Iraq’s Economic Outlook- April 2017

Iraq has faced the ISIS war and a protracted reduction in oil prices since mid-2014. Strong oil production sustained growth, but the non-oil economy has contracted sharply. 10% of Iraqis remain displaced due to continuous un-rest. A large international financing package supports the government’s re-form effort. Following an OPEC agreement, oil production would decrease in 2017, but higher oil prices would improve fiscal and external balances. Non-oil activity would return to positive growth. Risks remain high.

Iraq’s economic outlook is expected to improve under the assumption of a more favorable security environment, and continued fiscal consolidation. The non-oil economy after three years of contraction is expected to rebound in 2017 due to improved security and higher non-oil investment spending. However, real GDP is expected to contract by 3 percent in 2017 due to a projected 6% reduction of oil production, as a result of the agreement to reduce oil production by 1.2 mil-lion barrels per day reached among OPEC members in November 2016. Lower production is expected to reduce oil export volume by 5% in 2017. Oil production and exports are projected to return to their 2016 level in 2018 and 2019. Iraq’s oil export prices are projected to average US$47.4 per barrel in 2017, compared to an average of US$35.6 in 2016. Higher oil prices would reduce the overall fiscal and current account deficits to 4.4% of GDP and 4.5% of GDP in 2017.

In 2016, overall growth is estimated to have reached 10% thanks to strong oil production. The security and oil shocks forced the government to rapidly reduce expenditure which negatively affected private sector consumption and investment. The non-oil economy contracted by 10% a year in 2015 and 2016. Inflation averaged 0.4% in 2016.