The passing of a multi-year budget is expected to provide fiscal stability following a yearlong deadlock
Iraq’s public sector employs a substantial number of high-income consumers, and increased public spending on salaries means that B2C companies will continue to benefit from targeting this consumer segment. On the other hand, while social benefits and a higher minimum wage may support demand from other segments, persistent inflation and high unemployment present risks to demand growth from lower- and middle-income segments. B2G MNCs may see an uptick in demand relative to last year, with projects kicking off in the energy, industrial, and utilities sectors.
Overview
- Iraq’s Cabinet has approved a long-awaited multi-year budget bill for 2023 to 2025, which will now be referred to parliament for approval and possible amendment. Total spending for 2023 is set at US$ 152 billion, with around US$ 68 billion allocated to public sector salaries and social benefits. Total revenues are set at US$ 104 billion, with an oil price assumption of US$ 70 per barrel.
- Following months of market rate depreciation, the Iraqi Central Bank (ICB) has revalued the dinar to 1,300 per USD. While the move is an attempt to curb inflation and quell potential protests, the dinar continues to trade at around 1,500 to the US dollar on the market.
Our View
Iraq’s new budget will allow the government to unlock much needed spending and aims to address the country’s myriad socioeconomic challenges. While it will be difficult to do so, the budget may alleviate some economic pressures, particularly among lower-income Iraqis, as the minimum wage is increased and financial support is provided. Investment opportunities will continue to arise as the government resumes work on the post-war development strategy, but Iraq’s challenging operational environment remains a risk to new investment growth. While the currency revaluation is an attempt to curb inflation and quell potential protests, it brings with it new risks. The inability to implement new SWIFT-related banking measures will only increase the gap between the official and market rates, fueling price increases of essential goods, such as food and medicine.
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