Latest Iraq budget data reveals drastic spending cuts
Latest budget execution figures released by the Ministry of Finance for May show the government has entered an aggressive fiscal consolidation phase, with spending now almost entirely focused on meeting its core social obligations to pay public sector salaries and social welfare.
Total government spending in May fell to just 8.9 trillion IQD, a 25% decline compared to the average monthly expenditure recorded in 2025. Operational spending dropped to 8.6 trillion IQD from a monthly average of 9.9 trillion IQD last year.
Most strikingly, salaries, pensions, and social security payments accounted for 99% of all operational spending during the month, highlighting how little fiscal space remains for other government functions.
The sharpest cuts have fallen on investment spending. Capital expenditure collapsed to just 236 billion IQD in May, representing an 87% reduction compared to the 2025 monthly average. The Zaidi government’s sweeping austerity measures include cancelling all capital projects that had not yet received funding allocations and suspending funded projects that were below 20% completion rate.
Other reductions include debt servicing, which amounted to just 225 billion IQD in May, well below last year’s monthly average of 724 billion IQD, reflecting another major source of expenditure restraint.
One notable exception is budget transfers to the KRG. Although transfers declined slightly from 1058 billion IQD in April to 987 billion IQD in May, they remain nearly 15% higher than the 2025 monthly average of 868 billion IQD.
It is well established that the primary driver behind these spending cuts is the unprecedented collapse in oil revenues following the outbreak of the conflict in Iran and the subsequent disruption to exports through the Strait of Hormuz. Because Iraq relies overwhelmingly on southern export terminals that depend on Hormuz, it has been more severely affected than any other Gulf oil exporter.
The impact was only fully reflected in May’s fiscal data. Oil revenues for February through April were partially insulated by pricing and contractual arrangements, but May became the first month in which the full effect of the export disruption appeared in government accounts.
Oil revenues fell to just 1.15 trillion IQD in May, an 87% collapse compared to the 2025 monthly average of 9.1 trillion IQD.
The slump in oil income has been partially offset by stronger non-oil revenues. In May, these reached 1.4 trillion IQD, around 15% higher than the 2025 monthly average. This improvement reflects continued gains in customs collections following the gradual rollout of customs automation and electronic payment reforms over the past several years.
Nevertheless, the increase in non-oil revenues is nowhere near sufficient to compensate for the loss of oil income. As a result, Iraq’s budget deficit is widening rapidly. By the end of May, the cumulative deficit had reached approximately 13 trillion IQD, compared to just 5 trillion IQD during the same period last year.
Unless a ceasefire to the regional conflict can be reached that leads to a recovery in oil exports, the Iraqi government will face increasingly difficult fiscal choices in the months ahead. With operational spending already reduced almost entirely to wages, pensions, and social protection, there is relatively little discretionary expenditure left to cut without directly affecting public services or household incomes.