Introduction

Iraq enters the week of its 2027 budget vote with a draft that spends about IQD 217.2 trillion (roughly $142.9 billion) against expected revenue of about IQD 174.2 trillion ($114.6 billion). The planned deficit is close to IQD 43 trillion ($28.3 billion), or about a fifth of spending. According to a government source, the Council of Ministers will hold an extraordinary session on Saturday, 7 November 2026, to vote on it before sending it to parliament. All dollar figures here use the official rate of IQD 1,520 per dollar.

More than IQD 101 trillion ($66.4 billion) of the draft goes to salaries and social welfare. In the first half of 2026 that line absorbed IQD 44.6 trillion, or 82% of federal spending. Iraqis are watching the draft from two angles: September and October salaries were funded late because of a cash shortage, and the draft adds new levies on restaurants, hotels, home-based and digital businesses.

Diagnosis: a budget built on two fragile assumptions

The draft assumes exports of 4 million barrels a day at $58 a barrel, and an exchange rate of IQD 1,500. Actual exports were about 3.4 million barrels a day in October 2026, up from 3.1 million in September. The draft therefore counts on roughly 0.6 million barrels a day that Iraq is not currently selling.

The price looks comfortable, with Brent near $99 on 6 November. But Basrah Medium for October loading was offered at a discount of $34.50 a barrel, reflecting war risk in the Strait of Hormuz, freight and insurance. That leaves a rough net price near $65. Any de-escalation would lower Brent and the discount together.

The transmission channel is direct. Oil provides about 83% of the draft’s revenue, so any shortfall in volume or price becomes a liquidity gap, then a salary delay, then extra demand for dollars on the black market. There the dollar trades at IQD 168,300 per $100, against IQD 152,000 at the official rate.

The government says it chose to devalue rather than take three harder options: cutting salaries by 35%, paying them every 45 days, or borrowing abroad. Yet the third path is now open anyway. The IMF has said it is preparing programme discussions at Iraq’s request, citing dependence on Hormuz, a narrow non-oil revenue base and a weak banking system.

This is the real trade-off. Closing the gap with new taxes and fees in a stalling market raises compliance costs and pushes small activity into the shadow economy, shrinking the very base the government wants to widen.

What the world says

Iraq is a textbook case of what economists call procyclical fiscal policy: spending expands in booms, then taxes rise and budgets are cut in busts. Harvard’s Jeffrey Frankel, with Carlos Végh and Guillermo Vuletin, found that 67 of 73 developing countries ran procyclical government spending between 1960 and 2009. Only about a third managed to “graduate” in the last decade of their sample.

Chile was the standout: a structural budget rule that saves windfall revenue rather than spending it, with forecasts set by independent expert panels rather than the government. The decisive factor, the authors argue, is the quality of institutions.

The OECD’s 2026 report Restoring Public Finances notes that member governments mostly avoid raising rates on broad tax bases. Instead they broaden bases, remove exemptions and improve compliance through better tax administration. It also warns that measures remain incremental: spending is set to rise by 0.8% of GDP between 2024 and 2026, while revenue measures add only 0.3%.

A companion OECD report, The People and the Budget (2026), adds the dimension of trust. It finds a 47-percentage-point trust gap between people who feel that “people like them” have a say in government decisions and those who do not, and those who doubt the process resist difficult reforms. For Iraq, a budget whose numbers circulate first through leaked drafts loses the trust it needs to make any new levy stick.

The consultancies’ reading

PwC’s Middle East Economy Watch of May 2026 found that crude output in countries bordering Hormuz, Iraq included, was about 10 million barrels a day lower in April than in February, a fall of roughly 40%. It judged the impact most severe for Iraq, Kuwait, Qatar and Bahrain, which rely on the strait for most or all of their hydrocarbon exports.

Notably, the Gulf responses PwC tracked eased burdens rather than adding them. Dubai deferred hotel, tourism and some government service fees for three months within a AED 1 billion package. Central banks in Bahrain, Kuwait, Qatar and the UAE relaxed liquidity and capital requirements. Iraq’s draft points the other way.

The Iraqi view: activity before collection

Mr. Khaled Al-Jabri, President of the Osoul Foundation for Economic Development and Sustainable Development, stated that taxation should fall on economic activity, and that tax revenue is a “by-product” of that activity, shared modestly between the state and the business owner. He cited Imam Ali’s instruction to Malik al-Ashtar to care more for developing the land than for collecting its tax, and summed it up in Iraqi dialect: go and create economic activity, and the revenue will come.

Al-Jabri criticised items in the leaked draft: a sales tax on restaurants and hotels, collection from social media and live-streaming companies, and an electronic income tax on anyone running a business from home. In his view the private sector does not refuse to pay; everyone wants to pay, “but through reasonable mechanisms, with reasonable economic activity.”

Here Al-Jabri meets the global consensus and adds to it. Like the OECD, he puts base-broadening ahead of higher rates. But in a crisis he goes further: the Ministry of Finance, he argues, should abandon “the theory of collection” for “the theory of fiscal policy.” He puts taxes, customs and fees together at about IQD 15 trillion ($9.9 billion) at best, so sacrificing part of them now is better than sliding into stagflationary contraction that hits the whole economy.

He illustrates the mechanism with a small shopkeeper who, squeezed by fees, simply closes, so that the cost of legal compliance exceeds the cost of the shadow economy. “I did not say don’t pay,” he stresses; fees must be reduced and simplified. Frankel reaches the same point from the macro side: raising taxes in a downturn deepens it.

On deficit financing, Al-Jabri points to the IMF’s advice against funding deficits with short-term bonds, and to the absence of public financial management systems that forecast one and ten years ahead: “systems, not an employee.” It is the same logic that led Chile to hand forecasting to independent experts. The issue, he says, is not saving dinars but “creating jobs… creating economic activity,” and “economic reform in Iraq is not difficult” if the economy’s tools are put to work.

From the field

As guest Qutaiba Zaki, Senior Manager at Deloitte Middle East – Iraq, said in the episode “السياسات الضريبية في العراق بين التعقيد والرقمنة!” (Tax Policy in Iraq: Between Complexity and Digitisation) of the Seed | Nmw podcast, Iraq relies on taxes for about 9% of revenue against 90% from oil, and recent reforms lifted tax revenue from 6% to 9%. He argues they should have been phased in, not imposed overnight.

Zaki adds that investors look first not at the tax rate but at tax certainty: stable legislation and a clear, consistent interpretation, so that they can calculate their future liabilities.

Recommendations

1. Ministry of Finance: rebuild revenue estimates on actual export volumes and the net Basrah price after the discount, and publish a low-case scenario alongside the draft.
2. Council of Ministers: freeze new taxes on restaurants, home-based and digital businesses for 2027, replacing them with a published, phased timetable that starts once the General Commission for Taxes is automated.
3. Tax commission and municipalities: a single fee through a single window for small businesses, plus a voluntary e-invoice with incentives, to widen the base rather than raise rates.
4. Ministry of Finance and Central Bank: finance the deficit with long-dated instruments, and correct the bond exemption clause so that it covers the interest earned.
5. Parliament: create an independent fiscal council to set oil and growth assumptions and assess the budget, on the model of Chile’s expert panels.
6. Government: a fixed, announced salary payment date, and a plain-language citizens’ budget published before the vote.

Conclusion

The IQD 43 trillion gap will not be closed by levies on a restaurant or a family selling from home. It will be closed by activity that widens the base on its own. The question on Saturday is not how much the state can collect this year, but how much activity it leaves alive to collect from next year.

Why Osoul?

The Osoul Foundation for Economic Development and Sustainable Development is an Iraqi institution that links data to economic decisions. It combines monitoring of the Iraqi street, measurement of what people and businesses think, and comparison with the best international practice, to produce actionable solutions.

• Daily monitoring and the weekly Iraq Economic Observatory: tracking what Iraqis discuss on the economy and services, and government decisions, in their regional and global context.
• Surveys and indicators: the Business Outlook Survey, the Service Gap Burden Index, and periodic surveys built on established international survey methods.
• Knowledge from the field: a documented library of economic positions, and the Seed | Nmw podcast, which interviews leaders of Iraqi companies.
• Workshops and policy briefs: workshops with research centres and relevant institutions, turned into recommendations for decision-makers.
• Advisory and technical services for major companies and government agencies: data-driven studies, diagnostics and reform proposals, including assessments of how budgets and fees affect economic activity.

The Foundation’s work is available at www.ofesd.com and on its social media accounts.

Sources

• OECD (2026), Restoring Public Finances, https://doi.org/10.1787/fbcf9161-en
• OECD (2026), The People and the Budget: Empowering Public Understanding of Public Finances, https://doi.org/10.1787/81674d37-en
• Frankel, J., Végh, C. & Vuletin, G. (2013), On Graduation from Fiscal Procyclicality, Journal of Development Economics; NBER WP 17619, https://www.nber.org/papers/w17619
• PwC Middle East (2026), Middle East Economy Watch — May 2026, https://www.pwc.com/m1/en/publications/middle-east-economy-watch/may-2026.html
• Iraq Business News (2026), IMF to Launch Programme Discussions with Iraq, https://www.iraq-businessnews.com/2026/11/02/imf-to-launch-programme-discussions-with-iraq/
• Al-Mada (2026), 2027 budget under time pressure (Arabic), https://almadapaper.net/459772/
• Baghdad Today (2026), Extraordinary session to settle the 2027 budget (Arabic), https://baghdadtoday.news/307063-2027.html
• Shafaq News (2026), Cash shortage delays Iraq’s October salary funding, https://en.hathalyoum.net/articles/303139
• Al Jazeera (2026), Iraq devalues dinar to ease cash crunch, https://www.aljazeera.com/economy/2026/10/15/iraq-devalues-dinar-to-ease-cash-crunch-leaving-traders-in-limbo
• MUFG Research (2026), Middle East Daily — 5 November 2026, https://www.mufgresearch.com/macro/middle-east-daily-05-november-2026/
• Shafaq News (2026), SOMO offers up to $37 discount on Basrah crude, https://shafaq.com/en/Economy/SOMO-offers-up-to-37-discount-on-Basrah-crude
• Trading Economics (2026), Brent crude oil, https://tradingeconomics.com/commodity/brent-crude-oil
• Kalima (2026), Dollar exchange rates at market close, 5 November (Arabic), https://kalimaiq.com/news/details/72977