Iraq’s breakeven oil price is expected to exceed $90/b this year because of higher government spending, the International Monetary Fund said March 3 after meeting with Iraqi authorities to review the country’s economic policies. Iraq’s fiscal budget was in surplus of 10.8% of GDP in 2022 and deterioriated to a deficit of 1.3% in 2023 due to lower oil revenue and an increase in expenditures, the IMF said after the Feb. 20-29 meetings in Amman, Jordan. Growth is expected to rebound in 2024 but “risks are tilted downwards amid heightened uncertainty,” the IMF said, without giving a total GDP forecast for this year.
The fiscal deficit may reach 7.6% in 2024 and keep widening as “oil prices are projected to gradually decline over the medium term,” the IMF said. Public debt may almost double from 44% of GDP in 2023 to 86% by 2029, it said. Current oil prices are just below the IMF’s projected Iraq breakeven, with Platts, a part of S&P Global Commodity Insights, assessing Dated Brent at $87.50/b on March 1. Crude prices have recently been supported by continuing geopolitical risks in the Middle East, though uncertainty over the global economy and the risks of recessions in major consuming countries have weighed on market sentiment.
Fiscal breakevens represent the price required by nations that rely on oil revenues for the bulk of their earnings to balance planned government spending with income, without tapping into debt markets or drawing on fiscal reserves. At times they can serve as a guide for how OPEC countries plan to manage their production to influence crude prices.
Iraq is the second largest crude producer in OPEC, pumping 4.27 million b/d in January — well above its quota under the OPEC+ agreement of 4.00 million b/d, according to the latest Platts survey of the group’s output. It has agreed to “compensate” for its overproduction by instituting additional cuts of an equivalent volume over the coming months. OPEC and its Russia-led allies are expected in the coming days to announce whether they will extend their current production quotas beyond their schedule expiry at the end of March. The current quotas include a 1 million b/d cut from Saudi Arabia and a combined 700,000 b/d from several other members, including Iraq. Analysts largely expect them to be rolled over, with S&P Global forecasting they may remain in place until the end of 2024.
Iraq’s economy is expected to expand this year as government spending boosts growth, but there will be a need to control the public wage bill and increase non-oil tax revenue, the IMF said. Real non-oil GDP grew 6% last year after stalling in 2022 and international reserves increased to $111 billion, it said. An anti-money laundering control on cross-border payments in November 2022, along with efforts to combat financing of terrorism controls, led to a recovery in trade finance in the second half of 2023, it said. “This ensured private sector access to foreign exchange at the official rate for imports and travel purposes,” the IMF said. The IMF suggested that Iraq should consider imposing a tax on luxury items and broadening the personal income tax base.
Source: spglobal.com