Iraq’s foreign currency reserves to hit $90bn by the end of 2022 amid higher oil prices

Iraq, Opec’s second-largest producer, depends heavily on oil revenue. Reuters

Iraq’s foreign currency reserves are expected to surge more than 12 per cent to $90 billion by the end of the year amid higher oil prices, according to the country’s central bank.

Total foreign currency reserves currently stand at more than $80bn, state news agency INA reported on Sunday, citing deputy governor of the central bank, Ammar Khalaf.

The country’s gold reserves have also climbed to more than 131 tonnes at present, he said.

Oil prices, which rose more than 67 per cent last year amid a faster-than-expected economic rebound, have been extremely volatile this year, rocked by the Russia-Ukraine conflict.

Brent, the global benchmark for two thirds of the world's oil, is up more than 20 per cent since the start of this year after falling from a 14-year high when it nearly touched $140 per barrel in March.

Brent settled 0.13 per cent higher at $96.72 a barrel at the close of trading on Friday. West Texas Intermediate, the gauge that tracks US crude, closed 0.3 per cent higher at $90.77 a barrel.

Iraq, Opec’s second-largest producer, depends on oil revenue to meet 90 per cent of government expenditure.

Last month, the country announced the discovery of several new oil wells in the province of Anbar, in the west of the country.

Iraq exports an average of 3.3 million barrels of oil per day, while production in the semi-autonomous Kurdish region amounts to a little more than 450,000 bpd.

Iraq’s economy, which grew 5.9 per cent in 2021, is forecast to expand 9.5 per cent and 5.7 per cent in 2022 and 2023 respectively as oil prices trade higher, according to the latest projections from the International Monetary Fund.

The country's government debt is set to fall "steeply" as a share of its economic output this year due to higher oil prices, restoring its gross domestic product to pre-Covid-19 pandemic levels, Fitch Ratings said in a report last month.

The government’s debt as a percentage of GDP is forecast to fall to about 47 per cent this year from 66 per cent of output in 2021, the biggest of any government in the Middle East and North Africa.

Fitch forecasts Iraq will record a fiscal surplus amounting to 17 per cent of GDP in 2022, based on a 6 per cent boost in spending.

The decline in debt, however, may not be sustainable, due to political tensions that have constrained public spending and reflect the country's high political risk, it said.

Despite higher oil prices, rise in crude production and exports that have reduced the government debt to GDP ratio and boosted foreign currency reserves, there is still "significant uncertainty about public finance trends and the oil price outlook", Fitch said.

The rating agency also said Iraq's subsidy programmes remain unreformed and were in danger of running out of money due to the rise in global commodity prices.

A white paper on economic reforms submitted to the parliament by Iraqi Prime Minister Mustafa Al Kadhimi's government in 2020 recommended the phasing out of subsidies in sectors considered critical to the country's economy, notably the power industry.

It also proposed slashing the bill for government salaries to 12.5 per cent of GDP within three years, from 25 per cent, as well as reforms to the pension system and a reduction in benefits and allowances.