Country Economic Forecasts > Iraq

Despite the recent rally in oil prices, which we now expect to average around US$40bp in 2016, the collapse in oil revenues (which account for 90% of government revenue and almost all of exports) since mid-2014 means that state spending in Iraq is being slashed. Even so, the budget deficit is seen surging to almost 20% of GDP this year, while the current account deficit is forecast at 9% of GDP (having been in sizeable surplus in 2014). The twin deficits should shrink slightly next year as oil prices recover further, but large shortfalls will persist throughout 2017-19.With the government cutting spending, the growth impetus from state spending is fading. And the ongoing military conflict with Islamic State (IS) is a major drain on resources. After GDP growth estimated at 3% in 2015, we forecast expansion of just 2.6% this year (well below the IMF forecast of 7.2%) despite oil output rising by about 7%, and the risks are on the downside given the uncertain political situation unless oil prices rise significantly faster than we currently expect.