Iraq

Iraq remains committed to pursuing stability and sustainable growth, despite facing significant challenges in recent years, including war against terrorism and economic fluctuations. The government has prioritized rebuilding infrastructure, improving public services, and fostering economic reforms, with support from international partnerships to foster sustainable development and strengthen human capital.

Iraq’s oil-led growth model has been a source of economic volatility, particularly impacting the country’s growth potential and sustainable development. Continued reliance on oil revenues would leave it vulnerable to new economic risks amid the global transition toward decarbonization and a diminished role of oil as a primary commodity.

Furthermore, Iraq is among the countries vulnerable to climate change impact and shocks both in physical terms (rising temperatures, water scarcity, extreme weather events) and financial vulnerabilities.

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Iraq’s economy faces renewed pressures, reflecting its large dependence on oil and exposure to the conflict in the Middle East.

GDP declined by 2.4 percent year-on-year (y/y) in the first nine months of 2025, driven by a 5.7 percent y/y contraction in oil GDP as oil production was constrained by the Organization of the Petroleum Exporting Countries and its partners (OPEC+) production limits. Non-oil GDP growth also slowed to 1.5 percent y/y due to water and electricity shortages and a liquidity crunch caused by falling oil revenues. In 2025, oil accounted for an estimated 53 percent of real GDP, 88 percent of government revenues, and 91 percent of merchandise exports. As a result of the conflict, the blockade of the Strait of Hormuz—through which most of Iraq’s oil transits—has significantly reduced export capacity and slowed production.

Iraq faces a significant youth employment challenge. Youth, aged 15–29, account for nearly 29 percent of the total population. This large cohort is entering the labor market at a time when job creation is limited, amid preferences for public-sector employment and a private sector that remains limited in size and absorptive capacity. As a result, Iraq records higher unemployment (13.5 percent) and lower labor force participation rates (38 percent) than the regional average.

The conflict in the Middle East has led to a significant disruption in economic activity and a sizable loss in oil revenues, adding to fiscal and external account strains and raising food security challenges. These challenges along with demographic pressures on the labor market could undermine poverty reduction. Economic prospects hinge on implementation of policy reforms and are subject to significant domestic and conflict risks.

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Since 2004, the World Bank engagement in Iraq has been consistently supporting priority intervention areas, including restoring basic services, strengthening social safety nets, improving public sector governance, enabling the private sector, and supporting institutional and policy level reforms.  The World Bank has mobilized significant financial and technical support for Iraq's stabilization and reconstruction efforts. The active portfolio spans various sectors, with transport and energy representing the largest shares, followed by social protection, water and municipalities sectors.

As of October 2025, the World Bank portfolio in Iraq includes 10 active projects (five investment lending projects and five trust-funded projects) with a total commitment of $2.24 billion. Most recently, the World Bank’s Board of Directors approved the Iraq Railways Extension and Modernization Project in the amount of $930 million.

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In August 2021, the World Bank Board approved the Iraq Country Partnership Framework (CPF) for the fiscal years 2022–2026. At the time it was developed, the strategic engagement with the Government of Iraq was mainly focused on emergency responses to crises, which reflected the country’s needs during that period, including responding to COVID-19 pandemic and the restoration of public services in selected areas.

The 2022-2026 Iraq CPF is organized under two pillars: (i) improved governance and public service delivery and private sector participation and (ii) strengthened human capital, into which corporate priorities such as citizen engagement, gender equality and climate change are mainstreamed. Moving towards a phase of increased collaboration on investments in priority sectors, the new CPF would reflect strategic objectives of economic diversification, job creation, and strengthening human capital.

Iraq Country Partnership Framework for the period FY2022 - FY2026

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