Is Iraq’s soaring spending sustainable?

Iraqi Ministry of Finance data reveals one defining feature of the country's economic management over the past decade: sustained and rapid growth in public spending. We sought to address two central questions:

First, how did public spending in Iraq reach current levels, and will this trend continue? Second, can an economic model with such heavy public spending be sustained through 2026?

Iraq's Supreme Financial Council held at least four meetings to cut spending and boost state revenues. But the Ministry of Finance data show that public spending has continued rising year after year, while oil revenues - and fluctuations in global oil prices - remain the primary source of government income.

The data show that total government spending in January 2015 was just 2.8 trillion Iraqi dinars (currently $2.14 billion USD.) By January 2020, it had risen to 5.1 trillion dinars (currently $3.9 billion), and by January 2025, it exceeded 9 trillion dinars ($6.87 billion.) These figures show an increase of more than 200 percent, driven entirely by operational spending.

At the same time, the gap between spending and revenue toward the end of last year grew so wide that it prompted the government to freeze public-sector employment, promotions, and allowances for senior posts. According to Iraqi prime minister Mohammed Shia' al-Sudani, salaries for senior officials - from director-generals to the presidencies - total approximately 500 billion dinars per month, or about $384 million USD.

Rising spending combined with heavy dependence on oil revenues suggests that freezing promotions, reducing senior salaries, or halting public employment won't provide long-term solutions. As the Kurds say, such steps merely "patch the problem" temporarily. The underlying drivers of spending growth are broad-based, concentrated overwhelmingly in operational costs, and deeply embedded in an economic structure that depends on government spending.

Key rising public expenses: 2015, 2020, and 2025

Rising spending commitments, expanding government functions, proliferating public institutions, and oil revenue distribution have driven a sharp increase in Iraq's operational spending over the past decade. Operational spending rose from approximately 2.75 trillion dinars in January 2015 to 5 trillion dinars in January 2020, climbing further to 8.46 trillion dinars in January 2025.

Annual figures show a similar upward trend. Total public spending increased steadily from around 18.5 trillion dinars in 2015 to 76 trillion dinars in 2020, reaching nearly 140 trillion dinars in 2025. Iraq's total annual spending expanded by more than 677 percent during this period.

Total Spending and Investment and Operational Expenditures, January 2015-2025

Source: Iraq’s Ministry of Finance, Monthly Revenue and Expenditure Dashboard (2015-2025), December 25, 2025; Rudaw Research Center.

Iraq's fiscal data shows both sharp increases and, at times, significant reductions in spending. Most striking is the demonstrated ability to cut operational spending, including reductions extending even to public sector salaries. This indicates that spending levels aren't structurally fixed but can be adjusted when fiscal pressures intensify.

The substantial rise in total spending hasn't been directed primarily toward investment, construction, or developing productive sectors such as agriculture, industry, and tourism. Instead, it's been absorbed largely by employee salaries, bonuses and allowances; other recurrent expenses; and pensions and social welfare spending across most Iraqi state institutions - but excludes the Kurdistan Region.

Operational and investment expenditure analysis from 2015 to 2025 reveals that the Ministry of Electricity accounts for the largest increase, with spending rising 15,289 percent. This is followed by the Ministry of Labor and Social Affairs at 5,384 percent, and the Ministry of Industry and Mining at 1,960 percent.

Council of Ministers budget soars

Particularly striking is spending growth by the Council of Ministers, which rose 635 percent. In January 2015, Council of Ministers spending stood at 90.2 billion dinars; a decade later, in January 2025, it had climbed to more than 616 billion dinars.

In 2015, operational and investment spending was allocated across 32 government institutions. This figure rose to 44 institutions in 2020 - despite several ministries being dissolved or merged - and rose again to 47 in 2025.

Beyond establishing new non-ministerial entities, a major driver has been the growing role of governorates, excluding the Kurdistan Region and Kirkuk. These shifts - characterized by recurring processes of reduction, merger, and expansion from one cabinet to another - have made spending patterns increasingly complex and difficult to track.

For example, in 2015, the Ministry of Municipalities and the Ministry of Construction and Housing operated as separate entities; by 2025, they had merged. Similarly, the Ministry of Human Rights and the Ministry of Culture, Tourism, and Antiquities, both of which existed in 2015, no longer appear as independent ministries in the 2025 budget.

By contrast, 2025 saw the creation of several non-ministerial bodies, including the General Commission for Monitoring the Allocation of Federal Revenues and the Military Industrialization Authority. These entities primarily generate operational expenditures rather than investment expenditures.

The Military Industrialization Authority provides a clear example. In January 2025, its budget was 12.48 billion Iraqi dinars, with 12.3 billion dinars designated for operational spending. Nearly 12 billion dinars of this amount covered bonuses, allowances, and other current expenses, while only 161 million dinars went toward investment.

Reform pledges not reflected in spending

Another important and often overlooked issue is continued annual spending increases at institutions where little substantive change has occurred. Based on the reform agenda during this period, spending at these institutions should have declined - particularly given repeated commitments to reduce allowances, security details, guards, and related costs.

The Iraqi Parliament provides the most striking example. In January 2015, Parliament's total spending stood at 36.9 billion Iraqi dinars. By January 2025, this figure had risen to 45.3 billion dinars - an increase of roughly 10 billion dinars in monthly operational spending, translating to approximately 120 billion dinars annually, if not more.

This trend stands in sharp contrast to expected policy priorities during this period. Agriculture was meant to be strengthened, and basic public services - such as roads, potable water, and sewage infrastructure - were supposed to receive greater investment. Instead, budgets for key service-oriented ministries declined.

The Ministry of Agriculture’s budget fell 25 percent, while municipal budgets fell 3.8 percent. These declines highlight a clear mismatch between stated reform objectives and actual budgetary outcomes, raising serious questions about spending allocation and policy implementation.

Cuts can also be seen across several institutions. Most notably, presidential office spending declined about 14 percent between 2015 and 2025 (3.9 billion dinars in January 2015 vs. 3.3 billion dinars by January 2025.)

A similar pattern is evident with Kurdistan Region spending, as illustrated at the bottom of the chart. This reflects that recorded spending during this period was either zero or close to 1 trillion dinars - an amount allocated almost exclusively to salary payments, with little to no allocation for other categories.

Spending by government entities and ministries in Iraq, 2015, 2020, and 2025 (first month of each year).

Source: Iraq’s Ministry of Finance, Monthly Revenue and Expenditure Dashboard (2015–2025), December 25, 2025; Rudaw Research Center.

Can Iraq sustain its spending in 2026?

The most recent Ministry of Finance report, in November 2025, showed that government spending that month declined by approximately 500 billion dinars, excluding Kurdistan Region employee salaries.

A closer look at the figures illustrates this more clearly. Total employee salary spending - excluding allowances, pensions, and social welfare payments - stood at 45.56 trillion dinars in September 2025. This rose to 51.5 trillion dinars by October and reached 55.9 trillion dinars in November. This translates to monthly employee salary costs of 5.16 trillion dinars in September, 5.9 trillion dinars in October, and 4.4 trillion dinars in November, excluding the Kurdistan Region.

If monthly salary spending for Kurdistan Region employees is conservatively estimated at around 1 trillion dinars, total employee spending across Iraq in November would be approximately 5.4 trillion dinars. Even under this assumption, the Iraqi government reduced overall spending on salaries by around 500 billion dinars that month.

This pattern demonstrates that both increases and reductions in public spending remain administratively feasible for the Iraqi state. Adjustments in spending levels - particularly within operational costs such as salaries - don't, in themselves, pose an immediate threat to economic stability.

This month-to-month fluctuation in spending isn't an isolated event but is instead consistent over time. It hasn't been confined solely to cuts in investment spending or other operational components. Rather, when fiscal pressure intensifies, even public-sector salary spending has been reduced, as seen in 2016, 2020, and 2023, as well as in recent months.

If we project total January spending in upcoming years based on data between 2015 and 2025, three potential scenarios (illustrated in the graph below) emerge for Iraq:

First, if spending is reduced, total spending would decline to approximately 7.8 trillion dinars.
Second, if spending continues along its current trajectory, it would remain broadly stable, with a marginal increase to around 9.1 trillion dinars.
Third, if spending grows further, total expenditures could rise to roughly 10.3 trillion dinars.

Oil prices and revenues are likely to determine which of these three scenarios is most likely to materialize. Despite indications in the final months of last year that a contraction scenario may be emerging, Iraq's capacity to move toward the second or third scenarios remains constrained. This is because any significant revenue increases - whether through higher production, greater export volumes, or higher oil prices - lie largely outside Iraq's direct control.

Total January Expenditures, 2015-2025, with three scenarios for 2026-2029

Source: Iraqi Ministry of Finance, Iraq’s Monthly Revenue and Expenditure Dashboard (2015-2025), December 25, 2025; Rudaw Research Center.

Key finding: Government spending driving economic growth

The 2015 to 2025 data, which captures the total expenditures of all Iraqi ministries and governorates, provides a clear picture of how public expenditure functions in Iraq and how an economy heavily dependent on oil revenues is managed. At its core, this system operates as a distribution mechanism when revenues are high and retrenchment when revenues decline.

For this reason, growth in Iraq’s Gross Domestic Product (GDP) - whether measured at the national level or on a per-capita basis - does not reflect genuine or sustainable economic growth. Public spending fluctuates sharply from year to year and GDP growth follows a similar pattern, as it isn’t anchored in productive output from manufacturing, industry, or other diversified economic sectors capable of generating exports and long-term income for the country. Instead, economic growth is driven primarily by government spending, particularly salaries, wage-related commitments, and associated fiscal obligations.

Monthly spending in Iraq also fluctuates significantly throughout the year, with clear differences between the beginning, middle, and end of each fiscal year. Investment spending, in particular, is consistently left to the final months of the year, despite the three-year budget framework. In practice, spending priorities remain heavily skewed toward salaries rather than investment, sectoral revitalization, or service provision.

For example, in October 2025, total spending exceeded 14 trillion dinars, of which more than 10 trillion dinars went to operational spending and around 4 trillion dinars to investment spending. This occurred even as the gap between revenues and spending continued widening, underscoring the structural imbalance in Iraq's fiscal management.

At the same time, Iraq’s monthly spending - excluding the Kurdistan Region, investment spending, and other categories that could, in principle, be reduced - has fallen to below 8 trillion dinars (approximately $6.1 billion USD.) Under current conditions, oil exports priced at around $60 USD per barrel cover this level of spending.

However, this raises a critical question: How long can this situation persist - particularly when oil from the Kurdistan Region continues to be exported - given that not only is the region’s budget withheld, but federal funding for public-sector salaries isn’t paid?

Generally, an economy that can adjust its spending - both upward and downward - can maintain fiscal sustainability when revenue drops. In Iraq's case, however, the pattern of rising and falling operational and investment spending reflects a deeper structural issue: significant disparities in budget allocations by governorates impact not only the Kurdistan Region but also governorates such as Kirkuk.

Mahmood Baban is a research fellow at the Rudaw Research Center.

The views expressed in this article are those of the authors and do not necessarily reflect the position of Rudaw.

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