Imposing Iraqi fiscal discipline will face challenges

Significance

The government is preparing to send the 2023 budget to parliament. Some politicians favour a large increasing in spending, giving little space for technocratic arguments that the budget should be refocused to elevate investment at the expense of current expenditure.

Impacts

• The government has limited time to restructure its budget before oil prices begin a secular decline.
• Political considerations will outweigh economic fundamentals in setting the market rate of the Iraqi dinar against the US dollar.
• A sharp devaluation could trigger protests with a political edge, as pro-Iranian groups claim that it would be engineered by Washington.