IMF Forecasts 16% Contraction in Iraq’s Economy in 2026, Discusses Support Program
Key Facts
The International Monetary Fund forecast that Iraq’s real gross domestic product would contract 16% in 2026, saying it is in contact with Iraqi authorities to understand their priorities and determine the best ways to support them through a program. IMF spokesperson Julie Kozack said the current step is to discuss how to address the vulnerabilities facing the country. She said the Fund first wants to understand what the authorities are seeking to achieve before determining a path for support. The forecast puts Iraq on course for a sharp economic downturn in a year when war is weighing on energy production and trade in the region. Kozack’s remarks did not specify the size or terms of a potential program, and included no commitment to specific financing.
Kozack said Iraq faces severe financing constraints that predate the outbreak of the war, while a narrow non-oil revenue base is weighing on the fiscal balance. This assessment distinguishes budget challenges from the 16% contraction forecast, as the Fund did not present these pressures as a standalone explanation for the projection. In its July 2025 assessment, the Fund had forecast real growth of 3.1% in 2025 and 1.4% in 2026. The earlier report also projected that the fiscal deficit would widen to 9.2% of gross domestic product in 2026 and government debt would rise to 62.3% of GDP in the same year. The shift from a 1.4% growth forecast to a 16% contraction marks a sharp change in projections during a period of escalating regional risks.
The Fund’s regional report warned that the war had disrupted energy production and trade routes, pushed up food and energy prices, and heightened uncertainty. This is particularly significant for Iraq, where the Fund said in its earlier assessment that oil revenues would continue to account for more than 90% of government revenue through 2030. The earlier report also linked declining oil revenues and rigid current spending to a worsening deficit and financing risks. This backdrop shows how disruption to energy production and trade can coincide with existing fiscal pressures. The Fund places Iraq among commodity-producing economies most exposed to disruptions in energy production and transport.
Alongside Iraq, the Fund forecast sharp contractions in the economies of Kuwait and Qatar in 2026, followed by double-digit expansion in 2027 in all three economies. This trajectory suggests Iraq’s outlook is part of a broader shock affecting energy producers in the region, with conditions varying across each economy. In October 2026, Iraq changed its official exchange rate from about 1,300 to 1,500 dinars per dollar, after which the market rate exceeded 1,700 dinars per dollar, according to the Associated Press. The exchange-rate adjustment came as liquidity pressures mounted, but does not in itself determine the shape of any support the Fund may discuss. An IMF report on October 17 said financial support talks with Iraq and Lebanon were being accelerated.
Iraq has a history of IMF programs: the executive board approved a 3-year standby arrangement worth $5.34 billion in 2016, and the program ended in 2019. The Fund tied that arrangement to reducing spending in line with falling oil prices, ensuring debt sustainability, and protecting the poorest groups. Those issues provide context for what current support talks may address, without establishing that similar conditions will apply this time. In a parallel effort to reduce reliance on export routes affected by disruptions, Iraq and Turkey signed a one-year agreement in August 2026 to increase oil exports through the pipeline to Ceyhan, with a minimum of 750,000 barrels per day. Kozack said the Fund would continue discussing the best ways to support Iraq after understanding its priorities, while no program details or specific timetable for next steps have yet been announced.