Iraqi officials warn of economic fallout from budget delays

ERBIL, Kurdistan Region - Experts and officials in Iraq’s economic and financial sectors have warned of the costly consequences of delays in approving the 2026 budget, as political deadlock over government formation persists.

Mudher Mohammed Salih, the Iraqi premier's financial advisor, told state media on Saturday that the delay is having severe effects “in an economy heavily dependent on government spending,” which he said accounts for around 50 percent of gross domestic product (GDP) and serves as the “primary engine of growth.” Salih added that delays in approving the budget “acts as a recessionary force,” affecting both the public and private sectors and creating a “prolonged state of uncertainty."

Since November’s parliamentary elections, Iraq has struggled to form a government. President Nizar Amedi was only elected in mid-April, while a prime minister has yet to be appointed. The ongoing political deadlock has stalled legislative work, including the budget.

Once a cabinet is formed, the new prime minister and finance ministry would need to review, adjust, and formally submit the draft 2026 budget to parliament. The finance committee would then require weeks to debate, amend, and negotiate allocations before a final vote.

The situation is further complicated by Iran’s closure of the Strait of Hormuz since March 8, in response to the United States and Israel’s military campaign against it, significantly impacting Iraq’s oil exports, as 90 percent of the country’s oil exports typically pass through the waterway.

Salih said budget delays can destabilize markets, harm the private sector, and increase unemployment, while also affecting public sector operations. He noted that reliance on the 2025 budget framework could stall ministry work, delay new investment projects, and hinder the completion of existing ones, particularly in key sectors such as infrastructure, energy, and services.

He suggested temporary budgeting as a possible solution, alongside setting a constitutionally binding timeline for parliament to approve future budgets to prevent similar delays.

Jamal Kocher, a member of the legislature’s finance committee, told Iraqi state media on Saturday that parliament can resort to reviving emergency borrowing measures that allow the government to operate in the absence of an approved budget.

The current impasse mirrors the 2021 budget crisis, which led to a record 364-day political vacuum and left Iraq without a formal spending plan for most of 2022. That deadlock stemmed from a power struggle between powerful cleric Muqtada al-Sadr’s bloc and the pro-Iran Coordination Framework following the October 2021 elections, preventing the appointment of a prime minister. With only a caretaker government in place, Iraq relied on emergency funding, halting new investment and infrastructure projects until a government was formed in late 2022.