Country Economic Forecasts > Iraq

Despite the recent modest rally, oil prices are seen averaging just US$35bp in 2016, a fall of 32% from 2015. The resulting collapse in revenues (oil still accounts for 90% of government revenues and almost all of merchandise exports) means that state spending is now being slashed. Even so, the budget deficit is seen surging to over 20% of GDP this year, while the current account deficit is forecast to rise to about 12% of GDP (having been in sizeable surplus in 2014). The twin deficits should shrink slightly next year as oil prices begin to recover, but large shortfalls are forecast to persist through 2017-19.With the government having embarked on an austerity drive this year and under pressure to curb oil production to try to shore up world oil prices, the impetus from state spending will falter. And the ongoing military conflict with Islamic State is a major drain on resources. After GDP growth estimated at just 1.5% in 2015, we have cut our forecast for this year to 2.6%, and the risks are on the downside unless oil prices turn out stronger than we expect.