Warning of a “deep recession” in Iraq as trade and finance decline

On Monday, economist Manar Al-Obaidi warned of signs of a significant decline in Iraqi economic activity, particularly in the commercial sector, indicating that the decline in the Central Bank’s foreign currency sales, the decrease in imports, and the decline in bank financing could push the economy into a more pronounced recession. FinancialNews Reports

Al-Obaidi said in a post seen by Shafaq News Agency that “so far, there are no official integrated indicators that accurately show the growth or decline rate of Iraq’s GDP during 2026, except for the International Monetary Fund’s forecasts that indicated the possibility of the Iraqi economy contracting by about 6.8% during this year.”

He added that “reading a number of available indicators gives clear signs of a noticeable decline in economic activity, especially in the commercial sector, which is one of the most important sectors in Iraq after the oil sector and the government sector.”

He explained that “the Central Bank of Iraq’s sales of foreign currency have declined by more than 30% compared to last year, and official export data from a number of countries exporting to Iraq indicates a decrease in Iraq’s imports from them by more than 20%.”

Al-Obaidi pointed out that “these indicators, coinciding with the decline in financing provided by government and private banks, mean that a wide number of economic sectors are under increasing pressure, and the continuation of this trend may push the economy into a more pronounced recession.”

He explained that “in such circumstances, the state’s role should come through a package of economic incentives that help restore economic activity to its normal levels, whether through reducing some fees and customs tariffs, or granting temporary tax exemptions and facilities, or increasing the volume of financing facilities and launching easy financing initiatives that stimulate demand, investment and commercial activity. What is happening in some cases is going in the opposite direction.”

He added that “imposing procedures that require the payment of taxes and customs duties in advance before implementing the external transfer may lead to an increase in the financial and procedural burdens on traders and companies at a time when they are already suffering from weak liquidity, declining demand and difficulty in obtaining financing.”

He added that “the likely outcome is not necessarily an increase in government revenues, but may be a decrease in the volume of official transactions, and an increase in importers resorting to the parallel market to obtain foreign currency to meet import needs.”

He explained that “such measures may be understandable in an economy experiencing high growth and rapid business activity, where the need to control demand or increase government revenue is a clear priority.”

But he added that “applying it at a time when economic pressures are intertwined with geopolitical tensions, and amid signs of declining business activity, finance, consumption and investment, may increase the pressures rather than address them, and may push the economy from a slowdown into a deeper recession.”

Al-Obaidi stressed that “the main problem is that any economic measure should not be viewed in isolation from the rest of the indicators.”

He stressed that “before implementing any new policy, its economic objective must be clearly defined: Is the goal to increase revenues? Or to reduce the demand for the dollar? Or to regulate imports? Or to combat tax evasion? And what will be the impact of achieving this objective on trade, growth, employment, prices and the private sector?”

He pointed out that “the assumption that imposing additional fees or obligations will automatically lead to an increase in state revenues while the volume of trade and imports remains the same is an unrealistic assumption.”

He explained that “the higher the cost of procedures and the more complicated official trade routes become, the more natural it is for some economic activity to decline or move to other routes.”

He warned that “the greatest danger is that the repercussions of this will not be limited to traders or companies only, but will extend to the labor market, which already suffers from high unemployment rates, which may add greater economic and social pressure on the state in the coming period.”

Al-Obaidi concluded by saying that “economic policies during times of slowdown should be based on stimulus first, and that every measure should have clear targets and measurable indicators, with its impact on the economy as a whole being studied before its implementation, not after its results appear.”

Shafaq.com