By: Shatha Kalel
Iraq’s federal budget accounts through the end of July 2026 reveal a significant shift in the country’s fiscal position compared with the same period in 2025. The problem extends beyond declining revenues to a widening gap between revenue and expenditure, the continued burden of recurrent spending, and a sharp contraction in investment expenditure.
The figures show that total revenues fell from approximately IQD 72.04 trillion during the first seven months of 2025 to around IQD 39.10 trillion over the same period in 2026, representing a decline of approximately 45.7%.
The main driver of this decline was oil revenue, which dropped from approximately IQD 64.96 trillion to IQD 30.36 trillion, a decrease of around 53.3%. By contrast, non-oil revenues increased from approximately IQD 7.08 trillion to IQD 8.74 trillion, representing growth of about 23.4%.
This comparison requires careful interpretation. Oil’s share of total revenues declined from approximately 90% in 2025 to 78% in 2026. However, this should not automatically be interpreted as evidence of successful economic diversification. Although non-oil revenues improved, the substantial reduction in oil’s relative contribution also resulted from the sharp decline in oil revenues themselves.
Therefore, genuine diversification should not be measured solely by a declining percentage contribution from oil, but rather by the ability of non-oil economic activities and revenues to grow sustainably and offset a meaningful portion of fluctuations in oil income.
Expenditure Is Declining—but Where Have the Cuts Occurred?
Total expenditure through July 2026 amounted to approximately IQD 68.26 trillion, compared with IQD 77.33 trillion during the same period in 2025, representing a decline of around 11.7%.
However, this reduction conceals an important shift in the composition of spending.
Recurrent expenditure did not decline. Instead, it increased slightly from approximately IQD 64.27 trillion to IQD 65.42 trillion, an increase of about 1.8%.
By contrast, investment expenditure fell sharply from approximately IQD 13.06 trillion in 2025 to just IQD 2.84 trillion in 2026, representing a decline of approximately 78.3%.
This reveals one of the most significant implications of the figures: when revenues declined, fiscal adjustment did not primarily occur through reductions in recurrent expenditure. Instead, a substantial share of the adjustment fell on investment spending.
This deserves particular attention because investment expenditure is associated with development projects, infrastructure, capital formation, and improvements in the economy’s productive capacity.
Consequently, reducing investment may help ease fiscal pressures in the short term, but it may also constrain the economy’s ability to expand and diversify in the future.
IQD 26.33 Trillion or IQD 29.17 Trillion: Which Is the Correct Deficit Figure?
This issue requires clarification because two different deficit figures have been reported.
Total revenues amounted to approximately IQD 39.10 trillion, while recurrent expenditure reached approximately IQD 65.42 trillion.
When revenues are compared with recurrent expenditure alone, the gap is:
65.42 − 39.10 = approximately IQD 26.32 trillion.
This explains why a figure of approximately IQD 26.33 trillion appears in some published analyses.
However, recurrent expenditure does not represent total government spending.
When approximately IQD 2.84 trillion in investment expenditure is added, total expenditure becomes:
65.42 + 2.84 = IQD 68.26 trillion.
Accordingly, the gap between total revenues and total expenditure is:
68.26 − 39.10 = IQD 29.16 trillion, or approximately IQD 29.17 trillion when more precise figures are used.
Therefore, IQD 26.33 trillion represents the gap between revenues and recurrent expenditure, while approximately IQD 29.17 trillion represents the gap when both recurrent and investment expenditure are included.
This distinction is essential when analyzing the budget position to avoid comparing different measures of government expenditure.
The Deficit Has Reached Approximately 5.5 Times Its Previous Level
The significance of these figures becomes clearer when compared with the corresponding period in 2025.
At that time, the gap between total revenues and expenditure was approximately IQD 5.3 trillion. By 2026, it had reached approximately IQD 29.17 trillion.
Thus, the deficit reached:
29.17 ÷ 5.3 ≈ 5.5 times
its level during the corresponding period in 2025.
It is also important to use mathematically accurate terminology.
Saying that the deficit “reached 5.5 times its previous level” does not mean that it “increased by 550%.”
The actual increase from IQD 5.3 trillion to IQD 29.17 trillion is approximately 450%, while the new level is equivalent to approximately 550% of the previous level.
Why Does This Present a Challenge for Public Finances?
The problem revealed by these figures is not simply the existence of a deficit, but the substantial difference in flexibility between the revenue and expenditure sides of the budget.
Iraq’s revenues remain highly sensitive to oil. Consequently, they can decline rapidly when oil prices, exports, or production face pressure.
Meanwhile, a substantial portion of recurrent expenditure—including salaries, pensions, social welfare payments, and operational commitments—is difficult to reduce at the same pace.
This creates a particularly sensitive fiscal equation:
Highly volatile revenues versus relatively fixed recurrent obligations.
When revenues decline, investment expenditure becomes one of the areas that can be reduced more quickly, as clearly demonstrated by the 2026 figures.
Improving Non-Oil Revenues Is Important—but Insufficient
On the positive side, the approximately 23.4% increase in non-oil revenues should not be overlooked.
This development is significant if it can be sustained, as it indicates the potential to increase the contribution of alternative revenue sources to budget financing.
However, at approximately IQD 8.74 trillion, non-oil revenues remain limited compared with the government’s financial obligations and the substantial losses in oil revenues.
Therefore, the challenge is not merely to increase non-oil revenues for a single year, but to transform them into a stable and expanding fiscal base.
This requires improving tax and customs administration, reducing waste and revenue leakage, expanding productive economic activity, and supporting the private sector, while avoiding placing a disproportionate burden of fiscal reform on low-income households.
What Do the July Figures Tell Us About the Future?
Seven months of data are insufficient to determine the fiscal trajectory of an entire year. Moreover, the existence of a deficit does not automatically indicate a crisis.
Its implications depend on how the deficit is financed, revenue developments during the remaining months, and the levels of liquidity, debt, and financial reserves.
Nevertheless, the comparison between 2025 and 2026 provides an important warning about the vulnerability of Iraq’s fiscal structure, particularly the relationship between oil revenues and recurrent government obligations.
Within a relatively short period, revenues declined by approximately 45.7%, while recurrent expenditure remained close to its previous level. Investment spending contracted by around 78.3%, and the gap between total revenues and expenditure widened from approximately IQD 5.3 trillion to more than IQD 29 trillion.
This leads to the most important question facing Iraqi fiscal policy:
How can Iraq build a budget capable of absorbing an oil shock without making investment expenditure its first casualty?
The sustainability of Iraq’s public finances cannot be achieved merely through higher oil prices or a recovery in oil revenues.
Instead, it requires addressing the structural imbalance between revenues that remain heavily dependent on oil and substantial recurrent obligations that cannot be adjusted quickly.
The central lesson from the July 2026 accounts is not simply that Iraq faces a shortage of resources. Rather, the strength of public finances should not be measured solely by the volume of revenues during periods of abundance, but by their ability to remain sustainable when those revenues decline.
This is where the importance of the 2026 figures lies: they reveal more than an accounting deficit. They represent a genuine test of the Iraqi economy’s ability to move beyond managing oil-price fluctuations toward building a more stable, diversified, and sustainable system of public finance.
Economic Studies Unit / North America Office
Rawabet Center for Research and Strategic Studies