Iraq can fund salaries, but oil sets the limits
Shafaq News
Iraq is not expected to face immediate difficulties in paying public-sector salaries or pensions in early 2026, according to government advisers and economists. However, continued payments remain closely linked to oil prices staying within a limited range, leaving public finances vulnerable to external market shifts.
Oil revenues account for more than 90% of Iraq’s state income, making fiscal stability highly sensitive to fluctuations in global crude prices. Monthly operational spending —primarily salaries, pensions, and social welfare— absorbs the bulk of government expenditures, reducing flexibility in the event of a downturn.
The Prime Minister’s financial adviser, Mudhhir Mohammed Saleh, said that Iraq’s fixed monthly obligations amount to approximately 8 trillion Iraqi dinars (around $6.1 billion), excluding subsidies, debt servicing, and outstanding contractual payments. In comments to Shafaq News, he noted that oil revenues can cover these commitments provided the annual average oil price remains above $60 per barrel, assuming exports of about 3.4 million barrels per day.
*Economists caution that this benchmark reflects structural fragility rather than financial resilience.* Ahmed Abd Rabbo, an economic analyst, said salary payments may remain secure in the short term but warned that the underlying imbalance persists. He pointed to the steady expansion of the public wage and pension bill over the past decade, alongside limited growth in non-oil revenues. “The issue is not an immediate inability to pay,” he said, “but prolonged exposure to oil-market volatility without sufficient reform.”
Official data highlight the scale of the challenge. The Eco Iraq Observatory reported that Iraq’s fiscal deficit reached 24.68 trillion dinars (about $18.8B) by October 2025. Current expenditures accounted for roughly 75% of total spending, while non-oil revenues totaled less than 10 trillion dinars, compared with oil revenues of nearly 93 trillion dinars during the same period.
Central Bank figures further show that salaries and service-related spending reached about 96 trillion dinars, representing close to 90% of overall expenditure, leaving limited room to absorb revenue shocks or expand investment.
Read more: The $55 floor: Iraq’s salary safety net under
Nawar al-Saadi, a professor of international economics, said the main concern is the absence of a stabilizing mechanism. “Oil revenues are sufficient to fund current spending,” he told Shafaq News, “but they are not being channeled into economic diversification or a functioning stabilization fund. Any sudden price decline or unplanned obligation immediately turns salaries into a sensitive financial and political issue.”
Another economist, Mustafa al-Faraj, estimated that salary payments remain manageable if oil prices stay above $55 per barrel, warning that sustained prices below that level would impose significant constraints unless spending is adjusted. He argued that reforms should focus on expenditure discipline, including reviewing high-level salaries, addressing duplicate salary payments, and reassessing legacy compensation schemes, alongside efforts to activate non-oil sectors such as tourism.
The government of Prime Minister Mohammed Shia al-Sudani, whose term has recently ended, introduced limited deficit-control measures, including the sale of unused government vehicles and equipment, a 50% reduction in fuel allocations, and a freeze on recognizing additional academic degrees for salary and promotion purposes from January 2026.
Economists say that while these measures may save about $2 billion annually, and ease pressure in the short term, they remain modest relative to the overall deficit. Without broader structural reforms targeting spending rigidity and revenue diversification, Iraq’s ability to sustain salary payments will continue to depend largely on favorable oil market conditions.
Written and edited by Shafaq News staff.
