Iraq considers mini-budget to keep country running

• Proposal for $23bn budget
• Plunge in oil exports
• Full budget could be delayed by months

Iraq’s parliament is pushing for a mini-budget for 2026 after a cabinet change and the halt of most oil exports triggered by the US-Israeli war with Iran left the government unable to produce a full annual spending plan.

Parliament has submitted a proposal for a budget of ID20-30 trillion ($15-23 billion) to keep government offices running and protect projects that have already been awarded, the official gazette, Al-Sabah, said.

MP Mustafa Hadi said the oil export crisis had made a temporary budget necessary. “We have submitted a proposal to approve a reduced budget ranging between 20 trillion and 30 trillion dinars, aimed at addressing pressing issues,” Hadi said.

“All technical and administrative procedures related to this matter have been completed, while the decision to pass the full annual budget or postpone it until 2027 remains with the government.”

The new cabinet of Prime Minister Ali Al-Zaidi has held only a few meetings since taking office in mid-May and has yet to take a decision on the budget.

In previous delays, the finance ministry permitted monthly spending equal to one-twelfth of the prior year’s outlays. Analysts say applying that rule this year is likely to widen the fiscal deficit because oil exports in the past three months have been only a fraction of last year’s level.

“There is a pressing need for the new government to work to release a full budget because the delay will hurt growth and projects,” said Nabil Al-Marsoomi, an economics professor at Basra University in southern Iraq.

“The absence of a budget limits the government’s ability to confront the financial crisis, as its approval provides legal cover for internal and external borrowing, as well as liquidity management through the central bank.”

Iraq’s energy revenues have collapsed. April oil export receipts totalled just $1 billion, down from a pre-war level of $6.8 billion in February. Export receipts are expected to have fallen further in May.

“This is a big problem for the budget, which has not been issued yet and may be delayed for months,” Al-Marsoomi said. “As the crisis in the region drags on, Iraq faces a real problem in drafting the 2026 budget as oil provides most of the spending.

“The new government faces this problem along with low crude exports, closed oilfields, drying coffers, power outages and problems related to poverty and joblessness.”

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Al-Marsoomi said Iraq would resort to borrowing to fund spending this year, mainly on public servant wages, adding that this would boost domestic debt after it climbed to around $74 billion last month.

Jalil Al-Lami, an Iraqi economist, said: “The new government faces a big challenge in drafting the 2026 budget. It could either continue to spend on the basis of the 2025 budget or issue an austere budget. This is a structural problem because the budget relies 90 percent on oil revenues.”

In mid 2023 Iraq approved a landmark three-year budget for the period 2023-2025 based on an average oil price of $70 a barrel and crude exports of 3.4 million barrels per day.

Annual spending was projected at around $153 billion with a shortfall of $49 billion but parliament allowed the finance ministry to revise expenditure through the year depending on oil market conditions.

With around 145 billion barrels of proven oil deposits, Iraq is seeking to increase non-oil revenues by attracting industrial investment and raising customs and taxes.