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Iraq’s economic stability has been impacted by budget deficits that have been worsened by low global oil prices. Since early 2014, Iraq has experienced massive economic decline due to territory that has been lost to militants in extremist groups, such as the Islamic State.
Oil revenue comprises nearly 90% of revenue for the national budget, and the market price of oil is about half of what is needed to break even. In July, oil revenue stood at $31.5 billion and its average daily export capacity was less than a 3.3 million barrel quota. The $102.5 billion budget runs a deficit of about $21.4 billion, and to help stifle the loss of revenue, the Iraqi government plans to issue bonds worth $7 billion to help narrow the deficit. The Bond Rating Agency, Fitch, rated Iraq as “B-" with a stable outlook and forecasted a double-digit fiscal deficit due to lower oil prices. Iraq also secured a $1.7 billion loan from the World Bank and an $833 million loan from the International Monetary Fund.
Under Dictator Saddam Hussein, the state-run economy was boosted by its oil wealth. After Saddam’s overthrow, authorities in the new government suspended most of the tariff and import duties and also began nationwide government-funded projects. However, after 2006-2007, the increase in sectarian violence further damaged Iraq’s economy. After the advance of the Islamic State, the Iraqi government stopped spending money on construction and infrastructure development projects to help fund the military. Business owners have felt the economic downturn, and companies that rely on government contracts further feel the contraction in the budget cuts. Due to the fall of oil prices, foreign investors are reducing their investments and are looking elsewhere, such as the possible economic opening in Iran as a safer investment.
Iraq will require fundamental reforms to help solve its financial crisis, if it is to become economically stable in the long-term. These reforms would have to go further than the defeat of the Islamic State and resolving the sectarian violence, and Iraq's economy would have to be multi-faceted in its approach to be sustainable in the long-run.
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