Iraqi government likely legislating budget remaining period 2026 fears greater deficit continuing war
The Iraqi government suggested legislating a budget for the remaining period of 2026 amid fears of a larger deficit due to US-Iranian tensions and their repercussions on oil exports.
Salih said, according to the official newspaper, that "the current mechanism depends on the temporary spending rule of 1/12 of the volume of actual current expenditures for the fiscal year 2025." He indicated that "this mechanism ensures the continued financing of basic operational expenditures and covering the obligations of ongoing investment projects, or those that have been completed and become ready for operation."
He explained, "But this framework does not allow creating new expenditures or launching new investment projects, except after legislating the federal budget law for the year 2026." Salih added that "with the escalation of geopolitical variables in the Gulf region, and what can be called (Hormuz shock), fiscal policy faces a rigorous test; the budget is no longer just a tool for managing revenues and spending, but has turned into a means to absorb external shocks, achieve economic stability, and maintain the development path in a highly volatile regional and international environment."
He continued that "under these circumstances, the efficiency of public financial management, the flexibility of redistributing spending priorities, and the ability to protect monetary and economic stability become crucial factors for the Iraqi economy to cross into a safer and more sustainable stage."
Salih pointed out that "the presented hypothesis is the possibility of legislating a budget for the remaining period of 2026," and explained that "if a climate of peace is achieved, the budget will have a much lower deficit, because the return of exporting 85 percent of oil through Hormuz will secure real revenue flows within the approved estimates."
He added, "But if the conditions of the US-Iranian war and its repercussions on Iraq's ability to export oil continue, any budget approved under these conditions will have a larger deficit, because oil is the primary source for financing public spending." Salih concluded by saying: "Accordingly, the second half of 2026 will directly reflect these conditions on the size of the expected deficit and on the public spending ceilings that will be adopted for the fiscal year."
