followers to have their pay cut. Doing so for average workers would likely lead to protests and civil unrest.
Another issue is that the government does not have a handle on how much it is spending upon its public workforce. The Finance Ministry for instance announced that it was spending 6 trillion dinars on public workers a month but then documents showed that it was actually expending 7.5 trillion. That led analysts to question how accurate public figures are and whether Baghdad was fudging its books. Both are questionable as the government does not have a master list of employees and there are thousands of ghost employees, soldiers and police which again are exploited by the parties to steal from the state.
All together this means that Iraq is no closer to getting a handle on its spending than any previous year. It will likely have to fall into crisis before it does anything and then will only take half measures because it believes that oil prices will eventually recover and this dilemma will pass. As many have pointed out for years however the budget is completely dysfunctional and getting to the point that the costs of government workers are surpassing the capacity of the state to fund.
SOURCES
Al Mada, “Harsh economic decisions shake the job market … salaries are in jeopardy” 12/17/25
- “The salary crisis is worsening; conflicting figures reveal a serious financial gap and a worrying dependence on oil,” 12/14/25
- “Warnings that the government may be forced to impose taxes and cut salaries to address the budget deficit,” 12/22/25
Rudaw, “Iraqi premier orders ‘urgent review’ of public spending, entitlements of top officials,” 12/15/25
Salem, Amr, “Iraq’s foreign currency reserves under increasing pressure,” Iraqi News, 12/17/25
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