The Iraqi economy: Al-Zaydi’s ambition clashes with the reality of the “parasitic” private sector
The Iraqi government’s ambitious plan to privatize economic management and stimulate the private sector faces severe structural and legislative obstacles, amid official and economic warnings that the local market cannot absorb hundreds of thousands of new graduates, in a country suffering from one of the highest youth unemployment rates in the region.
The government of Iraqi Prime Minister Ali Faleh al-Zaidi seeks to lead a structural transition under the title “Iraq 2050” that goes beyond what he described as the “socialist mentality” that has prevailed since the 1950s, betting on the “Iraq Development Fund” as a financial lever to link funding with employment and social security.
However, this trend clashes with a legislative environment in the House of Representatives that is moving in the opposite direction, in addition to a private sector described as “parasitic” and entirely dependent on public spending.
Labor market indicators
Data from government advisors and international organizations indicates a structural gap in the $280 billion Iraqi economy, with 70% of the budget allocated to public sector salaries.
The overall unemployment rate recorded about 15.5% during the first half of 2026, up from a range of 13.7% to 15.3% achieved in 2025, while youth unemployment rates range between 28% and exceed 32% according to the latest indicators, ranking among the highest at the regional level.
The unemployment rate among women reached about 18% according to the latest official labor market surveys, at a time when the market is facing population pressure with the population reaching 46 million people, and an influx of between 160,000 and 250,000 university graduates annually.
Private sector structure
In this context, the Executive Director of the Iraq Development Fund, Mohammed Al-Najjar, affirms that the main problem does not lie in the private sector’s inability to generate jobs, but rather in “the nature of those jobs.”
Al-Najjar adds to Shafaq News Agency, “The private sector in Iraq has been able to create many job opportunities, but they are not sustainable, due to this sector’s reliance on government spending and state contracts. It is difficult to create the required number of jobs at present until laws are enacted that allow the sector to operate independently, away from the state’s control.”
He explains that the rate of labor absorption in the Iraqi private sector remains very low compared to developed countries where the market employs between 70% and 90% of the workforce, attributing this to the absence of real competition and the entry of the state as a direct competitor in the economy.
This vision is consistent with the reality of the urban landscape; thousands of small businesses are struggling with financing difficulties, while large shopping centers and luxury residential complexes targeting the wealthier segment are expanding, thus creating a sharp polarization that is reflected in consumer behavior, which now targets either high-end luxury goods or low-priced, low-end goods aimed at low-income families.
The reality of the legislative environment
While the government asserts that the public sector’s capacity for employment has reached its maximum, legislative practices have revealed a deep gap in vision between the executive and legislative branches.
During the last legislative session, the House of Representatives discussed 23 draft laws that were distributed among the relevant committees. It was found that about 70% of these drafts included a direct trend towards increasing job redundancy by creating new bodies and councils related or not related to ministries, which promotes disguised unemployment and turns the government salary into a tool for political and social survival instead of a means of production.
In this context, Mazhar Muhammad Saleh, the financial and economic advisor to the Iraqi Prime Minister, says that “the growth of the private sector faces structural obstacles, foremost among them the dominance of the rentier economy, where oil revenues constitute between 90% and 95% of the state budget.”
In his interview with Shafaq News Agency, Saleh stated that this absolute dependence “has limited the growth of productive sectors such as agriculture and industry, and has transformed the government job in the public imagination into a political compensation for the economy’s failure to create opportunities.”
He adds that the business environment still suffers from administrative corruption, declining industrial infrastructure, factory shutdowns, and weak funding directed towards small projects, stressing that the “Iraq 2050” program seeks to address this imbalance through the triad of (financing, employment, and social security) to deal exclusively with organized market institutions.
Vision of economic diversification
For his part, economist Safwan Qusay believes that overcoming the shock of complete dependence on oil – the dangers of which became apparent with regional tensions and the closure of the Strait of Hormuz – requires directing importing businessmen to become producers.
Qusay tells Shafaq News Agency, “Iraq has an opportunity to eliminate unemployment if specialized investment maps are prepared that give an economic identity to each governorate based on its competitive advantages, in conjunction with development road projects and new cities, and the shift from importing to self-sufficiency and exporting through promising partnerships with the European Union, the United States, and the Gulf States.”
In conclusion, Qusay stressed the need to activate the banking system to finance the formal private sector, as most Iraqi banks still face obstacles related to international compliance and the ability to grant long-term credit.
Iraq Vision 2050
The Iraqi government officially launched “Iraq Vision 2050 Towards Development and the Future” on September 20, 2025, under the auspices of former Prime Minister Mohammed Shia Al-Sudani.
This comprehensive strategic program, spanning three decades, aims to bring about a radical transformation in the structure of the national economy by addressing the gaps and structural imbalances of institutions, and moving away from the rentier economy that is entirely dependent on oil.
The vision is based on diversifying national income sources, achieving 70% self-sufficiency in the food and energy sectors through sustainable green initiatives, in addition to driving major projects such as the “Development Road”.
To ensure the sustainability of the program and to prevent it from being affected by changes in administrations, Prime Minister Ali al-Zidi announced in June 2026 that his government intended to transform this development vision into a “binding legal formula” to be presented to the House of Representatives, thus making it a strategic plan that transcends successive governments and establishes a stable future based on good governance and knowledge.
Shafaq.com