Iraq Economic News and Points To Ponder Sunday Afternoon 12-28-25
A Frightening US Report: Corruption, Jobs, And Oil Are Besieging Iraq's Financial Future.
Economy / Translated Reports 25-12-2025, | 1220 Baghdad Today – Translation
An analytical report issued by the Washington Report Institute for Middle East Studies paints a picture of the next Iraqi government within a complex equation.
Its three fundamental elements are: deeply entrenched corruption that has become the norm; a public sector bloated with approximately 700,000 new jobs created in just a few years; and an economy dependent on an oil price that must approach $90 per barrel to keep the budget afloat and avoid a deficit that grows year after year.
These factors, the report argues, severely limit the chances of any new government breaking the cycle, as long as it emerges from the same parties that created and continue to thrive on this reality.
The institute believes that corruption in Iraq is no longer an isolated incident or individual deviation, but rather a deeply entrenched "pattern" that governs the workings of the government bureaucracy from top to bottom.
A citizen with an official request or transaction often finds themselves forced to go through a political party or entity that represents them along sectarian or ethnic lines, accompanied by letters, favors, "gifts," and bribes paid to influential figures, all in order for their paperwork to move through the state's corridors.
The report indicates that the dominant parties treat ministries and agencies as "private property," not public service institutions, using them either to embezzle funds directly or to distribute jobs and contracts to networks of supporters and affiliates.
According to Professor Alyssa Walter, author of "The Contested City: Consecrating Citizenship and Survival in Modern Baghdad," on which the report is based, the election results and the composition of the next government "will not bring about real change in the corruption situation," because the forces sharing power today are the same ones that established the rules of the game after 2003 and have a vested interest in maintaining them as they are, with only minor cosmetic adjustments when necessary.
She adds that the quota system makes any minister or senior official "constrained" by a broader party network that defines the boundaries of what can and cannot be touched within their ministry.
The report also refers back to the experience of the October 2019 demonstrations as the clearest moment when the street raised the slogan of combating corruption and directly linked it to poor services and the lack of justice in the distribution of opportunities.
However, the outcomes of those protests, from the institute’s point of view, showed that the political system was able to absorb the shock without making a deep review of its method of managing the state, only to return later and produce new governments according to almost the same mechanisms, with a change in faces but not in the rules of the game.
In contrast, the report notes that Iraqi society has become accustomed to this pattern of performance. Many Baghdadis, it states, associate the presence of officials and limited public services with election seasons, when localized repairs or partial renovations are carried out in streets and public squares, only for the activity to disappear after the voting concludes.
The report cites the example of outgoing Prime Minister Mohammed Shia al-Sudani, who enjoyed considerable public support for a "modest reform package" in Baghdad, consisting of localized infrastructure improvements.
The report argues that this support reflects a decline in citizens' expectations of their government to a level where even partial reform is considered an exceptional achievement.
At the level of the financial structure, the report focuses on the extensive public sector hiring spree of recent years, which is estimated to have added nearly 700,000 new employees to the government apparatus during al-Sudani's tenure. This increase raised the total number of public sector employees to nearly 4 million, in addition to the hundreds of thousands working in state-owned enterprises funded by the budget.
The institute argues that this expansion, which was used as a tool to absorb public anger and alleviate unemployment, has now become a heavy financial burden on any future government, because reversing it by reducing the number of employees would mean a direct confrontation with a broad social base that depends entirely on state salaries.
The economic analysis accompanying the report indicates that the "state of public sector employment" policy has made salaries and wages one of the most inflated areas of government spending, approaching, according to some estimates, 40 percent of total government expenditure.
Meanwhile, budgets for investment, services, and infrastructure remain limited compared to the accumulated needs in the capital and the provinces. The report concludes that, with this structure, the state has adopted a "pay salaries first, then think about everything else later" approach, which translates into recurring financial crises whenever oil prices fluctuate.
In the background, the oil sector stands as a crucial factor. The report indicates that the "break-even price" needed by the Iraqi budget to cover its obligations without resorting to borrowing is currently approaching $90 per barrel, due to the inflated wage bill, subsidies, and increasing current expenditures, coupled with limited non-oil revenues.
Given the global trend of price volatility and the potential for further declines, the report warns that any prolonged period of low prices will push the budget directly toward a deeper deficit, in the absence of fundamental reforms to reduce dependence on oil as the almost sole source of state funding.
Despite this bleak picture, the Washington Report quotes researchers from academic initiatives focused on the Middle East as saying that Iraq still retains a significant advantage in the region: the continued peaceful transfer of power, based in part on election results, unlike many other Arab states that remain trapped in closed systems of governance.
However, these researchers also warn that this advantage could gradually lose its value if elections continue to reproduce the same system without changes to the rules governing political financing, oversight of public funds, and the mechanisms for selecting governments.
The report concludes that the incoming government will face a triple burden: entrenched corruption that provides parties with enormous resources and makes it difficult to dismantle patronage networks; a bloated public sector that consumes the lion's share of the budget and hinders any restructuring efforts; and near-total dependence on oil prices in an unpredictable global market.
Between these three pillars, the new government's ability to act will depend on the willingness of political forces to accept unpopular decisions, such as controlling appointments and curbing waste, in exchange for forging a different path toward building a service-oriented state with functioning institutions, not just a state focused on salaries.
The question that the report leaves open is whether the forces that have benefited for years from this financial-political model are actually capable of dismantling it, or whether future governments will simply manage the crisis and postpone the explosion, waiting for a new oil cycle, or new protests, that will raise the same questions from scratch.
Source: Baghdad Today + Washington Report https://baghdadtoday.news/289807-.html
Above Ministries And Governorates
The economic offices of political parties have infiltrated Iraq, creating a shadow state that manages contracts and bankrupts contractors.
Economy / Special Files 23-12-2025, | 1199 Baghdad Today – Baghdad An appeal received by "Baghdad Today" from a group of veteran contractors in Basra paints a stark picture of the reality of the contracting market in Iraq: Companies that are properly registered, pay taxes and insurance, and have a proven track record, are now without projects. Even small contracts are being snatched from them and awarded to new companies affiliated with political parties or supported by their "economic offices."
This firsthand account from Basra aligns with what research and media reports have observed: that the parties' "economic offices" have become the mandatory gateway to obtaining government contracts and investments in most governorates, particularly in the southern cities rich in oil and service projects.
Economic offices or a parallel shadow state?
Recent press reports and research indicate that "economic offices" are no longer merely organizational structures within political parties, but have transformed into networks of financial influence that manage a significant portion of state resources by controlling contracts, projects, and investments, particularly in the southern provinces.
Sources within the Federal Integrity Commission previously reported the widespread influence of economic offices affiliated with political parties and armed factions over all economic resources in the southern provinces, and that hundreds of complaints have been filed regarding what contractors and businesspeople describe as "extortion" and "organized acquisition" of contracts.
In this context, some politicians and former parliamentarians go even further, describing these offices as “outlets for stealing public money” and “offices for looting and plundering the people’s money,” and accusing them of destroying Iraqi projects by pushing for fictitious contracts or work that is carried out formally on paper and has no real existence on the ground.
How is the deal structured? Fixed percentages and front companies.
Information circulating in economic and political circles points to a fairly consistent pattern in the work of many of these offices: the party controls a ministry, governorate, or agency, and through it, an unofficial "committee" or "economic office" is formed.
This office reviews contracts, tenders, and investments, imposing its conditions on competing companies. Previous testimonies from officials have spoken of percentages ranging from 5% to 10% of the value of any contract being deducted for the benefit of the office or the political entity behind it, in exchange for facilitating the awarding of the contract or not obstructing it.
In practice, this mechanism translates into the emergence of new "front" companies, registered under the names of individuals whose public affiliation with the party is not apparent, but who are, in reality, part of its economic system.
These companies obtain large or medium-sized contracts, then sometimes subcontract parts of the work to other contractors, while retaining a substantial profit margin that goes to the party office, not based on the skill of the contractors or the quality of the infrastructure.
Basra as a case study: Yesterday's contractors are jobless today
The appeal received by Baghdad Today from a group of veteran contractors in Basra perfectly reflects this distorted equation. The contractors explain that they own companies registered for many years, paying taxes, social security contributions, pension funds, and health insurance for their employees, yet today they have no projects. Some have already been forced to sell their companies, and others are "on the way out," as they say.
The problem, they explain, is not the size of their projects—mostly small or medium-sized enterprises—but rather that these same projects are being taken from them and awarded to other companies "recommended" by economic offices or influential figures.
Contractors are appealing directly to the Governor of Basra, requesting that a portion of local projects be allocated to their companies, which they describe as "established, committed," and experienced in execution, instead of being left to wither away in an environment of unfair competition.
Some say that, despite accepting small projects or limited rehabilitation work, they are surprised to find that "political influence" extends even to this level, imposing specific names or new companies with no history in the contracting market.
This appeal coincides with previous statements by the head of the Basra Contractors Union, who spoke about large financial dues owed by the central government to companies and contractors, estimated at more than one trillion dinars in Basra alone, and about 30 trillion dinars at the level of Iraq, which adds another layer of pressure on contractors who are not getting new projects, nor their old dues at the same time.
Projects built only to collapse... a cycle of profit built on the ruins of service.
One of the most serious warnings issued by experts on administrative corruption in Iraq is that many companies linked to political parties or economic offices are not built on the principles of quality and sustainability, but rather on the principle of "profit-driven cycles.
" Work is often carried out with substandard specifications, using inferior materials, or with inflated costs on paper, making the project prone to rapid deterioration and creating, after a few years, a justification for a new project under the guise of "rehabilitation," "comprehensive maintenance," or "reconstruction."
Reports from economic offices indicate that the adoption of fictitious or incompletely implemented projects was one of the reasons for "the destruction of all Iraqi projects," according to some former MPs, because the project is originally created in the context of a deal, not in the context of service planning, and then recycled time and again for the benefit of the same corruption networks.
In such an environment, reputable companies – those that try to adhere to technical specifications – are in a vulnerable position. If they try to do the work properly, their profits will weaken and they will be unable to pay royalties or keep up with the "economic office's conditions." If they succumb to the logic of manipulating specifications, they will lose their professional reputation and become part of the very game they complain about.
A besieged private sector... and an economy run outside the rules of the market
Recent economic research on the business environment in Iraq describes the situation as small and medium-sized enterprises “being forced to operate within an economic system dominated by powerful and wealthy parties,” and that they do not get equal opportunities in contracts and investment unless they enter into arrangements with controlling political entities.
This infiltration creates a layer of "parallel economy," where economic offices become funding centers for political parties and their election campaigns, as numerous reports indicate, while traditional contractors become the weakest link: no effective legal protection, no real competitive environment, and no transparency in how contracts are awarded. In a city like Basra, which is considered the richest province in Iraq in terms of oil resources and strategic projects, the paradox becomes even more stark: a huge economy operates in the province, yet a large segment of its long-established contractors complain about the lack of projects and the market becoming a "monopoly" for companies linked to influential figures.
To where?
The intertwined data – from the encroachment of economic offices, their acquisition of contracts, the emergence of inexperienced front companies, the accumulation of contractors’ dues, and the appeals of old contractors in Basra – indicate that the problem is no longer just individual complaints, but a structural imbalance in the state’s relationship with the contracting and investment market.
Without restoring the principle of fair competition, imposing genuine transparency on government contracts, and restricting the influence of the economic offices of political parties within ministries and governorates, the real private sector will remain besieged, and public money will continue to finance a parallel party economy, while projects collapse or are rebuilt every few years with the same short-term profit logic.
The appeal of Basra contractors, as they demand that the governor reopen the door to work for them, is not merely a local request; it is a warning that the “office economy” has begun to devour what remains of the “contractors’ economy” in Iraq, and that addressing this issue is no longer an administrative luxury, but rather a condition for any serious talk of real development in a country whose resources have been consumed in the same cycles: a project is granted, implemented poorly, collapses, and then rebuilt under new names, while the citizen remains the first and last loser. Report by: Baghdad Today's Economic Affairs Editor https://baghdadtoday.news/289593-.html
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